Finance committee weighs second‑home levy, meals surcharge and wealth‑proceeds tax to fund school construction

Members of the Bennett Finance Committee on Jan. 27 discussed a package of tax proposals intended to raise money for school construction and to address imminent pressure on the Education Fund.

Sponsor Kirby introduced two school‑construction measures and other presenters walked members through companion revenue bills. Kirby said Vermont’s school‑building portfolio is aging and costly: he cited 2024 operation and maintenance expenses of $200,453,779 and outstanding school district debt of about $480,000,000, and said the state will need a sustained funding source for capital projects.

What the bills would do: the proposals on the table include (1) a new property‑tax classification that would raise the rate on non‑homestead seasonal and second homes (a "second‑home tax"), (2) a 2% surcharge on the meals‑and‑rooms tax (applied across taxable meals, rooms and alcoholic beverage sales) to be deposited into a school construction special fund, (3) an individual income surcharge (examples discussed included 2% on AGI above $250,000 and 6% above $500,000 for individuals) and (4) a state version of a wealth‑proceeds tax that targets certain investment income by piggybacking on the federal net investment income tax base.

Numbers and fiscal context: sponsors cited an estimate from the Tax Department that a 2% meals‑and‑rooms surcharge could generate about $58,540,000 in 2027 if applied across the base. Legislative counsel explained that the second‑home proposal follows Act 73’s classification framework and illustrated a notional rate (e.g., $2 multiplied by spending adjustment) but said the yield depends on base values and classification work by the Tax Department. Counsel and members repeatedly asked the Joint Fiscal Office and Tax Department for detailed, actuarial estimates of revenue, distributional effects and behavioral responses.

Policy debate and concerns: members raised the potential for behavioral responses (wealthy taxpayers or nonresident owners changing residency or activity), impacts on tourism and hospitality businesses (wedding planners and restaurants were identified as likely to testify), and administrative complexity (for example, SSI is non‑taxable so data availability for household income issues is a concern). Several members emphasized that the committee must balance generating revenue for capital needs against possible negative effects on housing supply, business competitiveness, or migration of high‑income taxpayers.

Next steps: the committee asked staff to convene the Tax Department, Joint Fiscal Office and relevant witnesses (carriers, hospitality industry representatives, and researchers) to present empirical analyses. Members asked for actuarial or academic studies that estimate who benefits from recent federal tax changes and what the likely Vermont revenue consequences would be; no votes were taken at this session.