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Tax department official outlines who would be affected by proposed income and investment‑proceeds taxes
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Summary
Jake Feldman of the Department of Taxes told the Ways & Means committee that the federal extension of earlier tax cuts does not create a new personal income tax cut for high‑income Vermonters and described a proposed investment‑proceeds surtax that would largely tax long‑term capital gains; members raised questions about filer counts, revenue volatility and distributional effects.
Jake Feldman of the Department of Taxes told the Ways & Means committee that many provisions in the recent federal package target lower‑ and middle‑income filers and that, in Vermont’s context, “there’s no personal income tax cut for high income Vermonters in this bill.”
Why it matters: Feldman said the proposal could raise Vermont’s top marginal rate in certain comparisons (the presentation cited a new highest top marginal rate of 13.3% in the draft proposal) and that an investment‑proceeds surtax would lean heavily on long‑term capital gains, a revenue source its own presenter called inherently volatile.
Details and debate: Feldman framed the investment‑proceeds tax as a surtax on various passive and investment income (capital gains, dividends, rents, royalties, trusts and interest) and reminded the committee Vermont already taxes many of these income streams under current law. He explained Vermont’s existing 40% exclusion for certain long‑term capital gains (assets held longer than three years, with exceptions) and flagged the tension of taxing gains preferentially in one place while adding a surtax in another: "turn the page in your income tax booklet. You owe an extra 4% on that," he said, adding a wry “sad face” to underscore the oddity.
Committee members pressed on distribution and data: a member asked how many filers would be affected in the highest brackets; Feldman said the top bracket corresponds to the top 1% and gave a figure of "about 2,300 filers," though later committee discussion referenced "3,300 in the top 1%"—a discrepancy the committee flagged for verification. A fellow committee member challenged Feldman’s characterization of who benefits nationally from the federal package, saying that "71% of those dollars are going to the top 20% of earners nationally." Feldman acknowledged the difference between what is changing in the federal bill versus prior years and recommended the committee hear from revenue‑modeling experts the next day.
Comparative example and implementation risk: Feldman cited Minnesota’s experience with a similar surtax and said Minnesota collected roughly half the revenue it expected in the first year; he and members attributed that shortfall in part to compliance and early implementation issues.
What’s next: The committee expects further testimony (ITEP, Cornell and other analysts were mentioned) and will continue its review of income‑tax proposals and the investment‑proceeds surtax at a subsequent meeting.
