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Ways & Means hears testimony on tax bill pairing higher top rates with an investment‑proceeds tax to fund health proposals
Summary
The Ways & Means Committee reviewed two competing tax constructs: one that raises top personal-income brackets and uses revenue for health‑care provisions, and an alternative that offsets bracket cuts with a new investment‑proceeds tax. Accountants warned of drafting "cliffs," timing and relocation risks; no vote was taken.
The Ways & Means Committee on Tuesday resumed debate on a committee tax bill that would raise revenue by shifting personal income‑tax incidence toward high earners and, in one version, create a state investment‑proceeds tax to offset cuts for most taxpayers.
Pat, of the Joint Fiscal Office, told the committee staff prepared two scenarios: a version that includes three health‑care provisions and a narrower version that replaces those spending items with an investment‑proceeds tax intended to be broadly revenue neutral. "The first proposal . . . includes those three health care provisions," Pat said, and added that the first two health initiatives were estimated at about $75,000,000 while an employer credit in the draft was constructed to cost roughly $42,000,000.
Why it matters: lawmakers said the proposals would concentrate revenue on a much smaller base of high‑income filers and could make state revenue more sensitive to market cycles, a concern for financing programs that rise in downturns such as health spending. "In an economic downturn ... the health care costs will go up," the committee chair said, noting revenues could fall at the same time.
Proposal details and tradeoffs Pat described the mechanics: the draft would shift where the top bracket begins and raise the top marginal rate in some versions, while lowering the lowest bracket so many taxpayers in the bottom three brackets would see small decreases in their average tax. To replace the lost revenue from that bottom‑rate cut, one version adds an investment‑proceeds tax (the draft set a rate at 3.45 percent), which Pat said would apply to a relatively narrow set of filers (on the order of 12,000 taxpayers).
Pat said the constructs were designed to be roughly revenue neutral for the fiscal window modeled and that the combination of bracket changes and an investment‑proceeds tax could yield a small net positive in the year examined. He cautioned that concentrating revenue on fewer taxpayers can increase forecasting volatility because capital gains and other investment income are more cyclical and more easily timed or shifted across jurisdictions.
Accountants and trust advisers urge caution Matt Clear, a public accountant with Davis and Hodgkin and a past chair of the Vermont Society of CPAs, reviewed draft language and flagged a drafting concern he said could create an abrupt "cliff" for some taxpayers. He ran examples showing that under subsection language he reviewed, a filer’s tax liability could jump substantially from one dollar of additional AGI at a threshold point. "It does create a cliff where ... family could earn $1 more dollar of income and end up with a situation where they owe quite a bit more in taxes," Clear said.
"That didn't feel like it fit" with the rest of the proposal, Clear added, and urged the committee to reexamine the threshold and treatment of capital‑gains exclusions to avoid unintended burdens on taxpayers who briefly cross an AGI cutoff.
Chris Cassidy, of Trust Company of Vermont, told the committee the proposals would affect clients’ retirement and relocation decisions. Cassidy said financial modeling often shows that high‑net‑worth clients contemplating remaining in Vermont must factor state taxes into where they retire or whether they move to no‑income‑tax states. "Because such a small number of people have such a large impact on Vermont tax revenues, a lot of due diligence is warranted," he said, citing 2022 data the committee discussed.
Administration, eligibility and employer credit Pat and members discussed an employer credit included in the health‑funding version of the bill. The draft envisioned a credit equal to roughly 12 percent of the employer portion of insurance premiums for qualifying employers (Pat said the draft limited eligibility roughly to firms with 100 or fewer employees). Committee members pressed how the credit would be claimed — quarterly withholding adjustments versus year‑end return — and where responsibility for administration would sit. Pat deferred detailed administrative mechanics to Department of Taxes staff, saying the department would need to weigh in on timing and claims processes.
Implementation timing and next steps Members also questioned timing: at least one member said the bill would not take effect until Jan. 1, 2028, and the committee debated whether a later effective date (and a multi‑year phase) would be more appropriate to give employers and taxpayers time to plan. The chair said the committee would aim to finish work and vote in the near term to meet scheduling timelines but acknowledged the practical and political tradeoffs of implementation dates.
No vote was taken. The committee closed the testimony portion and said staff would continue to revise draft language and circulate updates to members so they can return with further policy questions.
(Reporting note: quotes and attributions are drawn from committee testimony and the fiscal presentation.)
