- Vermont introduces bills targeting wealth inequality and proposing new taxes on the wealthy.
- The bills propose a tax on individuals with high incomes and a tax on capital gains above $10 million.
- Concerns about wealthy residents relocating to lower-tax states exist, but research suggests tax considerations are not the primary driver of relocations among the wealthy.
Additional Coverage:
- Vermont’s plan to fix inequality: Taxing the rich (cbsnews.com)
Vermont, known for being progressive, has introduced two bills aimed at implementing new taxes that target its wealthiest residents. The goal is to address income inequality and ensure that the rich are paying their fair share. The first bill proposes a 3% tax on individuals with adjusted gross income over $500,000, while the second bill suggests adding a tax on capital gains on assets exceeding $10 million. This move follows similar wealth tax proposals in other states and national discussions on creating a federal wealth tax. However, despite public support for raising taxes on the wealthy, these proposals have struggled to gain legislative traction.
Vermont may not have the same level of wealth disparities as larger states like Massachusetts or California, but income inequality is growing. The state’s population is around 650,000 people. Lawmakers argue that Vermont has unmet needs that require increased revenue, and the current tax system concentrates wealth at the top, making it difficult to generate enough funds and placing a burden on middle-class families. Data from the Institute on Taxation and Economic Policy (ITEP) shows that the rich generally pay a lower share of their income in taxes compared to low earners, further exacerbating income disparities.
Vermont Governor Phil Scott, a moderate Republican, has expressed concerns about wealth taxes driving wealthy residents to move to states with lower tax rates. However, research suggests that tax considerations alone do not motivate most wealthy Americans to relocate. Wealthy individuals are less likely to move because they have already achieved economic success. Relocations tend to be driven by factors like better job opportunities, cheaper housing, or a desire for a warmer climate. Studies have shown that tax advantages are not significant drivers of millionaire relocations across state lines.
A potential challenge for the proposed wealth taxes is the inclusion of capital gains. While most retirement accounts would be exempt, investment accounts above $10 million with an unrealized gain of $1 million or more would incur an 8.75% tax. Realized gains above $10 million would also be subject to the new wealth tax. The Supreme Court is currently considering whether unrealized gains can be taxed, but it is unlikely that the outcome of the case will impact state taxing authority.
Overall, Vermont’s proposed wealth taxes aim to address income inequality and raise revenue to meet the state’s needs. While concerns about wealthy individuals moving to lower-tax states exist, evidence suggests that tax considerations are not the primary driver of relocations among the wealthy. The inclusion of capital gains in the proposed wealth taxes presents a potential hurdle, but the outcome of the Supreme Court case is not expected to have a significant impact on state taxing authority.
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- Vermont’s plan to fix inequality: Taxing the rich (cbsnews.com)