Can Taxing the Rich Save Vermont? Wealth Tax Divides Green Mountain State
By April Fowell
- Vermont legislators, joining a national movement led by Democrats, are proposing taxes on the state's wealthiest individuals, targeting capital gains for those with net worths over $10 million and imposing a 3% marginal tax on incomes exceeding $500,000.
- The bills, sponsored by State Representative Emilie Kornheiser, aim to generate $98 million, about 5% of Vermont's annual budget, focusing on progressive taxation to address income disparity.
- This initiative aligns with a broader national campaign, with Vermont and Pennsylvania joining efforts to push for wealth taxes, despite challenges and opposition from both Republicans and Democrats.
Legislators in Vermont are joining a growing national effort led by Democrats, who think the measures will gain support as states deal with post-pandemic budget squeezes, by presenting legislation this week that would levy extra taxes on the richest people of the state.
A plan in Vermont would impose capital gains taxes on individuals with net worths over $10 million, regardless of whether or not the profits have been realized. Another would impose a 3 percent marginal tax on individual incomes over $500,000. Proponents of the bill claim that this would bring in $98 million, or about 5% of the state's yearly budget, for the state.
State Representative Emilie Kornheiser of Brattleboro, the head of the Ways and Means Committee, is sponsoring both proposals, highlighting their significance to the Democratic leaders in charge of the state.
The set of proposals is a component of a larger national campaign by progressive organizations who believe the time is right for political change to address income disparity by upending the current tax structure.
Renewed Push for State Wealth Taxes Gains Momentum
A year ago, lawmakers from seven states, including California, New York, and Washington, organized the introduction of bills that mirrored the federal wealth tax that Senator Elizabeth Warren of Massachusetts had suggested during her 2020 presidential campaign. This initiative, known as the Tax Justice Initiative, got underway.
Those were all ideas that failed to pass the committee. However, this year's organizers are stepping up their efforts to move the legislation to floor votes and ultimately passage in light of the addition of Vermont, Pennsylvania, and perhaps more states. They anticipate that a political groundswell would result from discontent over the rising expense of living and the numerous benefits enjoyed by the rich.
Many Republicans and Democrats have long opposed the new proposals' proposal to tax an individual's assets in addition to their income, as some of them do. In an election year, it could be even less desirable to do so.
Debates Over Wealth Tax Intensify
Recently, California Governor Gavin Newsom rejected the notion of using a wealth tax to close the state's $37.9 billion budget shortfall. Republicans argue that California's wealthy earners are already burdened by the state's progressive income tax system, and Newsom, who considers himself a fiscal moderate and is rumored to be a presidential candidate, has opposed raising more state taxes.
In November, a constitutional amendment was decisively approved by Texas voters, outlawing the state's ability to tax wealth or net worth in the future.
Despite holding a supermajority in the state legislature, Democrats in Vermont still have a challenging sales task ahead of them. A moderate Republican who supported President Biden in 2020, the governor, Phil Scott, gave his budget speech on Tuesday. While the state's budget is expected to grow tighter, Mr. Scott has shown little interest in raising taxes on the rich.
However, the belief that the wealthy are not paying their fair share of taxes remains the source of great dissatisfaction for many Americans when it comes to taxes: 82 percent of respondents to a Pew Research study conducted in April 2023 said it affected them, with 60 percent saying it bothered them "a lot."
Some ultrawealthy people agree: at the World Economic Forum in Davos, Switzerland, over 250 billionaires and millionaires, including the heirs to the Rockefeller and Disney fortunes, recently signed an open letter urging world leaders to tax them more.
The vast majority of state and local tax systems are regressive when combined with income tax, sales, excise, and property taxes. According to recent research from the Institute on Taxation and Economic Policy, a nonpartisan research organization that links fairness with a progressive tax system, the lowest 20% of taxpayers pay effective tax rates that are almost 60% higher than those paid by the wealthiest 1% of households.
Attorneys in ten states have either submitted or are in the process of proposing wealth-tax proposals so far in 2024, according to Amber Wallin, senior policy and outreach director at the State Revenue Alliance. These states are: New York, Pennsylvania, Vermont, Connecticut, Hawaii, Maryland, Minnesota, Nevada, California, and Washington.