Administration unveils Vt. income tax reforms
The plan would return an estimated $30 million in tax revenue to Vermont residents that would otherwise fill the state coffers in fiscal year 2019.
The Scott administration's proposal is in keeping with the governor's commitment to hold the line on tax increases.
Susanne Young, secretary of the Agency of Administration, said the plan will "insulate Vermonters as much as possible from the inadvertent tax hikes created by the federal tax reform."
The federal Tax Cuts and Jobs Act doubled the standard deduction but eliminated personal exemptions. Since the state's tax code is closely tied to federal standards, Vermont taxpayers now cannot claim personal exemptions on their state taxes. That means about half of Vermont taxpayers will pay significantly more in taxes.
Young says the Vermonters most impacted by changes to the federal tax code are "primarily middle income families with children."
Married couples filing jointly and residents with incomes of between $50,000 and $300,000 will see the biggest tax increases if no changes are made to the state tax system.
"If there were going to be a $30 million tax increase in Vermont, you'd want that to be a policy discussion, you wouldn't want that to happen accidentally," said Kaj Samsom, commissioner of the Vermont Department of Taxes.
Vermont is one of six states with a tax system based on federal taxable income. Twenty-seven states base their income tax systems off adjusted gross income, which Samsom claims leads to less variability from federal changes.
Samsom says the tax reform plan will make adjusted gross income the "starting point for the Vermont (tax) calculation." The plan will re-introduce personal exemptions at $4,000 for each member of a household. Samsom says the plan will also create a "Vermont-defined income deduction" of $9,000 for heads of household, $6,000 for single filers and $12,000 for joint filers, which are similar to rates prior to the federal tax changes.
The plan also lowers marginal rates by 0.2 percent to 0.3 percent for all tax brackets.
"We will do the maximum job of holding all taxpayers harmless," said Samsom.
To counteract the shift away from itemized deductions at the federal level, the plan will also introduce a 5 percent tax credit for charitable contributions for all taxpayers.
Samsom says the Department of Taxes will continue refining their proposal with the Joint Fiscal Office over the next few weeks.
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