House Democrats in Vermont have introduced two new “wealth tax” bills – one of which would impose an unprecedented tax on income people don’t even have.
H. 828, would impose a marginal tax “surcharge” of three percent of annual federal adjusted gross income above $500,000. If passed, the tax would be retroactive, meaning that it would apply to income earned in the current year, 2024, as well as in all future years.
H. 827, on the other hand, would apply income tax to the “unrealized” gains of individuals with a net worth of $10,000,000 or greater.
It would make Vermont the first state in the nation to tax unrealized gains or net worth.
Unrealized gains are theoretical gains that would be achieved if a person sold a particular investment, like stock shares, at a particular point in time. In other words, an unrealized gain reflects the change in the value of an investment – before it is sold.
Thus, since the value of the investment may fluctuate in the future, a person could end up paying taxes on “income” from an investment that ends up losing money. If it becomes law, H. 827 would take effect on January 1, 2025 and apply to taxable years beginning on and after January 1, 2025.
Republican Governor Phil Scott could be powerless to stop either bill from becoming law, since Democrats hold veto-proof supermajorities in both Houses of the legislature. However, new taxes and fees are not a part of Gov. Scott’s proposed budget for fiscal year 2025 and some Democrats may be reluctant to impose unpopular new taxes of any kind.
Both bills are sponsored by Democrat Rep. Emilie Kornheiser, who says she wants to use her state as a “laboratory” to experiment with new ways of taxing people.
One way to increase taxes would be to create new definitions of income and wealth that push the envelope, Rep. Kornheiser told VT Digger:
“Rep. Emilie Kornheiser, D-Brattleboro, who chairs the House’s tax-writing Ways & Means Committee, told VTDigger that on her committee’s to-do list is to ‘get our heads fully around taxing wealth, and what that means, and what the definition of income is.’
“She harkened back to former-U.S. Supreme Court Justice Louis Brandeis’s sentiment that states are ‘laboratories of democracy’ and said it’s up to state governments to test new policy ideas when the federal government won’t act.”
It’s been up to the states to drive new policies on issues such as abortion, environmental law, family medical leave – and, now, taxes – Rep. Korheiser said.
Rep. Kornheiser may not get the chance to dictate what constitutes wealth or income, since the Supreme Court could end up doing that job for her, as The New York Times reports:
“The Supreme Court is now weighing a case that could redefine what constitutes income and potentially complicate efforts by lawmakers to impose levies on billionaires’ wealth.”
Wealth tax proposals have been proliferating in Democrat-run (“Blue”) states. Currently, lawmakers in ten states have either introduced, or are advocating, wealth tax bills.
Of those ten states, nine have Democrat governors and, while Vermont has a Republican governor, Democrats hold firm control of the state’s legislature:
- California (D)
- Connecticut (D)
- Hawaii (D)
- Maryland (D)
- Minnesota (D)
- Nevada (D)
- New York (D)
- Pennsylvania (D)
- Vermont (Republican Gov. Phil Scott)
- Washington (D)
Vermont Democrats aren’t just tax-targeting the wealthy, however.
State Senate Democrats’ deceptively-named “act relating to child care and early childhood education,” S. 56, would impose across-the-board tax increases, as Rob Roper, former president of Vermont free market think tank The Ethan Allen Institute, explained in a Vermont Daily commentary:
“Sections 24 -27 lay it out clear that should S.56 become law, income tax rates will increase by bracket from 3.65% to 3.8% (a 9 percent increase) on those earning $42,150 or less, from 6.6% to 7.3% (an 11 percent increase) on those earning between $42,151 and $102,200, from 7.6% to 8.3% (a nine percent increase) on those earning between $102,201 and $213,150, and from 8.75% to 9.6% (a 10 percent increase) on those earning more than that.
“According to the Joint Fiscal Office, this would mean an overall income tax increase on Vermonters of $125.4 million in 2025.”
Vermont already has the fourth-highest tax burden in the nation, according to “2023’s Tax Burden By State” a WalletHub analysis of Tax Foundation data.
Democrat-run states impose a greater tax burden on their taxpayers than do Republican-run (“Red”) states, the study finds. The 19.68 average tax burden ranking of Blue states is significantly higher than the 31.32 average tax burden ranking for Red states.