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Examining the Impact of Vermont’s Tax Proposals
The Green Mountain State is at a fiscal crossroads as lawmakers deliberate on a series of tax proposals that could reshape Vermont’s economic landscape. The Tax Foundation has provided a detailed analysis of these potential changes, which include adopting the highest corporate income tax and the second-highest individual income tax in the United States. The proposals also suggest a new approach to taxing foreign earnings and a significant hike in property transfer taxes for high-value properties.
One bill under consideration proposes an 11.75 percent top marginal individual income tax rate, surpassing the current 8.75 percent. This would place Vermont just behind California, which has the nation’s highest rate at 13.3 percent. Additionally, the property transfer tax could see an increase to 3.65 percent for properties valued over $750,000. Another measure aims to raise the top marginal corporate tax rate to a staggering 10 percent, coupled with a more aggressive stance on international corporate income.
Increasing the Top Marginal Individual Income Tax Rate
Proponents argue that high earners are less likely to move due to tax increases, but this assumption is challenged by the rise of remote work and the mobility it affords. With high earners representing a significant portion of state revenue, even a small exodus could create a substantial fiscal gap.
Increasing the Top Marginal Corporate Income Tax Rate
An increase to a 10 percent corporate income tax rate would not only surpass neighboring states but also fail to account for inflation, potentially subjecting more businesses to this higher rate over time. This uncompetitive tax code could deter investment and stifle economic growth within Vermont.
Aggressive Treatment of International Income
The proposed decoupling from federal treatment of global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) would lead Vermont to be the only state taxing all GILTI, placing an undue burden on businesses operating internationally.
Increasing the Property Transfer Tax to 3.65 Percent for Some Properties
The proposed property transfer tax increase challenges the principle that taxes should correspond to services received. This could have unintended consequences, such as increased rents or disincentives for property investments that benefit lower-income residents.
In light of these proposals, Vermont’s standing in the 2024 State Business Tax Climate Index could decline further, potentially dropping its overall rank to 45th. Such measures may not only be unsound policy but could also undermine efforts to attract and retain a skilled workforce, ultimately leaving Vermont less competitive and its residents bearing the economic brunt.
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