This commentary is by Don Keelan of Arlington, a retired certified public accountant.
Sooner or later it was bound to occur in Vermont. House Ways and Means Committee chair, Rep. Emilie Kornheiser, a Democrat, from Windham, has introduced H.827. It is a tax bill that, if passed and survives a Gov. Scott veto would be the first of its kind in the nation. It is meant to tax the unrealized gains on assets held by individuals that exceed $10 million at the end of each calendar year.
H.827 will be entering new territory in the field of taxation that is aimed at wealthy Vermonters — they have the wealth and the state wants it. The tax is not based on income: any Vermont taxable income above $229,550, for single filers, is already taxed at a rate of 8.75%. This bill proposes to assess a tax on the gains a resident has on their assets that are still being held, meaning not sold.
The complexity of the tax proposal is such that at least seven other states have taken it up and since tabled it. The Vermont Ways and Means Committee engaged the services of Stephen Land, a recognized expert in the field of taxing unrealized gains. The attorney, now a resident of Vermont, noted in his 30-page review of H.827:
“Federal-state disconnect. The taxation of unrealized gains at the state but not the federal level will require taxpayers to perform calculations, and obtain appraisals, that would not otherwise be required, and they will have to maintain separate federal and state basis amounts for each asset. Since the tax imposed at a modest rate, the recordkeeping and compliance burden will be great in relation to the tax actually due.”
To put simply, if a taxpayer owns art, real estate, investment in a business that is not a publicly traded company, empirical data (independent sources) will be needed to be obtained to justify whether that taxpayer is subject to the tax on the unrealized gain of each asset owned.
Today the cutoff is any estate over $10 million in value. It can be assumed that once such a tax can get into the Vermont statutes, the threshold will be reduced. In the short-term future, why not make the cutoff be resident’s wealth over $500,000? Why would that be? Because there are not enough wealthy Vermonters to go around.
But what is really happening is that the 2024 disciples of Senator Bernie Sanders are now advocating for what he has long preached — get the wealth of the “rich” and give it to others. The democratic socialist senator did not have sufficient control over the Vermont Legislature to get his lifelong passion adopted. The make-up of the members in the Legislature has since changed and their mantra is now that of the Senator, go after wealthy Vermonters for their income and accumulated wealth.
The first inclination of wealthy Vermonters, if H.827 ever became law, would be to pack up and leave. I know of several families who have done just that — changed their legal residence to South Carolina, Florida and Texas.
Rep. Kornheiser, according to the Wall Street Journal’s editorial on the Vermont tax proposal, even anticipated this response by quoting a sociology professor from Cornell University, whose study on the matter indicated no such issue (folks leaving) comes from such taxation. I will leave that to others to debate.
I hope the wealthy who might be subject to H.827 stay in Vermont and not move their legal residence. Furthermore, I would be hopeful that those wealthy taxpayers continue to fund the millions of dollars to donations to Vermont’s cultural, educational, medical and other nonprofit institutions. They have for generations been the life-blood of many Vermont organizations.
Vermont has over 6,000 registered nonprofit organizations and many are barely able to function without help from the generosity of Vermont’s wealthy. However, rarely, if ever, are the nonprofits in the forefront advocating for the wealthy when they come under attack for their wealth by the Sanders army.
Another lesser-known fact is that the top 1 percent of wealthy taxpayers in Vermont, it is reported, account for 20% of the state’s income tax receipts. We can’t afford to lose this group. Then there are their contributions to our state’s nonprofits. Rep. Kornheiser, find another target by going after the spending splurge that is taking place in Montpelier. H.827 would not be necessary if you would.
