After an influx of support in both chambers, the House passed a bipartisan tax credit package on Wednesday featuring a long-debated expansion of the state’s military pension tax exemption.
The proposal, S.51, includes several ideas pitched by Republican Gov. Phil Scott and celebrated by Democratic legislative leaders as progressive tax policy. All but two representatives present backed the bill on the floor Tuesday. The suite of tax credits are expected to reduce state tax revenue by more than $13 million annually.
Rep. Bill Canfield, R-Fair Haven, serves as vice chair of the House Ways and Means Committee, which drafted the bill. He told his colleagues he’d submitted similar legislation for two decades without success.
“I appreciate your leadership, cooperation and compromise,” he told Rep. Emilie Kornheiser, D-Brattleboro, the committee’s chair.
Vermont is among a minority of states that doesn’t fully exempt military pensions from taxation. Scott — and some lawmakers — have long argued exempting the pensions would help Vermont attract and retain military retirees, who often begin second careers in middle age after decades of service. Skeptics have argued that an exemption would provide the wealthy an unfair tax advantage.
But this year, a bipartisan majority of lawmakers in both the House and Senate signed on to legislation exempting military pensions from state income taxes, pressuring legislative leadership to act.
Earlier this session, the House Ways and Means Committee passed a tax credit bill that did not include the military pension exemption supported by the bulk of the Legislature. But when that legislation, H.483, arrived on the House floor in March, it was quickly redirected back to committee.
After a new tax credit package materialized, the bill drew broad support. S.51, as passed by the House, exempts military pensions and survivor’s benefits for people with adjusted gross income under $125,000, and creates a partial exemption for those making less than $175,000.
The bill also creates a $250 refundable tax credit for low-income veterans — not just those with military pensions — making less than $25,000, with a partial credit available for those making less than $30,000.
While the veteran-related credits have drawn the most political attention, they make up less than a third of the cost of the overall package.
The largest change proposed is expanding Vermont’s child tax credit to include six-year-olds — a $4.5 million loss of revenue, according to the Joint Legislative Fiscal Office
Vermont’s earned income tax credit — linked to the federal initiative of the same name — would also expand under the bill for workers without children. The credit benefits lower-income individuals and households.
The bill would also raise the income thresholds at which Social Security is fully or partially tax exempt by $5,000. Vermont is one of just nine states that tax Social Security, according to the Joint Legislative Fiscal Office.
Following Tuesday’s preliminary vote, House Speaker Jill Krowinski, D-Burlington, celebrated S.51’s advancement.
“We’re delivering on our promise to strengthen working families, support Older Vermonters on Social Security, and recognize the dedication and sacrifices made by our veterans,” she said in a written statement.
In an email, Amanda Wheeler, a spokesperson for Scott, said the governor was “glad to see S.51 includes important tax credits he proposed to the Legislature in January as well as the substantial progress the bill makes on tax exemptions for military retirees.”
The House completely amended S.51, which was an unpaid caregiver tax credit when it passed the Senate, so the bill will require further approval by the other chamber. Sen. Ann Cummings, D-Washington, who leads the Senate’s tax writing committee, has said she would support the House’s proposal if it also includes a benefit for unpaid caregivers.
