Wealth taxes are like a specter in search of a host, and an already overtaxed New England state may be the first to succumb. Vermont lawmakers want to tax residents’ unrealized gains, hoping to finally break the barrier that’s kept them from draining asset values year after year.
The state’s top tax legislator has spent recent weeks pushing bills that would dial up taxes on high earners. The biggest reach is a proposal to tax the paper gains from assets above $10 million. The plan would slap Vermont’s 8.75% top income-tax rate on half of those gains. That means a family whose business gains $3 million in value could owe $131,000, even if they don’t take out a single dollar of cash.
Like levies on capital gains, the new tax would cut into investment returns and leave well-off Vermonters less reason to deploy their money in wealth-producing investments. Unlike a capital-gains tax, the wealth tax would create a mess of confusing estate appraisals and endless disputes with the revenue department.
This is why no state currently taxes unrealized gains, but the author of the Vermont plan says the novelty is the point. “Given the state of our national politics, it really is up to states to be moving these things along,” said Ways and Means Committee Chair Emilie Kornheiser last year. Lawmakers in 10 states are working on wealth taxes this year, and she wants the progressive Green Mountain State to be first to enact one.
Vermont is a popular haven for escapees of the punitive taxes in New York and Boston, and GOP Gov. Phil Scott has made the modest suggestion that a wealth tax might drive these newcomers out. Alas, Ms. Kornheiser has an answer for that one. Before introducing the bill, she brought in a Cornell sociologist to debunk the “myth” of millionaire tax flight. Never mind the masses leaving the Northeast for Florida and Texas. Relying on sociology explains a lot about progressive tax policy.
Few state tax increases are launched without the aid of teachers unions, and the national wealth-tax push began with the American Federation of Teachers (AFT). Ms. Kornheiser wrote her bill with help from Fund Our Future, an advocacy group that traces its origin to a 2019 AFT campaign and has spawned tax proposals in California, Maryland, New York and more. The unions want to open new revenue streams for future contracts.
Ms. Kornheiser also introduced a fallback plan to tax higher earners if the wealth-tax bill doesn’t win enough support. Instead of targeting assets, the second bill adds a 3% surtax on incomes above $500,000, bringing the state’s top income-tax rate to 11.75%. This Plan B could raise nearly $100 million a year in revenue—at least until New York’s tax refugees decide to relocate elsewhere.
The Wall Street Journal
