This year some Vermonters are paying what amounts to a new, stealth income tax.
That’s the word from Steve Cairns, owner of Advisor Tax Services in Stowe. He says some of his clients are finding out that a significant tax increase is lurking in this year’s tax filing.
Recent changes to U.S. tax law have prompted a $32 million increase in Vermont taxes, he said.
“There is a subtle but dramatic change to the income tax law that is now resulting in a noticeable increase in Vermont taxable income for many taxpayers,” Cairns told True North. “The change is the removal of all federal deductions that remain for federal taxpayers.”
“Virtually everyone that I have talked to, including legislators, had no clue these changes were coming,” Cairns said.
Cairns discovered the stealth change when he examined several documents prepared by the Vermont Legislative Joint Fiscal Office — but few know about the increase.
“It was never revealed directly what the impact that this simple change would have on many taxpayers,” he said.
In Vermont, changes to state itemized deductions have been going on for some time. In 2009, Vermont limited the state income tax deduction to $5,000 on the income tax return. In 2015, the Legislature limited the deduction again.
“In 2015, Vermont removed the deduction entirely, then capped the remaining deductions to 2.5 times the federal standard deduction,” Cairns said. “Last year, they got rid of it all. It was a three-step process.
“I think that’s why you didn’t hear a peep from the Vermont legislature about the SALT [state and local tax] deduction at the federal level like we heard from New York, New Jersey, Illinois and California. They were panicking, all trying to come up with various Mickey Mouse ways of making charitable contributions instead of paying their property taxes.”
Cairns said taxpayers who itemize their tax deductions — those who don’t take the standard deduction — can deduct what they’ve paid in certain state and local taxes. These deductions include property, income and sales taxes.
But in February of 2018, Cairns got an email from Vermont Tax Commissioner Kaj Samsom that indicated an elimination of itemized deductions.
“The proposal to get rid of the deduction seems to have come from the administration,” Cairns said. ” … The Vermont law effectively begins the Vermont tax calculation with federal taxable income, a number that increases significantly for most taxpayers in 2018 as a result of the federal changes.”
Some residents have already found out how much more they will be paying when they opened their new property tax bills. According to Cairns, new Vermont tax legislation (Act 11) was allowed to go into law unsigned by Gov. Phil Scott last year. The act contains numerous changes affecting income tax and property tax.
Cairns says several changes to 32 V.S.A § 5811(21) are good for most Vermonters. For example, it reduces tax rates at all levels, creates a deduction for some or all taxable social security, creates a 5 percent charitable contribution credit capped at $20,000 of donations, creates standard deductions and exemptions, and increases the Vermont Earned Income Tax Credit to 36 percent from 32 percent of the federal Earned Income Tax Credit.
However, the benefits end for those Vermonters with incomes of $100,000 plus.
“Vermont taxpayers are discovering that if they have greater than $100,000 of gross income they will be paying higher income taxes in 2018 than they paid in 2017 on the very same income,” Cairns said.
Increases as high as 18 percent from 2017 are occurring, he noted.
“Virtually everyone that I have talked to, including legislators, had no clue these changes were coming,” Cairns said. “The administration chose not to change the withholding tables, so many taxpayers will be under-withheld when it comes to filing their returns.”
The total projected income tax increase amounts to $1.8 million. However, there is an additional tax burden shift of $10.2 million to pay for the reduction of taxes in 32 V.S.A § 5811(21).
The shift of income taxes to Vermont’s middle- and upper-income taxpayers amounts to approximately $12 million, according to Joint Fiscal Office calculations.
RELATED: Steve Cairns explains Vermont’s 2018 stealth tax increase
Mary Lou and Gary Durett, of Eden, said the new tax changes took them by complete surprise.
The Duretts are in their 70s and still working. Gary works part-time at a nearby Sears store and Mary Lou works as an administrative assistant at a local Christian church.
“What’s so disturbing about all of this is, this year, we’re going to have pay the state so much more,” Mary Lou told True North. “We didn’t even change our withholding this year. We also didn’t get any sort of advance notification that this was even coming so we could prepare for it.”
The Duretts, both native Vermonters, have pensions from previous jobs, and they work hard earning their dual income. Now they blame lawmakers for making it even harder to make a living.
Last year, they received $63 back in a tax return from the state. This year, the couple said they have to send over $500 to the state.
“We’re ok with the feds,” Mary Lou said, “but this Vermont thing is a big change for us. We talked with our accountant and, hopefully, with some diligent work in advance, we won’t have so much to pay-in next year.
“As I understand it, the people in Montpelier made some pretty bad choices for the people of Vermont. That’s why we’re still working because we can’t survive without employment. It’s sad that when you get to be our age and want to retire you just can’t do it,” she said.
In addition to the state’s shifting of the income tax burden to higher income earners, the Vermont Legislature also increased property taxes for some homeowners, according to Cairns. They did it by reducing the available property tax credit for some.
“The maximum house site value that a Vermont homeowner with less than $90,000 of household income can receive a credit on has been reduced from $500,000 to $400,000. This is effective July 1, 2018, and can result in more than a $1,200 reduction in property tax credit on the same income for the coming year,” he said. “The maximum house site value that a homeowner with $90,000 or more of household income can receive a credit on has been reduced from $250,000 to $225,000, again resulting in decreased property tax credits of several hundred dollars for many.”
He added: “The Vermont Legislature failed to inform the electorate, either directly or through the news media, of what they were doing to increase taxes. My high school teachers referred to this type of behavior as deception.”
Lou Varricchio is a freelance reporter for True North Reports. Send him news tips at lvinvt@gmx.com.
As an increasing percentage of Vermont’s population earn their living using tax dollars from productive people and businesses, and redistributing it to lower income earners (while skimming their administrative salaries off the top), productive earners will have an ever greater tendency to migrate to greener pastures, further increasing the disproportionate percentage of tax revenue derived from the dwindling population of productive earners.
What I find curious about this phenomenon is not the denial that financial incentives work this way, but that productive earners are deemed to be infringing on the rights of the non-productive population when they consider migrating.
This is what happened in East Germany and Russia after WWII. It happened in Korea in the early 50’s. In Cuba in the 60’s, and is happening today in Venezuela, El Salvador and Nicaragua.
I wouldn’t be surprised to see the politicians who complain so about a wall at the southern U.S. border all of a sudden building their own virtual wall around Vermont, except this time, like East Germany then and Venezuela today, to keep us in. Wouldn’t that be ironic?
Property taxes already work this way. It’s property confiscation to feed the State’s out-of-control financial appetite. Next, we’ll see a transfer tax on assets leaving the State. Finally, we may have to bribe officials to let us leave without attaching our bank accounts.
You are absolutely correct. There is never enough money for these morons, and we keep sending them back to do more damage!!!! Our savings, however the size, will be consumed by the products of the theivery concept, which is off and running like a road-runner show!! They are totally oblivious to the exit paths and the occupation of same, out of this state. When will the legislature deal with this stealth issue? My guess is they will not!!!
They would be if they were ten million $ short, now wouldn’t they!!!
Out of control is not the word for it.
The STEALTH TAXES will also hit legislators with higher household incomes, say $150,000 and up, likely much to their surprise.
They may be talking to each other and hopefully take measures to reduce the financial pain for themselves and for others who voted for them, by making “ADJUSTMENTS”
It is best to make these adjustments BEFORE THE EXTRA MONEY GETS ALLOCATED TO VARIOUS SPECIAL INTEREST PROGRAMS.
I just had my 2018 taxes dome by H&R Block.
I asked the lady to also calculate my taxes for 2016 and 2017, using the SAME income, etc, as in 2018
It was a revelation.
My STATE income taxes were 22% higher than in 2016.
New Hampshire is becoming more and more attractive.
No wonder tax-paying people do not move to Vermont.
No wonder tax-paying people are moving out of Vermont
No wonder Vermont has a near-zero, real-growth economy.
Every time it grows a little, the legislature throws a wet basket on it by means of more taxes.
The stupidity of it all is beyond rational
Scott quietly agreeing to this is un-REPUBLICAN.
My FEDERAL income taxes stayed about the same.
“New Hampshire is becoming more and more attractive.”
William you may want to look into that some more, here is some food for thought:
https://www.bostonfed.org/publications/new-england-public-policy-center-research-report/2011/how-does-new-hampshire-do-it-an-analysis-of-spending-and-revenues-in-the-absence-of-a-broad-based-income-or-sales-tax.aspx
Here are the main findings:
https://www.bostonfed.org/-/media/Documents/neppc/neppcrr1101-nhbriefing.pdf?la=en
Per capita direct expenditures by state & local governments combined, FY 2007 are ~25% LESS then VT
VT had the HIGHEST per capita spending in NE
All this WITHOUT broad based income taxes or sales taxes.
I read the report.
Please don’t throw me in that briar patch. What’s not to like in NH?
1. New Hampshire’s ability to avoid a broad-based tax stems partly from the fact that governments there simply spend considerably less, on average, than their neighbors.
2. Lower spending in [Medicaid] … alone accounts for nearly one-third of the gap between New Hampshire’s overall spending and the regional average.
3. New Hampshire is a high-income state with a low poverty rate.
4. Although property taxes are an important piece of New Hampshire’s revenue picture, the state government obtains funds from a diverse set of sources.
5. The Business Enterprise Tax (BET) is based on a business’s is a flat tax with a lower rate than most state income taxes.
A major point to consider is that high wage earners in NH pay proportionately lower taxes as their incomes increase. Vermonter’s pay proportionately higher taxes as their incomes increase. Furthermore, the low-income demographic is not as highly subsidized in NH as in VT. Therefore, demographic migration of high-income earners to NH incentivized while low income earners are incentivized to migrate to VT and Medicaid policies and costs in each state exemplify this trend.
Jay,
Your findings are spot on. I can tell you when we looked to exit VT I almost moved to NH. The income tax savings alone was reason enough, the sales tax savings was just icing on the cake. We ended up moving much further away to a low cost of living SE state. Although my tax burden is slightly higher then it would of been in NH my housing costs more then made up for the difference. The same house here that costs $300k would be $550+k in VT/NH. With that would of come a $10k-12k /year property tax bill and climbing every year. The 300k house costs about $1800-2000 / year in property taxes in an excellent school district, with magnet schools and school choice. Long term it was a better investment for our family to relocate to the SE. Apparently lots of other young professionals are seeing that as well, as new schools are being built every 5-7 years. So it’s not just the blue hairs that are moving down here for the climate.
““The maximum house site value that a Vermont homeowner with less than $90,000 of household income can receive a credit on has been reduced from $500,000 to $400,000. This is effective July 1, 2018, and can result in more than a $1,200 reduction in property tax credit on the same income for the coming year,” he said. “The maximum house site value that a homeowner with $90,000 or more of household income can receive a credit on has been reduced from $250,000 to $225,000, again resulting in decreased property tax credits of several hundred dollars for many.”
The VT property tax rebate program in the largest in New England by FAR. Last I checked it was to the tune of $200,000,000 is subsidies for home owners. It’s one of the reason I told VT to pound sand,. It forms a disconnect at the voting booth for school budgets.
Form the provided link:
“However, very generous programs impose higher costs on state government. In addition, broadly available property tax relief can shield taxpayers from the cost of expanded services, contributing to overspending. In Vermont, middle-income households may be eligible for extraordinarily generous benefits.”
https://www.bostonfed.org/-/media/Documents/cb/PDF/Kenyon_Langley_property_tax_relief.pdf
What I learned that ticks me off is the property tax rebate program. Pay the whole tax, then if you file the proper paperwork letting the Tax Dept know you still there, they’ll send you a “rebate”. How stupid is that? People think it’s great they are getting money back from the state.
The taxes paid on actual Fair Market Value should be the norm, not over payments to the state wherein they make interest on those over payments. It’s like getting an IRS check for your over payment, the gov’s get “free money” and the taxpayer doesn’t get any interest. Just as bad as SS.
Only in Socialist / Fascist / Communist / Totalitarian / unitary / Anarchy / Oligarchy / Autocracy / TaxUmont type of Government in VT all rolled into one now exists.
And, they will be elected over and over. The legislature, most of them, are convinced they are the elite and know what’s best for you. Easy to hide the ” stealth income tax” with the media either asleep or in the pockets of the powers that be. Any hoorah over this will be forgotten soon, we will just pay and pay and pay………..
“The task of weaning various people and groups from the national nipple will not be easy. The sound of whines, bawls, screams and invective will fill the air as the agony of withdrawal pangs finds voice.”
–Linda Bowles, The Weaning Process, ” Washington Times, December 20, 1994, p. A16.
And the morons in Montpelier keep scratching their heads trying to figure out why the young are leaving never to return and the wealthy are bailing out. I always thought that they weren’t particularly bright. Not any longer, now I’m convinced their stupid. And Scott for keeping his mouth shut on this tax issue doesn’t get a pass. I’m embarrassed that I voted for him. I guess I should give myself a pass because he was the lesser of two evils.
Agenda 21 is alive, well and continuing in VT. As the saying about Liberals goes and is true “What’s yours is mine, and what’s mine is mine”
VT- :Struggle to live or Die”…………….if you stay here.
Perhaps other then family I can’t think of ONE reason that makes VT worth it. If anyone living in VT thinks to themselves:
“I love it here in VT”
HUGE mistake. Like it or not where you decide to live is an investment, an investment in your family’s future. Becoming emotional about an investment is a BAD financial choice.
Mr RJ, you have it right, with me it’s my formidable years of growing up, working farms, family projects, HS graduation, military service, the people in my universe, my parents in a cemetery, how great Vt was, our family property, the VT history, a feeling of belonging and basic values.
But it all is being destroyed, it’s taken some time to realize that hanging onto family property and being in VT is a lost cause. This summer I’m doing things to depart. I’ve been in AL winters since 2001, such a nice state. I’m looking for a nice affordable property and there are many, with very low taxes.
I have friends in VT that have had it and want to move out. Why have VT take all your SS just to be there? Freedom is only 1500 miles south. West of the Mississippi River is also another great world, been there as well.
The Flatlander Socialists with their Agenda 21 and outside money have ruined the state. That’s the realism. So when you get over the hump of personal family feelings and the attachment as I’m doing it’s time to split the sheets. I remember my mother saying, sell out should I feel it a necessity. She was very practical (a teacher) which is very unusual given the teacher status now.
The bottom line is at a certain age (healthy 80), you have to “get a life”. Screw VT. They have dug their grave and I’m not going to be buried with them. I’m going fishing in the Gulf.
I thought the IDIOT DEMOCRATS were screaming that the rich got all the tax breaks and middle incomes got stiffed. Oh ,my. Not the case at all. They lie. But then Democrats and Lies are synonymous.
Grrrrrrrr. Thank you Steve, for your persistence in bringing this to our attention. Evidently the “State” didn’t think it was important to let us know.