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Vermont Lawmakers Propose Wealth Taxes Targeting The Rich

Vermont, a state known for its progressive stance on various issues, is taking steps to address income inequality by introducing wealth taxes aimed at its wealthiest residents.

Bills Introduced

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Lawmakers in Vermont have unveiled two bills—one targeting individuals with high incomes and the other focusing on capital gains above a certain threshold.

This move aligns with a broader national discussion about taxing the rich to fund social programs and reduce wealth disparities.

Vermont’s Progressive Approach

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Vermont’s lawmakers are introducing two wealth tax bills to address income inequality and ensure the wealthy pay their fair share.

National Trend in Wealth Tax Proposals

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Vermont is not alone in proposing wealth taxes, as eight states explored similar measures in the previous year.

Additionally, there is a growing push at the national level for a federal wealth tax, with support from figures like President Joe Biden and Sen. Elizabeth Warren.

Growing Income Inequality in Vermont

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Despite having a smaller population compared to states like Massachusetts and California, Vermont is experiencing increasing income inequality.

Lawmakers aim to address this issue through wealth taxation.

Unmet Needs and Revenue Generation

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Vermont Representative Emilie Kornheiser, a sponsor of the bills,  told CBS MoneyWatch that “Vermont has significant unmet needs and must raise more revenue to adequately address those needs.”

Addressing Income Inequality

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Emilie continued, “At the same time, we know that economic inequality is increasing: The wealthiest Vermont residents are getting wealthier, while wages for the majority of Vermont residents are not keeping up with rising costs of living.”

Tax Disparities in the U.S.

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Across the U.S., the wealthiest individuals generally pay a lower share of their income in taxes compared to lower-income earners.

This discrepancy is highlighted in a study by the Institute on Taxation and Economic Policy (ITEP).

Effective Tax Rates

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ITEP’s analysis reveals that the top 1% of earners pay an average effective state and local tax rate of 7.2%, while the lowest-earning 20% face a rate exceeding 11%. In Vermont, the top 1% pays a combined effective tax rate of 10.1%, while those with incomes between $83,300 and $135,900 have a tax rate of approximately 10.5%.

Impact on Public Services

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Lower tax rates for the wealthiest can hinder a state’s ability to fund essential public services such as education, infrastructure, and healthcare.

Governor’s Concerns

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Vermont’s Governor Phil Scott, a moderate Republican, has expressed reluctance to approve tax-raising measures.

He is concerned that wealth taxes could lead affluent residents to relocate to states with lower taxes.

Factors Influencing Relocation

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It remains uncertain whether taxation alone motivates wealthy individuals to move.

Relocations to low-tax states like Florida and Texas could be driven by various factors, including employment opportunities and climate.

Rich Americans and Migration

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Research indicates that wealthy Americans are less likely to relocate solely due to tax considerations.

Frequent moves are typically associated with individuals seeking better wages, affordable housing, or warmer climates.

Data on Millionaire Migration

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A comprehensive study analyzing tax records of U.S. millionaires found that only 2.4% of them migrated to other states over a decade, compared to 2.9% of the general population.

Wealth Tax on Capital Gains

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One of Vermont’s wealth tax proposals focuses on capital gains.

While most retirement accounts would be exempt, investment accounts exceeding $10 million with unrealized gains of $1 million or more would face an 8.75% tax rate.

Realized gains above $10 million would also be subject to the new wealth tax.

Supreme Court Case and Taxation

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A case currently before the Supreme Court examines whether unrealized capital gains are subject to taxation. Experts believe the outcome of this case is unlikely to impact state taxing authority.

Vermont’s pursuit of wealth taxes reflects the broader national dialogue surrounding income inequality and the role of taxation in addressing this issue.

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