by Don Keelan
Sooner or later it was bound to occur in Vermont. House Ways and Means Committee chair, Emile Kornheiser, a Democrat, from Windham, has introduced H-827. It is a tax bill that if passed and survives a Governor Scott veto would be the first of its kind in the nation. It is meant to tax the unrealized gains on assets that are 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, which is already taxed at a rate close to 9%. This bill proposes to assess a tax on the gains a resident has on her/his 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 NY attorney, (now a resident of Vermont) and connected to many liberal causes noted in his 30 page review of H-827,
“COMPLEXITY—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 the 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 obtain to justify whether one is subject to the tax on the unrealized gain of each asset owned.
Today the cut-off is any estate over $10million in value. It is common knowledge, that once such a tax can get into the Vermont statutes the threshold will be reduced. In the short-term future, the cut-off will be any resident’s wealth over $500,000. Why would that be, 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 socialist senator did not have sufficient control over the Vermont Legislature to get his life-long passion adopted. The make-up of the members in the Legislature has since changed and their mantra is 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 Vermont’s cultural, educational, medical and other nonprofit institution. 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’s army.
Another lesser-known fact is that the top one 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.
The author is a U.S. Marine (retired), CPA, and columnist living in Arlington, VT.