Cairns: Vermont’s 2018 stealth tax increase

By Steve Cairns

In early 2018, Congress passed a sweeping change to U.S. tax law, which immediately created a problem for Vermont. As was widely reported then, if the Vermont Legislature did nothing in response, there would have been about a $32 million increase in state taxes due from residents in 2018. This is because 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.

Wikimedia Commons/John Ramspott

There will be many unwanted surprises for unsuspecting taxpayers next tax season. Some have already found out how much more they will be paying when they opened their new property tax bills.

In 2017, the Legislature changed the law for 2018 to begin the Vermont tax calculation with federal adjusted gross income (AGI) instead of taxable income (32 V.S.A § 5811(21)). Then they modified this section to allow the same itemized deductions and exemptions as on the federal tax return, which effectively got us back to the same Vermont taxable income as in prior years (H.516 Act 73).

The recently enacted Vermont tax legislation (H.16 Act 11), which was approved by the House and Senate during the 2018 Special Session and allowed to go into law unsigned by the governor, contains many changes to both income tax and property tax. Some of these changes to 32 V.S.A § 5811(21) will have a positive effect on many Vermonters:

  • Reduction of tax rates at all levels
  • Creation of a deduction for some or all taxable social security
  • Creation of a 5 percent charitable contribution credit capped at $20,000 of donations
  • Creation of standard deductions and exemptions
  • Increase of the Vermont Earned Income Tax Credit to 36 percent from 32 percent of the Federal EITC

However, there is a subtle but dramatic change to the income tax law that will result in a noticeable increase in Vermont income tax for many taxpayers. That change is the removal of all federal deductions that remain for federal taxpayers. This was clearly stated in multiple documents that came out of the Joint Fiscal Office, but it was never revealed directly what the impact that this simple change would have on many taxpayers. By thoroughly reviewing the available JFO documents (here, here and here), it becomes obvious that many Vermont taxpayers with greater than $100,000 of gross income will be paying higher income tax in 2018 than they paid in 2017 on the same income; as much as 11 percent or more. Virtually everyone that I have talked to (including legislators) have no clue these changes are coming. Furthermore, the administration elected to not change the withholding tables, so many more taxpayers will be under-withheld when it comes to filing their returns next year.

The total projected income tax increase amounts to $1.8 million. However, there is an additional tax burden shift up the income scale of $10.2 million to pay for the reduction of taxes outlined above. So in all, the shift of income taxes to Vermont’s middle and upper income taxpayers amounts to about $12 million.

With the exception of a single article that briefly discussed this increase and burden shift back in early March, there was no press about this. It seems that after the proposed income surtax to pay for education expenses was shot down by the Senate Finance Committee, the remaining income tax increase was ignored by the press and the legislators. I am obliged to inform you of these changes and recommend that all who may be affected should review their withholding or estimated payments with their tax advisor. I would further recommend that everyone ask their legislators why they increased income taxes on some Vermonters when there is a significant surplus this year.

But wait, there’s more. Not content with this shift of the income tax burden up the income scale, the Legislature also increased property taxes for some resident homeowners. They did this by reducing the available property tax credit to some:

  • The maximum housesite 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.
  • The maximum housesite value that a VT 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.

Again, I believe the press missed most of this and failed to inform taxpayers of the potential negative impacts of these changes. There will be many unwanted surprises for unsuspecting taxpayers next tax season. Some have already found out how much more they will be paying when they opened their new property tax bills.

Both Winston Churchill and Rahm Emmanuel have been credited as saying, “Never let a good crisis go to waste.” Look at the Legislature’s response to the 2018 federal tax cuts and you will see what they mean. The federal tax changes created a crisis for Vermont. The majority in the Legislature used this crisis to sneak in a tax increase on the “wealthy” while at the same time touting that they dropped the tax rates. They increased income taxes by almost $2 million according to the aforementioned JFO reports. In addition, they shifted the tax burden higher by adding low income benefits that are financed by an additional increase in tax of over $10 million on those over $100,000 of adjusted gross income.

The response to the federal changes is not revenue neutral, as many wanted including the administration. With all the hoopla over the federal changes, a potential income tax surcharge for education and the end of session tussle over the non-resident property tax rates, the Legislature failed to inform their electorate either directly or through the press of what they were doing to increase taxes. In my high school English class, this type of behavior was referred to as deception. The supporters of this increase should be ashamed.

Steve Cairns owns Advisor Tax Services and lives in Stowe.

Images courtesy of Flickr/401kcalculator.org and Wikimedia Commons/John Ramspott

15 thoughts on “Cairns: Vermont’s 2018 stealth tax increase

    • Really Good Read. I don’t facebook but if I did I’d have this out there. The only way to win the war is to constantly back-channel passive voters with the truth and HOPE it takes root!

  1. Our family income increased $2,000 from the prior year. Our Burlington City, property and education taxes increased $1,200.
    That’s a 60% increase. I’m on a fixed income. My wife will retire without a pension in a few years. For taxpayers, Vermont taxes are NOT sustainable. The Vermont legislatures (city and state) are taxing us out of our homes.

    What I find additionally objectionable is a system where people who pay no taxes can vote on whether mine go up and how much of my taxes will go to support them! No one who does not pay income tax should have a say over taxes. The answer is a flat tax, say 10%, that everyone pays. You make $1,000/year, you pay $100 in taxes and deserve your one man one vote.

  2. In 2017, I had my taxes prepared by H&R Block in West Lebanon, NH.
    Up till that year, I did them myself.

    The lady, who prepared my returns, noticed my income and my big Vermont State income tax.

    I said, gee, is that right? It is much bigger than last year.
    She said Vermont made income tax rule changes.

    I said can you see what I would have paid on the same income in 2016
    She said, sure.

    After a couple of keystrokes there was the amount. It was several thousand dollars less.
    I started cursing.

    Those f…g bastards screwing us again, every time they have a chance.

    She said, I get the same reaction from all Vermonters who come to me.

    • One of my brother lives in NH, loves it. Another brother of mine lives in MA. He’s a CFO of a pretty large well known audio company. He said he’ll retire in NH. States like NH get it, they don’t try to tax money velocity like VT. In the end, VT will slowly wither away, sad really.

    • Mr Post, don’t feel pregnant, however the feeling is universal. My case (a new low in VT property taxation). In Townshend they are valuing (my) property on POTENTIAL (future assets). I grieved my property valuation Listers first-no where, then the BCA Board (Board of Civil Authority). Gave both Fair Market Values for similar properties sold via RE agents for proof (required). Both discarded.

      The BCA inspectors (none knew anything about property values (Town Clerk, Selectboard member & a nosy town female who knows everything about nothing). They just walked my woods, not the building (deer camp in the woods) and said I had POTENTIAL 1) electricity (hasn’t been since 1953) that would cost $35K (per the electric co) to bring it to the property, 2) building not wired (no outside wiring, elec meter, or circuit box) 3) running water (from a potential well), 4) breath taking views (never has been) and neighbors would have to cut many trees. No one lives in the building, never has and couldn’t as per VT law. When I’m there I have a generator, get water from a neighbor, collect rain water, have my RV on site using batteries about 5 months, then gone. For a note, grievance to the State Appraiser in a previous grievance said there’s no electricity-but the BCA inspectors said there was. The SA rebuffing them said again there’s no elec. That’s whats people in VT are up against. I could have gone to Court next.

      The BCA, Listers are Flatlanders. Native VT’ers are taxed on “Veiws”. We never thought or considered a view as an asset. Worked too hard to look or care about it. But Flatlander city people who lived in the crowded buildings moved in and think a view is of value. They are taxing people off their lands. Also is a 2 acre area around a building “called Homestead” wherein they tax at a high bogus value. With no view $11K per acre. If a view $22K per acre. It inflates the town’s Grand List that’s presented to the VT tax Dept for the town’s value. Some towns don’t assess these bogus acreage values. Townshend does.

      I can provide documents. I feel violated, tired of fighting and will have to move out. Alabama is nice, great people area and money (tax) and weather livable.

      • Tom, I wish I could say I’m shocked but I’m not the property tax situation in VT is so rigged. I purchased 4.5 acres last year. Power at the road but nothing on it. Pretty level, it’s a good building lot. This years property tax bill was $7.76. Yes you read that correctly. Less the eight bucks. That same lot in VT would of cost me at least a grand in property taxes every year.

        Apparently they understand down here that just owning land doesn’t put any burden on town services and charge you proportionately.

        • Thanks Jay. I have the Handbook, Appeals book, Town Clerk regs, Listers Handbook. and more. Need them to fight them. The surprising thing is that these people don’t follow their regs. The Lister’s Handbook mentions Fair Market Value 51 places. They don’t know what FMV is. They are also suppose to maintain files on properties sold (that establishes FMV.

          At my last grievance the Listers produced a “Test Force” Itemized Property Costs. The VT Tax Dept must have told them top do it. It raised my property value of course. It wasn’t based on fact. The State Appraiser at that grievance wouldn’t consider it, just waved it off.

          There’s a Court case Ames V the Town of Danby 1978, the ruling was that a property owner could obtain data on properties sold anywhere in the state. Of course the Listers, BCA wouldn’t consider. Many Listers in various towns said the FMV only applies in their towns. They don’t know the legality. Listers are anti-neighbor friendly. The town votes them in, pays their salary but get their marching orders from the State. In MI there’s one Lister per county, the property value is based on FMV (established when sold). CA is the same. Don’t need 3-5 Listers in a town. VT won’t adopt that easy method, gets rid of too many Gov people. I could write a book.

        • Here are two articles that (VT) Watchdog did on me in 2014 concerning my property valuation and the result of my fighting it. But I’m still fighting the town and state. It shows what I did to obtain RE Data for Fair Market Value. One has a table I created of properties.

          1. VT property owner’s unoccupied deer camp sends property tax soaring
          https://www.watchdog.org/news/vt-property-owner-s-unoccupied-deer-camp-sends-property-tax/article_f2aac015-f160-5b98-89c8-af35bf6b8baf.html

          2. Vermont deer camp owner wins property tax victory
          https://www.watchdog.org/news/vermont-deer-camp-owner-wins-property-tax-victory/article_fddd24dd-f986-5762-bc04-80f20c435667.html

          I wish more would fight their property values and taxes.

    • Willem,

      So did the HRB preparer tell you what changed between the years to generate that increase ? She should have been able to.

  3. Level Tax Rates Won’t Prevent VT Property Tax Bill Increases:
    https://vtdigger.org/2018/12/03/tax-commissioner-forecasts-property-tax-rate-will-remain-flat/

    The contention by Vermont Tax Commissioner Kaj Samson that property taxes will increase because home values increase is blatantly dishonest. All else being equal – Property taxes increase for one reason and one reason only – increased government spending.

    If, for example, your house is worth $100,000, and your property tax bill is two percent of the value, you will pay $2000 in property tax because the government needs $2000 to operate ($100,000 x .02 = $2000).

    If the value of your home increases to $150,000, does your property tax automatically increase to $3000 ($150,000 x .02 = $3000)? Absolutely not! Ostensibly, the government still only needs $2000 to operate.

    So, when your property value increases to $150,000, and the government still only needs $2000 to operate, your property tax ‘rate’ should decrease from 2% to 1.33% in order to generate the same $2000 the government needs to operate.

    No wonder the public education monopoly doesn’t teach math in our public schools. Either it doesn’t want taxpayers to know how to calculate their taxes, or the Tax Commissioner is a product of the public school system and he can’t add, subtract, multiple and divide either. You decide.

    “None of the other animals on the farm could get further than the letter A. It was also found that the stupider animals, such as the sheep, hens, and ducks, were unable to learn the Seven Commandments by heart. After much thought Snowball declared that the Seven Commandments could in effect be reduced to a single maxim, namely: “Four legs good, two legs bad.” This, he said, contained the essential principle of Animalism. Whoever had thoroughly grasped it would be safe from human influences. The birds at first objected, since it seemed to them that they also had two legs, but Snowball proved to them that this was not so.” Chapter 3, Animal Farm, George Orwell

    As Benjamin Franklin opined: “Democracy is two wolves and a lamb voting on what to have for lunch.”

    The silence of the Vermont’s lambs is deafening.

    • Well said. There are no lambs left, just sheep, who never understood the language of those who hold them in captivity; and worse, they don’t care to know.

      • Lambs or sheep, hens or ducks, it makes no difference. The government public school monopoly is going the way of Venezuala. The free lunch is fast disappearing and the wolves, through Act 46, are beginning to feed on each other.

  4. “The supporters of this increase should be ashamed.” Really? That’s it? That’s a milk toast response to yet another razor cut. Its death by a thousand cuts in VT. Look at all those souls who have had to leave their homes over the years to satisfy the tax lust of Montpelier. It’ll never stop. Where the hell is the #yellowjacket response?The guardians of the people’s basic rights over the excesses of government, THE PRESS, are the government’s glove! Time to find some real Vermont Strong backbone and cut and paste every seat under that dripping red dome!

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