What to know about Vermont’s wealth tax

(MONTPELIER, Vt.) — In a yellow-walled conference room at the Vermont statehouse this week, one attendee ate ice cream and another bounced a toddler on her lap — but all were focused on a bill that would tax personal wealth for the first time in U.S. history.

At the committee meeting, legislators took up a measure that would tax the capital gains of people with more than $10 million in net worth, even if the gains have not been cashed out.

In other words, if a wealthy person’s stock or real estate holdings go up in value over a given year, the individual would have to pay taxes on those gains, even if he or she doesn’t sell the underlying asset.

The bill, one of an array of similar measures introduced by state-level Democrats nationwide, takes up a cause championed on Capitol Hill by progressives like Democratic Massachusetts Sen. Elizabeth Warren and Independent Vermont Sen. Bernie Sanders.

Here’s what to know about the proposed wealth tax in Vermont and other efforts nationwide:

How would the Vermont wealth tax work?

The wealth tax would impose a levy upon the capital gains of a subset of the Vermont population who boast a net worth of more than $10 million.

For reference, some 1,000 tax returns in Vermont associated with about 2,800 people — including partners and dependents — reached income of $1 million or more in 2022, according to Federal Reserve data presented this week by Kirby Keeton, a nonpartisan legislative counsel for the Vermont assembly.

Those top earners made up 0.32% of tax returns but 20% of all income paid in Vermont that year, Keeton said.

Under the proposed bill, a smaller set of people who hold more than $10 million in net worth would pay a tax on the increased value of assets like stocks, bonds and real estate.

In addition, legislators have proposed a second bill that would impose a 3% tax on income earned beyond a threshold of $500,000.

Fair Share for Vermont, an advocacy group in support of the measure, says it could generate nearly $100 million in annual revenue or roughly 5% of the state budget.

Are other states considering wealth taxes?

The nonprofit Tax Justice Initiative is pushing for wealth taxes in California, Washington and Pennsylvania, according to the group’s website.

An additional sought-after measure would initiate a wealth tax study in Nevada, the group says.

Connecticut, Hawaii, Minnesota, Maryland and New York are among a wider set of states in which the group is carrying campaigns seeking taxes on wealthy corporations or individuals.

The state-level push has elicited a backlash from some lawmakers, however.

In Texas, voters passed a constitutional amendment in November that bans the potential adoption of wealth or net worth taxes.

Earlier this month, in California, Democratic Gov. Gavin Newsome dismissed the notion of using a wealth tax to address a budget deficit that has ballooned to nearly $40 billion.

Still, the wealth tax appears to have gained some traction among Democrats at the federal level.

Last year, President Joe Biden proposed a 2024 tax plan that included a 25% tax on the wealth of individuals with a net worth exceeding $100 million. The plan, Biden said, would apply to 0.01% of Americans.