[T]he Scott administration has pitched lawmakers its plan to reform Vermont’s estate tax, which it calls too burdensome for wealthy residents and has encouraged some to move or take up legal residence elsewhere.
Members of the House Ways and Means Committee signaled they are open to raising the exemption — the amount before the estate tax is levied — but many said they would only want to do so if they were able to replace the revenue lost since fewer people are expected to pay.
In his budget address last month, Gov. Phil Scott announced he would be proposing to raise the estate tax exemption to keep more wealthy Vermonters in-state.
The tax currently applies to individuals who die with estates worth more than $2.75 million, but the governor wants to raise the exemption to $5.75 million over four years to make Vermont more competitive with other states, like Maine and New York.
The administration projects that raising the exemption to $5.75 million would mean an annual loss of $10 million in revenue.
The governor, however, argues that the policy shift would keep more wealthy residents in Vermont paying other taxes and counterbalance the revenue loss.
Vermont Tax Commissioner Kaj Samsom spoke to the House Ways and Means Committee about the governor’s proposal and brought in estate planners, who said that Vermont’s high tax burden, and its estate tax in particular, often encourage their wealthy clients to move.
Joseph Biladeau, a CPA based in Essex Junction, said many of his wealthier clients have relocated to places like Florida, to avoid Vermont’s high tax burden and the estate tax in particular.
“I have found in recent years that there has been an incentive…for certain taxpayers who would be subject to a Vermont estate tax to to say ‘Why not change residency to Florida?'” he said.
Mark Langan, a Burlington-based estate planning attorney, agreed. He said that the estate tax is often the deciding factor in his wealthy client’s decision to move, or legally domicile themselves out of state.
“The estate tax seems to be the straw that breaks the camel’s back,” Langan said.
Samsom pointed to data showing that in recent years, some taxpayers making more than $200,000 have domiciled themselves elsewhere.
The data show that between 2007 and 2017, 422 high income taxpayers who used to be legal residents of Vermont changed their residency to another state. Two hundred domiciled themselves in Florida and New Hampshire, which do not have a state estate tax.
Rep. Janet Ancel, D-Calais, chair of House Ways and Means Committee, said that she and most of the other members of the committee were willing to consider raising the estate tax exemption.
Ancel said the estate tax was the most likely tax to lead to out-migration. But she noted that the evidence of out-migration driven by the tax is “all anecdotal,” and that stories alone wouldn’t be the reason she reforms the levy.
“Even if that is true, it’s such a small group of taxpayers and not knowing how other behaviors would be affected, I wouldn’t make the change because of that,” Ancel said.
Ancel also said she wouldn’t change the tax without finding a way to make up for its lost revenue.
She casually brought up the idea of replacing the estate tax with an inheritance tax, which she said could be a way to tax the transfer of wealth between family members without impacting Vermont’s tax competitiveness.
Inheritance taxes apply to individual heirs and often have lower rates than the estate tax.
Vermont’s estate tax rate is 16 percent.
Some Democrats are skeptical of raising the estate tax exemption and giving what they see as tax breaks to the wealthy.
Rep. Cynthia Browning, D-Arlington, a member of the House Ways and Means committee echoed this concern on Thursday.
“I understand the story and the competitiveness, I get that,” she said.
“But if you want to live in a civilized society, one of the responsibilities is to pay taxes and it’s really hard for me to justify chasing people who can afford to pay the taxes and just don’t want to.”