Ways & Means reviews proposal to lower top income tax rate and competing spending amendments

The Vermont House Ways & Means Committee on April 23 reviewed proposed changes to state income-tax brackets, including a proposal to reduce the previously discussed top marginal rate from 13.3% to 12.7%. Patrick Tutin of the Joint Fiscal Office told the committee the JFO’s current estimate is that the 12.7% top rate would generate roughly $100 million, with an effective date in tax year 2027 and revenues beginning in fiscal year 2028.

Why it mattered: committee members were evaluating two mutually exclusive amendments that would spend the same approximate pool of revenue. One amendment would recreate federal‑style health‑care premium tax credits to return revenue directly to Vermonters; the other would cut rates for middle‑income filers. The committee framed the choice as a tradeoff between broad-based, low rates and targeted relief.

Tutin summarized how the proposal would change marginal rates and who would be affected. One construct discussed raises the threshold for Vermont’s top bracket instead of adding a new bracket, and lowers the bottom marginal rate from 3.35% to 2.7%. Tutin said that dynamic produces tax decreases for filers in the lower three brackets and tax increases for returns that fall into the new top bracket. He gave bracket‑level estimates: taxpayers with AGI in the lowest range (0–$85,000) would see about a $27.3 million aggregate decrease (about $135 per return on average); the next bracket would see an estimated $45 million aggregate decrease (about $450 per return); another bracket would see about $24 million in aggregate decreases (about $740 per return). By contrast, roughly 4,600 returns in the new top bracket are estimated to face an average increase of about $20,000 per return. Tutin said the JFO model nets to roughly a $200,000 decrease in state revenue in the scenario presented.

Committee members questioned cash‑flow timing and whether changes would appear in withholding in 2027. Tutin said some withholding adjustments and estimated payments could shift earlier, but much high‑end income is nonwage (capital gains, dividends, rental income), so the bulk of revenue would not likely show up solely through payroll withholding. He said the JFO models behavioral responses and draws on academic literature and state experiences (for example, California’s bracket additions) when estimating revenue impacts.

Members also discussed national context. Tutin showed a comparison of top marginal rates across states and said that even at 12.7% Vermont would remain high relative to most states, though top‑rate comparisons alone do not capture differences in bracket thresholds, deductions, credits, and effective tax burdens.

What’s next: the committee continued through a packed agenda (including scheduled testimony later in the morning) and flagged further work on the trust bill and economic development items. No formal vote on the bracket amendments occurred during this portion of the meeting.