(Host) A new report details how the recession has affected the Vermont economy.
The study says there was a significant reduction in "capital gains" revenue in Vermont during 2008.
State officials believe a dramatic drop in the state’s second home market is a factor. And they don’t think the market is going to rebound anytime soon.
VPR’s Bob Kinzel reports.
(Kinzel) The report shows that Vermonters made from the sale of different assets, such as stocks, real estate and certain types of business income, declined almost 50% between 2007 and 2008.
Susan Messner is a senior policy analyst at the Vermont Tax Department. She says the new figures aren’t a surprise and basically reflect the general condition of the Vermont economy over the 18 months.
Messner says the reduction is largely the result of 3 factors; a big drop in the stock market, a loss of shareholder income from certain types of businesses and a huge decline in the second home market:
(Messner) "Certainly one of the ways that this differs from the stock market decline in the early part of this decade is that a lot of gains this time are concentrated in real estate – these are primarily second homes or it can even be commercial real estate."
(Kinzel) This lower level of capital gains revenue could continue for a number of years because State economist Jeffery Carr isn’t expecting a big rebound for a long time:
(Carr) "It’s going to require the fundamentals of the economy to really turn around for us to get beyond the memory I think of the economic and financial system’s near death experience before we start to see things return to normal."
(Kinzel) Lawmakers made a big change to the state’s capital gains law last session because Vermont was one of the few states in the country to offer a special exemption to these taxpayers.
Under the old law, 40% of all capital gains were exempted from state taxes – so, for example, if a person declared 100 thousand dollars in capital gains – 40 thousand dollars was considered tax free – and taxes were paid on the remaining 60 thousand dollars.
Beginning in January, individuals will receive a 5 thousand dollar exemption – this means they’ll pay taxes on remaining 95 thousand dollars. Lawmakers made the change to treat capital gains more like income.
Last year, just 200 taxpayers accounted for 50% of all capital gains in Vermont – or roughly half a billion dollars. Carr wonders if the new law will affect taxpayer behavior in the future:
(Carr) "We don’t know what kind of flexibility the individual taxpayer has to move income between state jurisdictions and of course we don’t know whether or not a change in the after tax returns of churning or selling an asset that results in a capital gains realization would be affected by that change."
(Kinzel) The new law doesn’t affect taxpayers over the age of 70 or capital gains derived from the sale of timber or farmland. In all of these cases, the old 40% exemption will still be available.
For VPR News, I’m Bob Kinzel in Montpelier.