Douglas proposes changes to capital gains plan

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(Host ) Governor Jim Douglas is proposing some important changes to the tax plan he unveiled in his State of the State address last week.

Douglas wants to eliminate a state exemption for the capital gains tax in order to finance an income tax cut.

The governor says he now wants to exempt the sale of small businesses and farms from the higher capital gains tax rate.

VPR’s Bob Kinzel reports:

(Kinzel) Vermont is one of the few states in the country that offers a tax break to individuals who have accumulated capital gains through the sale of stock or business assets. Vermont exempts 40% of all capital gains from the state income tax.

In 2004, Governor Jim Douglas first proposed eliminating this exemption – he said it was a matter of tax fairness and that unearned income should be taxed at the same rate as earned income.

The plan ran into a wall of opposition from farmers and small family businesses who argued that eliminating the exemption would result in a massive tax increase for them when they sold their assets. This fierce opposition undermined a lot of support for the plan at the Statehouse.

House Ways and Means committee chairman Michael Obuchowski has the same concerns this year:

(Obuchowski) "And in my mind I have questions of how that is going to affect small businesses how it’s going to affect people who earn their living by farming agriculture who earn their living by logging and I think we really need to understand how closing the exemption could impact those folks and others."

The governor says he understands these concerns and he’s now willing to exempt small businesses and farms from the proposed capital gains tax increase:

(Douglas) "I’m going to propose some exemptions so that those who’ve owned farms and forestland for a long time and whose retirement plans are really based on the equity that they have in those assets are not disadvantaged. I think it’s reasonable to maintain those exclusions."

(Kinzel) Chairman Obuchowski says he wants to thoroughly study the governor’s plan to make certain that it doesn’t encourage wealthier Vermonters to declare their official tax residency in another state – a move that could hurt Vermont’s revenue base:

(Obuchowski)" I think the rhetoric doesn’t help the situation – I think an analytical approach does."

The House Ways and Means committee plans to begin its review of the governor’s tax plan next week.

For VPR News I’m Bob Kinzel in Montpelier.


AP Photo/Toby Talbot

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