Public Assets Institute > Press > Press Releases > Repealing Vermont’s Capital Gains Tax Break Would Ease Budget Woes and Improve Tax Fairness

Repealing Vermont’s Capital Gains Tax Break Would Ease Budget Woes and Improve Tax Fairness

March 20, 2009


Paul Cillo
Public Assets Institute
802.472.6222 direct
802.223.6677 office

Jeff McLynch
Institute on Taxation and Economic Policy
202.299.1066 x29

A new report released today by the Institute on Taxation and Economic Policy (ITEP) finds that Vermont could save upwards of $35 million per year if it were to repeal the tax break the state currently offers for income from capital gains.  According to the report, A Capital Idea, Vermont is one of just nine states to grant preferential tax treatment to capital gains income.  Together, those states will lose more than $660 million in 2008 from such policies.

“Vermont’s capital gains exclusion deprives the state of millions of dollars in needed funds, benefits almost exclusively the very wealthiest members of our communities, and fails to promote economic growth,” said Paul Cillo, Executive Director of the Public Assets Institute.

Jeff McLynch, ITEP’s Northeast Regional Director and one of the authors of the report, added, “Right now, legislators from Rhode Island to Hawaii are searching for solutions to mounting budget deficits, solutions that will allow them to fund vital public services without placing additional responsibilities on those families struggling to make ends meet.  Repealing costly, inequitable, and ineffective tax breaks like Vermont’s capital gains exclusion are the first place they should look.”

In practice, very few working class Vermonters have capital gains income that is subject to taxation.  As the report notes, taxpayers with adjusted gross incomes (AGI) of less than $50,000 comprised 69 percent of all federal returns filed by Vermonters in 2006, but constituted just 14 percent of returns with income from capital gains.  In fact, taxpayers in this income group received just 5 percent of total capital gains income reported by Vermonters on their federal tax returns that year.

Gov. Jim Douglas has called for repeal of the capital gains exclusion.

“[A] working man or woman in Vermont making $50,000 a year pays nearly 50 percent more tax than someone who does not work and simply lives off investment or trust fund capital gains income in the same amount,” Douglas said in his 2008 State of State Address.

“Our state is one of only a few that has such an unfair penalty for doing an honest day’s work. This is grossly unfair. We must close this loophole and eliminate this working tax penalty.”

In early 2008, the governor proposed using the additional tax revenue from repeal of the capital gains exclusion to reduce tax rates on people in the higher tax brackets. Since then, however, Vermont has suffered a sharp drop in General Fund revenue, and the governor has recommended using property taxes to cover general state spending. Ending the “working tax penalty” would be a fairer way to close the General Fund budget gap.

A Capital Idea finds that the impact of repealing Vermont’s capital gains tax break would fall almost exclusively on the most affluent state residents.  More specifically, 75 percent of the additional tax revenue generated by repeal would be paid by the richest 1 percent of taxpayers in Vermont — families and individuals with incomes over $369,700 in 2008.  Said McLynch, “Vermont lawmakers face a clear choice:  keep in place a tax break that largely benefits the wealthy few or repeal that tax break and fund the investments in education and infrastructure that will speed economic recovery.”


Public Assets Institute is a nonprofit, nonpartisan organization that promotes sound budget and tax policies to benefit all Vermonters. Additional information is available at

Based in Washington, DC, the Institute on Taxation and Economic Policy is a non-profit, non-partisan research organization that seeks to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy.  Copies of A Capital Idea, including detailed estimates of the impact repealing capital gains tax breaks would have in each of the nine states highlighted in the report, are available at

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