[more good questions for the candidates — promoted by NanuqFC]

The Governor (and the Chamber & friends) are advocating for the reinstatement of the 40% capital gains exclusion. Can you tell us your view of this proposal? My thoughts are shown below.

Fiscal impacts – 1:  The exclusion cost the state $51 million in foregone revenue in 2006.   How will the state make up for the loss of $50 million+ in the out years?

Fiscal Impacts – 2:  Eliminating the exclusion was part of a deal that lowered the marginal rates.  To reinstate the exclusion without raising the marginal rates allows the wealthy to have it both ways. Do you think this is fair?

Jobs:  Most of the underlying assets are invested outside Vermont and have no impact on jobs in the state.   Note: Private sector jobs grew 25% in the decade before we had the exclusion.  And even if you think states taxes matter, only four states have this type of exclusion so Vermont is at no disadvantage.

Equity:  In 2006, 51% of the benefit went to the 340 filers reporting more than $1 million in taxable income (one-tenth of one percent of all filers).  How can we justify giving so much money to so few while the state is struggling to meet its obligations (and is laying off state workers)?

Small Business:  Some argue that capital gains taxes are unfair because the filers are being taxed on the inflation adjusted value of the asset.  Here is what the CBO said about this:

“Because of inflation, the difference between the sale price of an asset and its basis overstates the income that the asset holder earns; taxes are thus imposed on phantom income created by inflation… At the same time, gains are treated favorably by not being taxed when earned but when realized, which is often many years later. Because money today is worth more than the same amount of money in the future, deferring payment of capital gains taxes is a powerful advantage and can overwhelm the disadvantageous effects of inflation, especially for assets that are held a long time. Finally, realizations of long-term capital gains…are taxed at rates lower than those imposed on regular income. The result is that even after inflation is taken into account, capital gains are generally taxed at effectively lower rates than are most other forms of income.”  (Emphasis added)

Migration:  Assertions about people leaving are speculative and unsubstantiated.  In addition, if the exclusion is so important, where is the evidence that wealthy people moved to Vermont after the exclusion was adopted?