An act relating to creating a new income tax bracket
H.77 would revise Vermont’s individual income tax structure by adding a new top marginal bracket for higher-income taxpayers and by changing the existing bracket thresholds and rates throughout the income tax tables. The bill sets a 12.75% top marginal rate for income above new high-income thresholds, and it also includes a floor for taxpayers with federal adjusted gross income above $150,000: their Vermont tax would be the greater of the regular bracket calculation or 3% of federal adjusted gross income. The bill updates the bracket amounts for inflation and makes the changes retroactive to January 1, 2025, applying them to taxable years beginning on or after that date.
The bill also changes how a portion of income tax revenue is distributed. Instead of all income tax revenue going to the General Fund, it directs amounts tied to the highest marginal tax rate into three dedicated funds: 2% to the Education Fund, 1% to the Transportation Fund, and 1% to the Vermont Higher Education Endowment Trust Fund. Conforming amendments update the General Fund, Education Fund, and Transportation Fund statutes to reflect these earmarks. In practical terms, the bill would increase revenue from upper-income taxpayers and dedicate part of that revenue to education, transportation infrastructure, and higher education support.
The stated purpose of the bill is to generate revenue for education and transportation, and the bill text reflects that funding goal through both the higher top rate and the earmarked revenue transfers. Because the bill was introduced without recorded committee transcripts or votes in the provided materials, there is no documented floor debate or formal vote history here to indicate broader legislative sentiment. Based on the bill’s structure, its supporters appear to be prioritizing new progressive revenue sources for public services.
The main point of contention likely concerns tax burden and distributional fairness. The bill would raise taxes on high-income individuals, estates, and trusts, and the 3% of federal AGI floor could affect some taxpayers differently than the standard bracket calculation. Opponents would likely focus on the size of the top rate, the retroactive effective date, and the diversion of income tax receipts away from the General Fund. Supporters would likely emphasize targeted funding for education, transportation, and higher education, and the use of a more progressive tax structure.
H.77 would amend 32 V.S.A. § 5822 to create a new highest marginal income tax bracket and to alter the tax tables for married filers, heads of household, single filers, married filing separately, and estates and trusts. It would also add a rule requiring certain higher-income taxpayers to pay at least 3% of federal adjusted gross income if that amount exceeds the regular Vermont tax calculation. Conforming changes to 32 V.S.A. § 435, 16 V.S.A. § 4025, and 19 V.S.A. § 11 would redirect a portion of income tax revenue to the General Fund, Education Fund, Transportation Fund, and the Vermont Higher Education Endowment Trust Fund, thereby changing the allocation of state tax receipts and the funding streams for those programs.
The bill’s stated purpose and structure suggest a generally pro-revenue, pro-public-services orientation, especially for education and transportation. However, because no committee transcript or vote record is provided, there is no direct evidence of formal support or opposition in the materials. The likely overall sentiment is that the bill is intended as a progressive tax increase on high earners to fund state priorities, with support from those favoring dedicated revenue and concern from those wary of higher taxes and earmarking.
The likely points of contention are the new 12.75% top marginal rate, the 3% federal adjusted gross income minimum tax provision for taxpayers above $150,000, and the retroactive application to January 1, 2025. Critics would likely argue that the bill increases tax liability for high-income residents and could complicate tax administration, while supporters would argue that the changes are narrowly targeted and necessary to raise revenue for education, transportation, and higher education. Another possible dispute is the diversion of income tax revenue from the General Fund into dedicated funds, which may be viewed as either responsible earmarking or a constraint on general budget flexibility.