One of the big issues facing lawmakers in the final weeks of the session is how to craft legislation that would cut taxes. Gov. Phil Scott outlined his proposal back in January. The House passed its plan last month. And just last week, the Senate adopted their own approach.
A key element of the whole debate is if Vermont should tax Social Security benefits, and if so, to what degree.
VPR’s Mitch Werlieb spoke with senior political correspondent Bob Kinzel to discuss tax legislation. Their conversation has been edited and condensed for clarity.
Mitch Wertlieb: So, you know, I’ve heard you say, Bob, that you think the way that Vermont taxes Social Security benefits might be one of the most misunderstood tax policies out there. So why do you feel that way?
Bob Kinzel: Mitch, basically, because the current system is so confusing. Some people pay taxes, some people don’t. So when someone says, “Vermont is one of about a dozen states that taxes a person’s social security income”— that is both a true statement, and a somewhat inaccurate statement.
Now, here’s why: First of all, since the federal government exempts the first 15% of a person’s Social Security benefits from taxation, that exemption is passed along at the state level. So, that applies if your income is $50,000 a year, or if you have an income of a million dollars a year. It applies to every Social Security recipient.
So far, so good?
So far, so good, yeah, I’m with you.
OK, so let’s look at the remaining 85% of the benefits. The Vermont tax system uses a person’s adjusted gross income to determine if the person will pay taxes on Social Security or not. If a person has an income of $45,000 or less, they pay no state taxes on their Social Security. And for a couple the income threshold is $60,000. There’s also a provision where you’re taxed on part of your benefits if your income is above $10,000, above these caps. So your income makes a big difference if your Social Security benefits in Vermont are going to be taxed.
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And my general idea about this, Bob, and you tell me if I’m right or wrong here, is that the effort here is to try to get people who make a lot more money to be taxed on their Social Security than those who make less.
That’s absolutely it. Vermont has a progressive income tax system. And that same progressivity is used for Social Security.
Well, Bob, how …….