 the landscape around revenue and revenue options. We are live. Excellent. So how, we just had that question. How is there a way to tell by looking at the screen when we're live and when we're not live? I know in our legislative committees there usually is, but. If the teleprompter is working, we are live. No, we've been told that that's not true. Okay. Because that's what I assumed and turned out to be true. Okay. As soon as it was turned off, the teleprompter stopped. No, I can do it either or. Okay. Good. But I will certainly remember because I tended to remember in my own committee room, we need to go off live before. Yes. So maybe we should have, we should just check and make sure we're offline. Okay. So, before we start yacking and taking breaks and stuff. Sorry about that. I just, okay. Thank you for having me today. It's just my first time being back in the state house and speaking to a group of people. So it's, there might be a little bit of rust at the beginning, but hopefully it shakes off. My name is Graham Campbell. I'm a senior fiscal analyst at the joint fiscal office. I am the person in our office primarily who looks at property, non-transportation tax revenues. So no diesel, no diesel taxes, gasoline taxes, no property taxes, but everything else kind of fits under my jurisdiction. So you have questions about those taxes. Transportation is Chris. Property is Mark Perrault. But everything else is me. So I guess I'm here to maybe bring a little bit more of an uplifting presentation than what Steve just finished out on. And that's kind of the way it works. Steve's back up situation. My presentation is going to be a lot of it's going to be informative, just essentially very basic tax things. How do taxes work in the state? And I'm also going to be talking about, you know, revenue options, who pays the taxes that we talked about, especially some of the big ones. And I'm happy to take questions throughout the entire presentation, but you'll be seeing a lot of basic terms that some of you may know, some of you may not know, but I think it's in my experience, it's helpful for people who don't necessarily live in tax world all the time to sort of see some of these things before, you know, we start getting into the weeds. So without much further ado, so sort of talked about this just now, but the way this is going to work is I imagine it, and I've given sort of similar presentation like scores. Think of all those bus tours you see in big cities where people are sitting on the roof and they're looking at the various sites. That's how this is going to sort of work, where we're going to do quick stops of some of the big taxes, the major landmarks I call them personal income tax, sales tax and the corporate income tax, but we're not necessarily going to dive deep into the full on concepts. I'm happy to take questions on those if you have them, but we're not going to get into, you know, really, really deep corporate income taxation stuff today. And then we're going to, after you do those three major landmarks, I'm going to look at some other revenue types quickly and talk about some potential revenue options that Chris related to this, this task force has discussed and talk about some of the issues there. And then I'm going to wrap up with what we call tax expenditures or sort of things that, you know, artificially lower the amount of money that we collect through policy choices or just general favoritism toward one particular group or thing. So the first stop on this bus tour is going to be at tax schools. So this is the basic part of this presentation that we're going to quickly touch before we get into the needy greed stuff. So basically when you think about taxes, everything comes down to this basic equation of three parts. The tax base times the rates equals the liabilities, two parts on the left side of this equation and then the liability on the other side. So the basic part that I want to portray from this equation is that the bigger the base, the lower the rate you can have to raise a certain amount of revenue. And or you can have a high rate and a small base to raise a certain amount of revenue. So basically everything that I'm talking about today, you're going to hear about rates. You're going to hear about tax base. Tax rates and tax base are two distinctly different things. And if you want to raise revenue, you can raise the base, increase the size of the base, or you can increase the rates of the base. That's more or less what I want to portray here. So beginning on the left side of that equation on the next slide now, the tax base is generally defined as what is included in the statutory language minus any exemptions, deductions. So let's talk about the sales tax as an example. The tax base for the sales tax is what's called tangible personal property. And tangible personal property is sort of a fancy term for goods, more or less. So, you know, things that you can touch and hold are included part of the base. The value of that sort of tangible personal property is the tax base minus any exemptions, inductions from that base. So at this little sort of handy pie chart here, this sort of shows you the tax base if we tax everything and then exemptions and deductions. Now that's distinct from things like, so if we think about the tax base for the sales tax, the actual personal property is the base, but something like services is not considered a deduction or an exemption. It's just not part of the tax base. It's not tangible personal property. It's not part of the definition. Another example will be in income taxes. We don't consider things like housing wealth to be part of the personal income tax because income is defined in statute as, you know, capital gains, wages, salaries, pensions, things like that. Housing wealth is not one of those. We're not necessarily excluding housing wealth from the personal income tax. It's just not part of the tax base. So touching upon that theme a little more, an exemption is sort of a systemic exclusion, systematic exclusion from the tax is usually limited to a particular group of taxpayers. So the example that here is the property tax, right? The property tax, the base is a value of all property in the state, commercial, residential, and otherwise. But most libraries are statutory exempt from paying the tax, even if their property would otherwise be taxable. So we have a line in statute that says, libraries are not part of the tax base. And that's an exemption. We're pulling out of the base. And therefore reducing our base, reducing our revenue. You think back to that equation. So most exemptions can be full or they can be partial. So full exemptions obviously cost money. We can go back to the library exemption. We exempt all libraries from the sales tax. We don't say in a version of a partial exemption, we don't say the value of the library is over 500,000. Then it has to pay tax or something like that. Another example of a partial exemption would be in Vermont and income tax. We exempt a portion of social security income, but not all of it depending on free income. So that is different from a deduction, but that is an amount that an individual is taxpayer themselves is permitted to subtract from their tax base. So a good example of this is if you think about your personal income tax, your base is your income that you made that year, but you can deduct certain things from that income. So an example of that would be if you, on your federal tax, you were itemizing your deduction, you were allowed to deduct your mortgage interest that you paid that year and that lowers your income, lowering your base and lowering liability that you have to pay. So for the individual lowers the liability from the state's perspective, that lowers, that costs us money. So there's a difference between exemption and deduction. Induction is typically something we talk about at the individual level, not on a wide scale policy level. So the second part of that equation is tax rates. So they can be fixed or they can be tiered. Sales taxes is 6% in Vermont. It is applied uniformly across all tangible personal property minus the exemptions that we have. It's one rate. Vermont's income taxes are an example of tiered rates. So typically in a tiered rate structure, you have a series of brackets with whatever is the tax base going through those brackets. And most tiered brackets are structured when a way to be progressive. So that the tax liability for the individual increases as you have more and more tax base to be taxed. So that's the classic part of, you know, the personal income tax, the marginal tax bracket structure. The taxpayer only pays the assigned rate for the each dollar routine, that tax bracket. So I'm going to explain how that works. So you will often hear in sort of tax policy, two different terms, the marginal tax rate and the effective tax rate. These are extremely important terms for talking about. And quite frankly, the more important one to think about is the effective tax rate. But I'll start with the marginal tax rate. So we have this example here of a tax bracket. You see that zero to 10,000 is 10,000 and $1 to 100,000, 10%, 100,000 to a million, 15, a million plus place, 20%. So you hear about someone saying, what is your marginal tax bracket tax rate? What we're talking about here is the, is the tax rate paid on the last dollar in that on your income. So someone here, the example makes $20,000 in income. They go through that first bracket, that 5% bracket, but what ends up happening is that $20,000 falls into that second bracket. And so their marginal tax rate, the last dollar of the 20,000 is paying 10%. So their marginal rate is 10%. So what you'll hear a lot, particularly from sort of more people who want to sort of make the tax system seem harsher than it is. As they'll say, you know, Vermont has the highest tax rate in country. Its top rate is 8.75%. That's sort of saying that that is the highest marginal rate you can pay on the highest dollar in Vermont. If you are, you know, have a very high income, that's what you're going to be paying on that last dollar. But for the vast majority of taxpayers, that is not, they're not paying 8.75 on the entirety of their income. What is more, I think, constructive for policy makers is to look at the effective tax rate. And that's the actual rate of tax liability for the entire, the actual rate of tax for the entire liability. So an equation there is basically how much tax liability you have over how much total basic tax on the income tax, how much tax are you paying after you calculate your tax over how much income you have. And that's the effective tax rate. So if we look at the taxpayer with 20,000 income, the first 10,000 is going to be taxed at 5% based upon that bracket. So they're going to pay $500 on that first 10,000. And then because they have 20,000, they're bumping into that second bracket. And so they're going to pay 10% on that next 10,000. So $1,000 in that next 10,000. So overall, they're paying $1,500 in taxes in this hypothetical example. They have $20,000 of income. That's the denominator here. They're paying an effective tax rate of 7.5%. So essentially saying they're paying 7.5% of their income in taxes. That's when I talk about personal income tax and lots of other taxes, I almost always refer to the effective rates that people pay. But you will hear people talk about what is the highest, what's the highest tax rate, what's the marginal tax rate in a various state. But what really matters is how much people are paying as a percentage of their income throughout the income distribution. So once we calculate the liability, we have things that reduce that liability. So we're on that right side of the equation right now. Tax rate times base equals liability. So we're on the liability side now. So something that can reduce liability is credit. So credits always reduce liability. They don't reduce the tax base like a deduction or exemption. But an accredited amount that reduces the tax liability is not reduced, as I said. Credits can either be refundable or non-refundable. So a refundable credit means that a taxpayer receives a payment from the state. If the credit reduces their liability to below zero. So imagine you had someone with a $100,000 tax liability, but $150 refundable credit. What that means is that the $150 credit will wipe out that tax liability. But then the state or federal government, or whoever's the taxing authority, will issue a payment to that person of $50 versus a non-refundable credit, which can reduce the liability to zero, but not any further. So that's the same example. If the $150 non-refundable credit, we're going to have a zero liability, but no one's going to be getting a payment from the state. They might be able to carry forward that unused credit, that $50 in future tax years, depending on the credit. But generally, you're not paying the person if you have more credit than liability. So examples of that are refundable credit. The biggest one in Vermont is the earned income tax credit. And in fact, the state issues payments to a very large number of taxpayers, about 45,000 taxpayers, tax returns in Vermont, receive a payment from the state largely because of the earned income tax credit, because that is a refundable credit. Drive your liability to zero. And then if you have more credit than tax liability, you'll get a payment. An example of a non-refundable credit. So we have a charitable tax credit in Vermont, 55% credit for up to $20,000 of contributions. But that can only wipe out your liability to zero. You're not going to be getting a payment from the state. So that's the end of tax rule. Does anyone have any questions before we start to get into the nitty gritty? Did we all pass? No, we're shaking your head. So up and down. I'm nodding your heads rather. So the rest of this briefing is basically going to go. We're going to go through tax types and we're going to talk about what is it? How much do we collect? Who pays it? And then just what's new, you know, what's interesting stuff going on here? And how is COVID-19 affected this revenue stream? And all sort of, we have, we're going to have new information tomorrow based upon Tom's forecast. I'll highlight a little bit of this direction, but basically what I'm telling you now is it might be a little bit outdated, but the general trends, I think will be sort of be continuing. So the first place we're going to start is the personal income tax. This page here essentially shows you the US 1040, the federal 1040. That's the US standard. Personal income tax form, the Vermont I am 111. And this is the Vermont equivalent. So maybe ask me, why am I showing you tax forms? And the reason is, because I think it's instructive source show what the base here is in Vermont. So the way it works in Vermont is we grab items off of the federal return as the sort of starting place for Vermont's personal income tax. So if you look at this 1040 with the red boxes highlighted here, you can see that the first things you fill out are your wages, the salaries, your tax exempt interest, your qualified dividends, your IRAs, your social security, capital gains, and then other income. That is the base, the starting place for personal income tax. It all starts on the federal return. You put down a number there of the sum of those things. And that essentially becomes what Vermont picks up. The second small box there is the adjusted gross income. Adjusted gross income more or less tracks the sum of everyone's individual pieces of income. But there are some adjustments that are made after. So for instance, your teacher, you can take educator expense deduction prior to adjusted gross income. So you calculate your income takes from small deductions. And then your adjusted gross income will likely be smaller than your total income. But the big ones that you hear about, you know, the charitable deduction, mortgage interest, the medical deduction, those are itemized deductions on the federal return. Those are after adjusted gross income. So in tax world, generally, we consider adjusted gross income to be the best measure or a very good measure of people's income or ability to pay. So you'll see charts in the later part of the presentation that are broken out by adjusted gross income group. But adjusted gross income is a very important term because it is the starting place for Vermont's income taxes. You can see here on the sort of flow chart, you have the adjusted gross income box, the adjusted gross income box, which comes all in the federal 1040. And then basically we're all on Vermont's form. What Vermont says is it says, okay, take your adjusted gross income and make some subtractions from that. So first thing that you do is you take a standard deduction, which is more or less an adjustment for the type of filer that you are. So you can deduct 62.50. This is tax year 20. And then you subtract 43.50 for you, your spouse, and any dependent as a personal exemption. And then there are other subtractions that Vermont puts into its tax codes. The big ones here are the capital gains exclusion. So if you make capital gains income, you can either subtract $5,000 or 40% of the capital gain if it's from the sale of an investment property, a business or farm in Timberland. Things like stocks and bonds are not eligible for the 40%, but they are eligible for $5,000. The social security exemption is a full exemption of social security benefits up to $40,000 of AGI, adjusted gross income for single filers and 55 for married couples. So you're taking your adjusted gross income, you're subtracting these items. And then we make you add back some certain things here. And for the majority of Vermont taxpayers, they're not adding back very much. They're not adding back very much. They're not adding back very much. They're not adding back very much. That's exempt at the federal level, but we don't want to give people a double dip on Vermont. That's why we make them add it back. And you come up with this term called Vermont taxable income. And that is the measure that gets put through the brackets. So what I want to portray here is when you hear someone say I make $85,000 a year, what you don't want to do is say, I'm going to say I make $85,000 a year. And I'm going to say, I'm going to say, I'm going to say I make $85,000 a year, and I'm going to say, I'm going to say, I'm going to say, I make $85,000 a year. In the end you're getting your standard deduction after your personal exemption, after any other subtraction. So the Vermont taxable income is almost always lower than adjusted gross income for all taxpayers. So Vermont taxable income gets put through the brackets as we talked about. They help you calculate how much you owe if you make under, if you have taxable income under $75,000. But it's four brackets with rates of 3.35 up to $67,450 for a married couple and $40,350 for a single individual. So again, if you think about those taxable income brackets, these people's actual income is probably closer. If that bottom bracket probably closer to something like $80,000, $85,000, depending upon the size of their family for their filing. For a married couple, and then for the single file, or probably somewhere around $50,000, is probably what you think is an actual income. So 3.35, and then it goes up to 6.6%, 7.6%, and then 8.75 for the highest bracket. And so you'll notice there that you have a lot of income at the bottom bracket. And then after that, it starts to pick up quite quickly. But that's a, I think, relatively unique trade about Vermont's personal income tax structure. Is it quite low rates for a lot of individuals? And then once you start to make higher incomes, it picks up pretty quickly. And I'll show you a graph to illustrate that. So after you put your income into the brackets, you come up with your initial Vermont tax liability. And then once you come up with your tax liability, then it's a matter of looking at your credit. So you have your nonrefundable credits, the big one there being the charitable tax credit. So there's also a nonrefundable credit based upon the federal child and the federal care credit. Then the refundable credits are, the biggest one is by far the earned income tax credit. So that reduces your liability. And the final step of all this, and this is the key point, is the Vermont apportionment percentage. So for the vast majority of Vermont resident taxpayers, that apportionment is going to be 100%. The amount of income that is Vermont-based is gonna be 100%. If you earn wages in Vermont, the only source, and that's the only source of income is 100%. For high-income taxpayers, that number changes a lot. One of the examples the Department of Taxes often gives is Oprah. Oprah might make a billion dollars in a given year. Let's say she comes to Vermont and makes $100,000 speaking at a book event. Oprah is gonna file a Vermont tax return. And she's gonna post her adjusted gross income saying it might be comes a billion dollars. But what she's actually gonna be taxed on as close as 100,000 because that was the Vermont-based portion of this. So for a lot of high-income taxpayers, you will see apportionment percentages kind of all over the map. Particularly those who are, and this has become a bigger issue nowadays with remote working, right? What does that Vermont apportionment percentage become if you're working for a Boston-based employer who you're working in Vermont, right? Some states have interpreted that to say, well, no, that's Boston-based income. Like Massachusetts is basically saying, if you're working in Vermont and you're working for a Boston-based employer, that's Massachusetts income. Vermont says if you're living and working in Vermont, doesn't matter where your business is, that's Vermont-based income. So that's more or less how we calculate Vermont personal income taxes. That's sort of what is it question of this briefing. The personal income tax, how much do we collect? We've eclipsed the one billion mark on personal income taxes in fiscal year 21. And this blue line here shows you what it's been like since 2005, not adjusted for inflation. But this is sort of what we've collected that dashed line is the January, 2021 forecast. We're getting a new one tomorrow. But to give you an idea of how good of a year personal income tax it was, that triangle tells you how much we sort of feed in the forecast in fiscal year 21. So we beat the forecast by $124 million in fiscal year 21. And right now, the personal income tax represents about 60% of available general fund revenue. So it is by far the biggest fish in the general fund. It's available for all the spending that Steve has talked about. So we really watched the personal income tax a lot. And that number is growing over time. As you can see, it was something like 48% back in 2005. Yeah, now it's 68%. And then I think my conversation with Tom Cabet that sort of said that that's gonna keep growing because personal income tax is bigger shape. Yes. So what went into that large increase then that 124 million above forecast was kind of where the factors that created that? Yeah, so I think the biggest thing, I think the broad explanation of Tom, that would say that he's related to me is just the amount of federal money that is poured into the economy has just shaken out in so many different ways. So a good example is with wage earners who lost their job during the tax year 2020, so tax year is January to December. They were receiving bonus unemployment insurance. So oftentimes they were making more money than they were when they were employed. So what we saw during last year and this year is that the largest withholding account basically for taxes. So when you work, your taxes are withheld by the tax department of tax. The largest withholding account of the department of tax was the Vermont department of paper, which basically means they were the biggest wage taxpayer in the state for at least certainly during 2019, but into 2001. So what we saw there was we saw higher withholding numbers within the personal income tax, which means that they were beating what we thought they were gonna do. Another thing that we saw a lot of and I'll touch upon that in two slides down is what we call estimated payments in the personal income tax. So if you have a business and you're paying to the personal income tax, you have big capital gains, you have rental income. The IRS requires you to give a certain amount of it to pay your taxes quarterly. And so those are what we call estimated payments. And those estimated payments were significantly higher than we thought. So what that tells us initially, we don't have the data yet, that sort of hints at very strong business income in tax year 2020 and very high capital gains in tax year 2020. And that's sort of backed up by things like the market, the asset prices are very high right now. And so a lot of that is federally driven. So you have, you might imagine a company that sells home improvement stuff. Those companies stick quite well during recession. They might have ended up with very large tax liability at the end of the year, personal income tax. You think about how monetary policy the federal reserves and lower interest rates has inflated asset prices, large capital gains that shows up. So I think the early explanations point to things like business income, capital gains, which are pretty much exclusively high income taxpayers. So another thing that we sort of thought about is new people moving into Vermont. There's just not enough data there to tell us whether this is new people. So I think the biggest thing we would say is business income capital gains and then federal stimulus, which is driving things like bonus on employment. Usually, yeah. I think the key too is that it's not adjusted to inflation. So it's incomes and other prices that have inflated. It may look like it's bigger, but the real purchasing power of that hundred point might not be what it was. That's here or two ago. Totally true, yeah. I would say over this time period, particularly post recession, inflation's been like one, two percent. So I mean, we could adjust this for inflation, but I think you'd still see record levels of income tax coming in. But for the state purposes, that will be really matters with the actual dollars that's going to the treasury. So yeah, it's a good point to think about the actual buying power, particularly if we're investing in so many things, there's a lot of inflation and say construction and that drives down the value we can get for our dollars spent. I don't wanna spoil what comes out tomorrow, but do you have a sense of whether this period in the triangle is gonna represent outlier or is it gonna be more of a base where revenues continue to grow? Is the trend gonna come back towards that line or is it gonna continue from that triangle? My conversation with Tom is to talk about this sort of being a level shift, but what Steve talked about is even once you have that level shift, he's looking at about two and a half percent. So you might have this one up and then two and a half. So I wouldn't say expect a ton of a bunch of positive surprises in the future. It looks like we are in right now, at least in a very good time for personal income tax, but the actual growth every year looks like as Steve mentioned about two and a half percent. So I would describe it, please put Steve's told me when Tom told me it's more of a level shift, sort of like up and then up slowly, but not like a up, up, up, up, up. The base may shift, the base will probably shift, but the trajectory won't continue. Correct, but I would say also this is, and this is the main touch on later in this, this is a volatile income source, particularly if you're becoming more and more reliant on high income taxpayers. So, the out forecast might be something like two and a half percent, but if, just as we beat forecast by $124 million, it's just about 10, 15 percent. In a given year in the recession, we were off by 10, 15% the other direction, right? And again, sort of hinting at what I'm gonna talk about later is as you become more and more progressive as income tax, the more and more sensitive you are to those things because the income of very high income taxpayers is really driven by things like capital gains, which come and go in a given year. And that's why it's so hard to predict often times a person's income tax because the more and more reliant on things that are unpredictable like capital gains, the more and more you're gonna miss your forecast in either direction. So, and it could just be things like, not just a bad year for capital gains, but things like, let's say the Fed say they're going to impose higher capital gains rates next year. What people do is they start realizing all of a sudden this year and you get a huge way of the capital gains. You're like, wow, we're doing great. And the next year, they're off a cliff, right? Because no one realizing in the high tax rate regime. So, these things are very sensitive to federal policy economic conditions and they're increasingly more difficult to predict. So, and this kind of highlights in this next page with bar graphs. So, this is kind of a, I wouldn't call it my best chart, but I tried to convey a lot of information here, but the blue bar show you how many millions of dollars of personal income tax we collect from each one of these adjusted gross income groups. So you can see, you know, we have the income groups on the bottom and how many millions of dollars we collect. And then on top of those bars, that represents the amount of the percentage of returns in that group. So, if we look at the far left, 31% of our tax returns have negative or $25,000 less than adjusted gross income. But they represent a negative portion of our money income tax, which means that we are, you know, for a huge portion of those, they are an aggregate, we're issuing payments to them. To the 31% of our total tax returns. And then if you go on the far end, you see that we collected, you know, roughly $300 million from 2% of total tax returns. 2% corresponds to just under $300,000 in AGI. Around, yeah, well, about 300,000. And we, but that's about 36% of our total income taxes comes from 2% of our taxpayer population. So these numbers, I've been updating this chart since I've been here for five years. These numbers become smaller at the bottom end and become bigger. A lot of that, some of that is due to inflation. So, you know, more people are just gonna be making more money over time. So more and more people are gonna end up in these higher brackets, but there is definitely been a shift beyond inflation towards more high income taxpayer paying more burden on personal income tax. Yes. Do you have the numbers of how many people fall into each of these ranges here? I don't have the numbers up on my head. We have about 330,000 tax returns. So 30% of 30,000 or 330,000, you know, 40, 50,000 tax returns. The tax returns, not people. So sometimes when you represent a household, you might have, you know, people filing separately. So, yeah, generally, we're all talking tax returns here. Okay. And you said that was 330,000 roughly. Resident returns. Yeah, and that's what this is based upon. Do you have these numbers compared to other states to the feds? I don't know to the feds. Hopefully one of my other charts will help eliminate that a bit. Two down. I'll show you how that compares to other states. I think generally, the thing that I would say is Vermont's is probably the most progressive in New England and New England already has a relatively progressive type of income tax system as a whole across all the states at the exception of Hampshire. They don't have an income tax. But yeah, Vermont's, as I talked earlier, is low for a huge number of taxpayers. And once you sort of hit about 100,000, then it starts to get pretty steep. I'll show that in two slides. But this is kind of what that talks about this slide here. This is the effective tax rate for Mont taxpayers in all of these income groups. So this tells you essentially, what is the share of their income that they're paying in personal income taxes? And you can see for an aggregate, for those with under 25,000 is just a gross income. In general, we are issuing payments to them of about one to one and a quarter percent of their income. So roughly, you know, the average earning tax credit is about $600, $700. So that's a major poverty fighting tool in Vermont. It's one of the most generous in the country that you can see, you know, as you sort of make your way up in the income distribution, people are paying more and more of their income in personal income tax. And at about $100,000, you can see the line gets a lot steeper. That's the structure of the income tax brackets and the nature of what deductions we allow for high income taxpayers. So in this middle group, you know, the value of those deductions is quite hot. And it wipes out a good chunk of their income for high income taxpayers. You know, $12,000 standard deduction if you're making $300,000 is pretty much worthless in the grand scheme of things. You see that steepness after $100,000. And so by the top, you're paying about 6.4%. I get a lot of questions about why that dips at the end. The reason that is, is the capital gains exclusion. People with a million dollars in AGI often have large capital gains. And because we give those back group a 40% exclusion, you see that dip. And so I would emphasize that those people are not just earning capital gains every single year. I would say that a good chunk of them are people who make normal, normal AGI in a given year. They sell their business, they sell their farm. Which is their pension or retirement. Which they might be using as an asset for retirement and they make a million, but the problem is that problem. The way of income works is that gets countered as income. So one year you might have $90,000, next year you have $1.25 million. And that's one of the reasons, one of the policy reasons behind giving a 40% exclusion for that group. Yeah. So because of these capital gains deductions, and I know you said they're hard to account for in a given year, they have a general sense of how much potential revenue we miss out on from not collecting on those. So the cost of that tax expenditure runs between $15 to $20 million a year. So we know that for a fact. A couple of years ago, I did a study on the capital gains exclusion about the people who take it, who takes it. The vast majority of the dollars of that $15 to $20 million comes from high income taxpayers. Like 90% of it comes from high income taxpayers. And what we found is that, you know, you might still, one of the reasons this was put in place is for those one-time events for normal taxpayers. But what we found was that it has often taken more than once from people. So I think something like half of the people who had taken the capital gains exclusion over the prior five years have taken it more than once. So we're not talking about a one-time sale on asset. It might be two times, but people definitely take it more than once. And it's definitely not farm sales. It's one thing we ruled out. The total amount of the exclusion, only about less than 4% of the dollars were from returns that any farm income whatsoever. So, you know, either people are, you know, my guess on the capital gains exclusion, we can talk about it more in details that a lot of it is investment property and business sales. So, but that's why you see that dip. And I would mention that that dip, we have scaled back the capital gains exclusion. It did in 2018 or 19, that dip has gotten smaller. So it used to be like a dip from 6.4 to about the high fives. Now it's pretty close back up to 6.4. So, yeah. You answered two of my questions, which was why does that dip? And then also, is it really all, you know, one-time family farm or are there other expenses? It seems like mostly other. Is that report that you did on the capital gains exclusion, is that publicly available? Yep, yep. It is part of the 2019 tax expenditure for, and I can send it to Gail who can distribute it. Thank you. That'd be great to take a look at. So, the moral of this chart is that basically, we have a quite progressive tax system already in place. And this next chart shows you how that compares to New England as a whole. So this was dated from our 2017 tax study report. We do a big overview of the tax system every 10 years where it's actually required to do so. And this is from 2013 and 14. So a little bit outdated, but it shows you how effective tax rates go through the income distribution for New England. So you can see in Vermont, if you have AGI below 100,000, which is about 85% of tax returns, you have on average, the lowest personal income tax burden in the state. It's only after that 100,000, you can see that steep incline, such that by the time you are a $500,000 million tax pay, you're sort of amongst the sort of New England average. You can see also that dip was a lot sharper in 2013-14 than it is nowadays. And that's because we've scaled back that capital gains exclusion. And we sort of changed our tax system as a whole, which I'll sort of touch upon in a couple of slides for you now. So, yeah. So even though this is from 2013-2014, is it still pretty similar? Yeah, yeah. I can't speak to, so basically no state in New England has increased their taxes under 100,000. So you might see some more steepness from other states, but I'm trying to think about the states that fall. Maybe Connecticut has done something that I can't think of any other states that drastically increased their taxes on high-income taxpayers, such that they would outshine us or make this chart any different significantly. So I can't remember where it came from, but a few years ago when we were looking at some tax policies, Vermont was ranked fifth in the nation, I think, for progressive tax rates. Yeah, I've seen a report on that. So the Institute for Taxation and Economic Policy, sort of a, I call it more a left-leaning think tank in Washington, they produced this report called Who's Who Pays? And it covers all taxes. And what they essentially do is they try to estimate the effective tax rate for taxpayers across all the income distribution, accounting for not just personal income tax, but sales taxes and property tax, everything like that. And what they found is that our system, largely because of the personal income tax and what we exempt in our sales tax was the second most progressive state in the country, states that rely heavily on sales tax on the headboard and property taxes were sort of called very regressive states. So everyone knows those terms for me, progressive and regressive. Basically your progressive system, the share of your income paid and taxes is higher. So certain taxes, the way you structure them can be more progressive. And that's what this, you know, our income tax system is. So what's new in the personal income tax? So we touched a little bit on this, but back in 2018, you recall the Trump administration had a huge federal tax reform that they put in place. And that sort of necessitated a major change at the Vermont level, because prior to that, Vermont's tax system was more intricately linked with the federal system. So we didn't start with adjusted gross income. We started with federal taxable income. And that's a big deal, because we were essentially picking up all the federal deductions, like mortgage interest and the charitable deduction, things like that. We were picking up the federal personal exemption, which got wiped down in the tax reform. So what, in preliminary modeling of how that was going to affect us, what we found was that even though the federal government lowered their taxes a lot, federal level, the sort of getting rid of deductions that they did at the federal level was actually going to cause taxes in Vermont to go up for tax payers, particularly for families, because that personal exemption they wiped out. So we found that an aggregate of about $30 million of extra tax liability was going to occur to Vermonters. And I think in one of the sort of more inspiring things in my time at the legislature, there was a real bipartisan effort to sort of turn things back to the way they were. So the tax department and the administration put together a tax proposal, which its goal was to essentially keep people the same as they were. And it came to the legislature. And the legislature made some minor tweaks to make the system slightly more progressive. But by and large, we decoupled completely from the federal code. So the only place that we really link up heavily in the federal code is a justice gross income. No longer are we picking up all these federal deductions and stuff like that. And we boosted some of our existing progressivity. So one of the things we did was we made the, the earned income tax credit slightly larger in that change. We scaled, we did no longer allow to charitable production that carried through from the federal, but we allowed for a charitable tax credit of 5%, which was available to everyone. So people at the lower end who gave to charity would get some benefit. But the part that made it more gross is we capped the amount available for that credit at $20,000 contributions. So a lot of high income taxpayers give a lot of money to charity. And so that sort of cap ended up being sort of a tax increase for them. So modest, honestly more progressive at the end of that 2018. Another change of mind that's not in, on the slide was the scale back of capital gains exclusion which took place in 2019. Used to be that that 40% exclusion was available unlimitedly. So you could have $10 million gains and we could be 40%. Now the maximum exclusion you can have on the capital gains exclusion is $350,000. After that, there's no more. So that's why you see for those really high income taxpayers that sort of tick back up and their progress or tick back up in terms of their tax liability. We've touched a little bit on this. So how is COVID-19 affected this? So we've seen record personally compact payments but particularly estimated tax payments since basically March, 2020, since the pandemic began, they've smashed record. And this we think is sort of a reflection of this case shape recovery that everyone's been talking about where you have a lot of people sort of staying flatline and then some people doing really well. So strong business income, capital gains, the bonus unemployment, also likely boosted withholding payments a lot. And then we've talked a little bit about people moving to Vermont and working remotely that we think that's primarily a high income taxpayer type of situation. We don't have the data yet to say whether that's a big deal. And quite frankly, I don't think that that's going to be a big thing unless they are really wealthy and they're working in Vermont. Because numbers that we're seeing as school districts are just not big enough to indicate 2,000 high income taxpayers coming to the state. But say it's even just 15 because we're such a small state, 15 really high income taxpayer who appear that can move the needle quite a bit on personal income tax. So we'll be watching that more closely. And this chart essentially shows that personal income taxes are doing really well. They are above their pre pandemic forecast. So even before the pandemic happened, we had a forecast and now we think that we are well above that, as you can see that red line. That's the sale. That's the link of tax. Any questions before I move on to a new topic. So how did the Trump tax changes in 2017 impact people in Vermont and kind of reducing their federal liability or not reducing their federal liability? Yeah, in general, most Vermont, almost beyond 90% of Vermont taxpayers received a federal tax cut and it was say more aggressive in nature. I have some information that I've done on that. But by and large, higher income taxpayers saved depending on the taxpayer somewhere between $20, $30,000 in federal tax a year. But at a certain point because Vermont is a relatively high tax state, the cap on your ability to deduct state taxes is really biting on really high income taxpayers. So what you see in Vermont is people between, everyone received a tax cut, somewhere between one and 2% of their income. If that grows as you go up through the income distribution, but as you get to really high incomes, the people who got a tax cut are much smaller, the total amount of tax cut they received is a lot smaller. And that's because state and local taxes and property taxes are higher here. And that was something they were able to deduct previously the federal tax cuts, but now it's capped to 10,000. So they didn't actually receive much of a tax credit in Vermont because of the nature of our tax system. But by and large, I think ITEP put the total amount of tax cut saved in Vermont, I think something like 250 million for people over 100,000. My analysis of looking at the difference in tax pay between 2017 to 18 when it went effect is it was not that large, but it was still significant. But you have to remember that federal taxes are always significantly larger than Vermont taxes. Federal tax rates, the highest level are like 37%. They're like 8% here. So you're talking in order of four or five larger. And so you would expect those numbers to be significantly larger. And so yeah, in general, anytime there's a federal tax move, the dollars that we talk about are just so much higher. So yeah, but I would say overall, everyone got a tax cut, not everyone, but a vast majority just got a tax cut, some were others. So the sale and use tax, what is it, 6% on the retail sales of tangible personal property unless exempt by law, tangible personal property, meaning goods more or less? Graham, before you go on, I think Eric had one more question on. Just, I was just thinking about that discussion and if Amy wondered have we, so there was the federal tax changes and then Vermont made some tax changes in response to that. Do we know the net of that? The goal of Vermont, so on Vermont taxpayers? Oh yeah, yeah, yeah. On the Vermont taxpayer, the change that Vermont made in the federal. Vermont's tax change was more or less designed to be revenue neutral or not affect taxpayers. So some taxpayers ended up paying a little bit more in Vermont taxes. Some ended up paying a little bit less, but it was really close. I think after all those changes, the bottom line was about $2 million. So it was not designed to raise money. So it was designed to keep people's taxes the same as they were before in Vermont terms. Federal side, we know that people receive very large tax credit, that tax cut, that was the goal of the administration at the time. So I would say they succeeded in Vermont and they succeeded elsewhere. All the analysis I've seen on it is that state by state, pretty much everyone got a tax cut. That answers my question. So we'd expect those tax cuts to have fallen through essentially completely in aggregate. Different for each, per taxpayer. It depends. That's one thing you'll hear me talk about. It really depends on the taxpayer, but in aggregate, on average, we see big tax cuts at the federal level. On federal tax levels, Vermont after the change in 2018, was designed to be ready to control people or kept the same as they were. Thank you. Y'all have some really good questions. So it's a sales tax, a destination-based tax. So it's applied to where the buyer takes possession of the item or where it's delivered. That's kind of a key thing in sales taxes. So it's not say contractor buys from a distributor. He does not pay the sales tax there. It's the person who buys from the contractor who pays the sales tax, final destination-based. It does not apply to most services. Very key point. You go to doctor's office, you go to a dentist, you go to pay a lawyer, accountant, none of that pays the sales tax. The only services that we tax in Vermont are small things, boom rental for ski rentals. Trying to think of another one. Some laundry, I think, pays the sales tax. So, and that is not exclusive for Vermont. That is a U.S. line phenomenon. There are, I think, two states, New Mexico. I think Hawaii tax a good amount of services in theirs. That is U.S. unique. Almost every country with a modern tax system has a tax applied to everything. So yeah, that's sort of one of the big topics the tax world has changed from good to services in the economy pre-pandemic, I should say. But most state taxes aren't touching that stuff. The revenues beginning in 2019 are exclusive to the education fund. So I get a lot of requests from legislators saying, I want to take, I want to end the exemption for this or I want to tax this. And then I say, okay, then you're just going to get effectively lowering property tax rates. And they say, well, I didn't want to redirect it so we can pay for this in the general fund. So, keep in mind that if you do anything on the sales tax, you know, it's education fund specific. You're taking money that would otherwise go to the property tax attack to schools and looping it out. But there are exemptions of plenty from the sales tax on the base. So here's how much we collect. We collect about, so fiscal year 21 we collected about $500 million. So this is a revenue stream that really popped during the COVID recession. You can see we collected roughly over $400 million and fiscal year 21 we shoot right up to about $500 million. So, and that's because people are staying at home. They have a lot of extra money in their pocket from, you know, federal government. What are you going to spend your money on? Fixing your home, getting a new work from home set up, gardening, things like that. All that stuff pays sales tax. So we'll hit on that a little bit more. So who pays the sales tax? Again, I touched upon this, it's permitted it's permitted by the retailer but it's actually paid by the consumer. When I wanna remember, you will have a lot of times businesses will say, we'll come in and they'll say, I don't, you know, we can't change the sales tax because I don't wanna pay it. But it's actually the consumer who pays the tax. The business actually collects it, remits it. Some businesses might, you know, just charge a flat rate and then just take it off the top of the markup. Everyone does this differently, but it is the consumer who pays the sales tax and the business hold it as what it's called a trust tax. They hold it onto it and they remit it on the part of the trust of the state. So, and generally sales tax compliance, Vermont, we think is quite good. So as much as we sort of talk about trusts, it appears as though business, they're doing very good job of, you know, trusting. We've entrusted our tax system to good stewards, I think. But there are exemptions for groups and goods. So there are organizations that don't pay the sales tax. The big one is 501C3O organizations. If they have sales less than $20,000. And we, a lot of people think about 501C3O organizations as nonprofits, but nonprofits is a huge term in general, in tax world. It means hospitals. It means almost everything medical related in the US. Trying to think of other big 501C3O operations, but all the way down to, you know, your community little food shop. So they're exempt if they have under $20,000 in sales. Federal, state, and local governments do not pay the sales tax, they have exemption certificates. And then we have purposes and goods exempted to make, usually to make the sales tax more progressive. So we're exempting items that lower income people tend to spend a greater portion of their income on. Things like clothing, groceries, medical products, all exempt from the sales tax. And sales tax generally and most consumption based taxes. So meals and rooms, gasoline, cigarette taxes are considered to be progressive because lower income residents pay a higher percentage of their income on these types of goods, and therefore a higher percentage of their income in sales taxes. So what's new in the sales news tax? So the big thing that's been happening is internet remote sales. Prior to 2018, the Supreme Court ruled that if you are an online retailer, if you do not have a physical presence in the state that you're selling goods in, you are not expected to remit sales tax, an actual physical presence. But that was defined as things like a warehouse, delivery truck, sales office, anything. If you had any physical presence you were required to, but if you think about a state like Vermont, there's not big retail that oftentimes don't necessarily have a lot of presence. So Amazon did not, doesn't have a warehouse here. Amazon prior to 2018 actually, came into an agreement to start collecting Vermont. But the Supreme Court changed its mind in 2018 and basically said, no, states can now collect from sales tax and remote vendors. This idea is economic nexus. So if you're selling into the state, you may not have a warehouse, but you're there more or less. It's just the way the economy works. And they cited things like Vermont and South Dakota so that it's not a burden anymore as much as it used to be because Vermont is a member of an agreement which sort of defines what products are. It said that things like Vermont and South Dakota have a de minimis requirement. So if you make less than $150,000 in sales, Vermont, you're not required to collect the sales tax. So the Supreme Court basically said, well, we're not punishing these tiny remote retailers anymore because most states just have these de minimis requirements and they're often in the agreements. Compliance is a lot easier. There are companies set up that help collect sales taxes for companies. We're in a modern time. They say that old physical nexus rules out the window. Big deal in sales tax world. But I would emphasize that it wasn't as big a deal as you might expect because a lot of places, just a lot of big online retailers had presence in the state. Think Walmart, Home Depot, Costco, the store here. So they were already collecting, but things like Amazon, eBay, Etsy, you know, big deal. So we estimated back in the time that we were gonna receive about $20 million just from that Supreme Court stroke of 10. So it's a big deal. And the bigger deal I think has proven to be a real boost to sales tax is what we call Marketplace Facilitator. So a Marketplace Facilitator, something like Amazon or Etsy, where they are just essentially what they call a platform where vendors list on the platform. What Vermont and other states statute said is that the vendor, if you make less than $150,000 in sales and you're not required to collect sales tax, what Amazon was saying or the Etsy and eBay, for example, is they'd say, well, we don't have to collect the sales tax. Who needs to collect the sales tax of individual little bitty people on our platform? And a wave of states essentially said, no, that's focus. You are the vendor. You process the payments, you do the advertising for these people. You are required to collect sales tax. That was passed in 2019. We were one of the early movers on this type of law. You see a lot of impacts for Marketplace Facilitator laws. And we said, basically, if you are acting as a Marketplace Facilitator, you have to collect the sales tax on behalf of the vendors. So huge deal because Amazon, biggest online retailer, only about 40% of their sales are directly by Amazon. The other 60% is from, you know, marketplace sales. So we're missing a huge chunk of money from places like Amazon and Etsy and eBay. And we think that that, I think we originally estimated it was $15 million, just that change. And I know for a fact that was well-adrested from based upon the department tax. So Marketplace Facilitator law was very important. And we've been on the next point very timely because the COVID-19 pandemic really changed how people started buying. So goods consumption, as I said, people were staying at home and buying stuff like home improvement computers. People were not going out traveling, eating at restaurants. So they were spending all their money on goods, which means we were getting a lot of sales tax. But the key thing is a lot of this was happening online. And so e-commerce prior to the pandemic, we estimated it to be somewhere in the 10 to 15% range of total sales. We think it's now about 30, 35%, just over the course of the year. And you see states that didn't have Marketplace Facilitator laws in place, absolutely scrambling to, you know, update their laws and get on board because they're just missing out on so much sales tax revenue. And they need it during those really dire times that were, you know, sort of circa April 2020 to August 2020. But again, a lot of this is driven by federal fiscal stimulus. We had bonus unemployment, you know, putting people in money in people's pockets, mulch around the federal stimulus checks into people's pockets, disposable income in during the pandemic rose to record levels. So a lot of people spent that on durable goods, big expensive goods, and it was really hard to get a washing machine during, and it probably still is. So those things are big items, big sales tax things. And so you see that we collected just over $500 million, which is $75 million more than any previous fiscal year, in a big year. But there's a lot of uncertainty about what's gonna happen, sales tax, once we reopen. Well, we see people continue to purchase goods. So one thing is we still have a ton of disposable income sitting out in the economy. People still might be buying stuff or will we see more pivot back to service? People have been pent up. They're gonna start going back to restaurants and traveling a lot, and we'll see sort of a drop back down to where we were before. So it's kind of, you know, an outstanding question of what's gonna happen there. Perhaps I'm remembering wrong, but there have been times before where in Vermont we've had a day where there hasn't been sales tax collected, right? Is that? Not in my recent memory. We haven't had sales tax holidays in Vermont. Some, a lot of states have sales tax holidays. I think some states in the pandemic have put in place sales tax months as well, holidays. So, but in a lot of time here, we've never instituted sales tax holiday. So maybe it happened in the past. I just can't remember. I think it was the great recession the last time I had it. Yeah. Is there something though in the Connecticut River corridor? Something there like a sales tax holiday. Not holiday, but there's something within five miles of New Hampshire where there's no sales tax. Oh, I mean, you're white. I don't know if you're referring to this or not, but if you, there is sales tax, there is no sales tax in New Hampshire, right? So if you buy something in New Hampshire, you're supposed to have them, you're supposed to pay them Vermont sales tax and they send it. Is that what you mean? No, there was something in the last year or two. It doesn't matter. I don't remember. Yeah, I mean, maybe we're talking about use tax. That's the other thing I'm not talking about. The sales and use tax, the use tax is for stuff like New Hampshire where if you go buy a washing machine in New Hampshire and you're bringing it back to Vermont, you are liable for the Vermont sales tax on that. Compliance in Vermont is the highest in the country, but still it's 15% or lower, we think. It's not very much, $3 million a year in use tax, but in the past we've done as a way of sort of getting around this remote sellers thing because if you recall before the Supreme Court decision, if you were buying remotely and there was no physical presence, you weren't paying sales tax on it, but you were still liable for the Vermont use tax under law. And so one way that states tried to sort of get at this money was to really beef up use tax compliance. I think a couple of years ago, the Department of Taxes was sent out a letter to Vermont taxpayers saying, have you bought anything online and not paid sales tax? You probably owe a use tax or based upon your income, you think you owe a use tax and you're putting on your income tax for that return. So we've seen a big jump in use tax, but it's nowhere near what we actually received now that the law has been changed over. So, but yes, so in New Hampshire, there may be something like a use tax and I'm up to say, but I'm not aware of that. So the final big tax we're gonna talk about is the corporate income tax. So what is it? This is often a big confusion amongst the corporate income tax. People think that just the corporate income tax is the business tax. It is not. It is small, but it's the business tax that not very many businesses pay. So there are two types of businesses in taxed world, a C corporation, which is a larger business. It typically has a hundred plus shareholders, oftentimes listed publicly on an exchange. It drives money from public markets, but the key thing is it profits of the corporation accrue to the business. So like if you are Amazon, you make a hundred billion dollars. The hundred billion is the profits of Amazon. And the second type of business is what we call pass through is where the profits get passed through to the shareholders or the owner of the business and then they pay a tax on those profits on their personal income tax returns. So if you heard of things like S corporations or LLCs, they're usually usually smaller businesses, but the way it works is that you might have say 10 shareholders, they might say, we made, you know, let's say a million dollars a year, each person gets a hundred thousand dollars and they take that and they put it on their personal income tax as business income and they pay the personal income tax. A sole proprietor is another example of pass-throughs. All the profits of the business get passed to the personal income tax or business income. But the corporate income tax is only on the income of a C corporation, not on those pass-throughs. And the key point is that most businesses in Vermont and in the U.S. are pass-through businesses, not C corporations. C corporations tend to be larger businesses, multi-state businesses. I, you know, I always joke in the life that you look at the businesses in the, you know, impiliar, any town in America, almost all of them are gonna be pass-throughs, restaurants are almost always pass-throughs, law firms pass-throughs, you know, even very, even larger businesses, you might think of a small manufacturer, you know, maybe have two, 300 employees, they construct for themselves as an S corporation and pay the owners of the company or the shareholders will pay on the personal income tax. So I wanna emphasize that this tax is only on C courts. So it's the tax on the net income, which is a fancy term for tax for profits, profits of the business. How do we treat multi-state businesses? Taxable income and net income is determined by a formula using property, payroll and sales. So the way we determine what portion of your income is based in Vermont is basically asking how much payroll do you have in Vermont as a share of your total company? How much property, as a share of your total company's property do you have in Vermont? And how much sales in Vermont's the share of your company-wide sales do you have in Vermont? And essentially we take that formula and we come up with a number and a portion of it percentage and that's what we tax them on. So for very large companies, that portion of it percentage might be something on a 0.1% but a 0.1% of a $5 billion is still a lot of money. And then Vermont requires what's called unitary combined reporting. And so what that means is that we require companies, the way companies often structure themselves, they have a parent company in multiple subsidiaries that operate in different states. What Vermont says is that the net income that we're gonna be looking at is the net income of the parent plus all of the subsidiaries, even though subsidiary A might not operate Vermont, you say basically everything is considered part of Vermont. So a unitary combined return is a Vermont tax return for corporate income tax. It's part of a larger company. So what you might have is say, company for A Vermont subsidiary is the filer, but on their net income it's reporting the income of the entire group of companies. And then you have not combined returns which are basically the subsidiary is the only company or the company is just one entity. So unitary combined returns are about 13% of total income tax returns and non-combines are 87%. So most of them are smaller, non-combined company. What is the corporate income tax bracket? Is it marginal bracket? Basically what I tell people it's an 8.5% rate because the net income brackets there are so small. You hit 8.5% at $25,000 for a fairly large corporation. Corporate income tax, how much do we collect? So corporate income tax tends to be a little bit more volatile in year to year. Corporations oftentimes will pay a fake tax liability one year and then have negative tax liability the next. Swings around a lot. And we get our corporate income tax a significant portion of it from a very small number of pilots. I'm talking less than 200 filers of the 14,000 that we get, very top heavy. And that's basically an iron law of business taxation. The vast majority of the revenue comes from a very small number of tax filers. We collect about $175 million a year in corporate income tax. But you can see how it just bounces around every year. But corporate was one of those, again, revenues that really beat the forecast this past year. So $51 million above forecast. It's about 7.2% of general fund revenue back here. Past it's been around five to six. So it's growing. But again, next year it could be $50 million less. It really bounces around. So again, who pays the corporate income tax? Only C corporation. And most of the revenue comes from a larger unitary return. So this is a chart from our tax study from 10 year tax day from 2017. But you can see that with 6,300 filers paying $11.3 million of tax. And 13% of filers paying 84% of tax. So very top-heavy. Another law of business taxation. So not just under corporate income tax. I don't say law, but it's one thing that's sort of well-known in tax law. The businesses, a good chunk of them do not pay any tax liability. And this is quite evident in the corporate income tax. You probably have heard about business news. This is sort of starting to come out a lot. An example, in Vermont, we had 13,236 corporate filers in Vermont that year. And only about 3,000 of them had positive taxable income. So they reported an actual profit, which means only about 3,000 paid the corporate income tax as part of the brackets. So you're talking about 75 to 80% that pay either no tax, they're not paying no tax. What we have in place is a minimum tax regime. So if your corporation in Vermont you have zero tax, one can pay a minimum tax. But it's pretty de minimis. I think it's like if you have less than 2 million of receipts, you pay $500. And if you have greater than 5 million, you pay 750. Small amount of money. So yeah, for small businesses, less than 100,000 of Vermont receipts, one in 10 of them are reporting profits. When you get to some of the larger companies just under just over half are reporting profits. So that's something that like, you know, Democrats in Congress have started to go after. And a lot of tax world was talking about is net income the proper way to look at this because corporations net income fluctuates from year to year. You have companies like Amazon that have a zero taxable income one year, a big number of the next. Is it quote unquote fair that large corporations like that should be paying zero? Sort of an outstanding question. So some states, I know Ohio's big one here. Now for corporations to pay gross receipts tax, basically you pay on your sales, not your profits. So what's new here? The Tax Cuts and Jobs Act, that's the federal tax return, federal tax change in 2017, did a lot of corporate income tax stuff at the federal level particularly, lowered the rates from 35 to 21%. But they also made changes around how you treat the profits of foreign, foreign subsidiaries of a larger company. And so basically what they said is you bring that money back. You know, a lot of companies will sort of claim that this money is to a subsidiary of a corporation based in Ireland. They say, if you bring that money back, you won't pay the 21% to 8%. So there's kind of incentive for companies to bring money back. But what that led to was a big base inflation in Vermont for a couple of years because companies were sort of like, okay, we'll pay the 8%, they bring back their money. It blows up the base in Vermont because Vermont is like that tiny 0.1% sliver. You know, if a company brings back $10 billion, you know, we get a chunk of that. That'll be the tiny chunk. But we received big spikes in corporate income tax revenue in fiscal year 18, 19 from this. Companies that weren't paying anything but are preparing very small amounts and they were large companies. And we saw all of a sudden they were paying a huge chunk of money. We think that that's what's the reason behind it. COVID-19, again, we've beaten the forecast significantly. A lot of this we think is because of federal fiscal stimulus. A lot of people spending a lot of money are helping boost corporate bottom lines a lot. And we think there's this potential revenue bump this year because of what we've changed that we made to the tax law two years ago to market-based sourcing. So this is getting really in the weeds that's somewhat important. But in corporate income tax for the sale of intangible, so services, I think things like speedy up, selling travel services, Facebook, stuff like that. You have two choices. You can either say, okay, sales of a non-intangible are counted to the state where the product itself is made. Or you can attribute the sales to where it's delivered. So if you think of, say, Expedia, Expedia is based in Washington state. They make their product, they code and everything in Washington state. And if you're under what is called cost performance style of attribution, that income that is made in Vermont is attributable to Washington because that's where it was made. Or you can be under a market-based sourcing regime and say, no, it's where product was delivered. And so what we're sort of seeing, we think is from companies that have not paying a lot, things like tech companies, finance, insurance that don't have a lot of actual physical presence here. We're seeing a more and more larger payments for them after this change. And we think that's because of it because before they were saying, take a bank for instance, it's like, we're not a bank, like let's do an example, Quicken Loans, Rocket Mortgage. You know, that product itself is originated in Detroit. And so they're saying, well, under cost performance, that's a Michigan-based income source if a Rocket Mortgage is originated in Vermont. But then a market-based sourcing, we're saying, no, because it's Vermont customer that took it, that income is based in Vermont. So we're seeing sort of jump to that. So quickly, some other revenue sources. So we talked the big landmarks, Meals, Rooms Tax, another big one, 9% on tax and meals and rented rooms, 10% on the alcohol portion of meals served in a restaurant. We collected $143 million in this period of 21. But to give you a sense of, this is one of the revenue streams that has not hit its pre-pandemic level for understandable reasons, but it was $173 million this year. It's well below what we thought or well below what we were collecting. And beginning in fiscal year, 20, 25% of those revenues go to the Education Fund, 69 go to the General Fund and 6% go to the Link Water Fund. So any change to the Meals, Rooms Tax gets sort of sprinkled amongst the funds. Another big one is the Cigarette and Tobacco Products Tax. So $3.08 per pack of cigarettes paid at the wholesale level, 92% of the wholesale price for other tobacco products. So the big change here was that in 2019, we applied that Tobacco Products Tax to e-cigarettes. And that has been a significantly higher revenue stream than we thought. I guess we've been sort of saying that it's good because we have a lot more money but it's bad because it means that we're people are using e-cigarettes a lot more than we think they are or thought they were. So in total, tobacco taxes are about $77 million and that's all general fund revenue. And another big one is insurance premiums. Something I didn't know before I moved here is Vermont is actually a very favorable state for insurance companies, particularly captive insurance companies. And they paid 2% per year on the gross amount of the premiums that they write in Vermont. And that's paid in the lieu of the corporate tax or insurance companies here, not pay the corporate tax, they pay the insurance premiums tax. We collected about $60 million of that. And that's all general. That's all dedicated to general fund. So this chart here, our table is essentially Tom Govett's forecast from January, 2021. But you get a sense of just the all the other tax revenue sources in the general fund that are available. So we have meal rooms, we also tax on liquor, we tax on beer, we have a tax on estates, things like that. I'm not touching on those today but we have other questions with those. I can follow up sort of after this. On the insurance, so since only paying 2% per year instead of the corporate income tax, would we be collecting more money at their paying the corporate income tax? It's 2% on the premium written. So it's not necessarily profit. So it's difficult to say whether we'd be collecting more unless it's on the corporate income tax. Because premiums written is essentially curious how much we are ensuring, whatever. Like a Vermont mutual or uni mutual, typically when they write theirs, they're looking for like a 5% income piece there after they pay out their bills and other stuff. So 15% or 8% of their 5% is a lot less than 2%, they're 100%. Yeah, but like let's say there's a disaster, right? And insurance companies have to pay out a lot of money to Vermont. Then their profits in a given year might be negative, a lot. And so kind of depends on the year. A couple of years ago, I was asked to analyze whether banks, so banks right now pay in Vermont your domicile to your deposits. You pay 0.0096% on the average monthly deposits in your bank as a tax, the bank franchise tax. And I was asked a couple of years ago to estimate if we've switched them to the corporate income tax, we make more money. And the answer is no, we are getting banks from the bank franchise tax than their corporate income tax. And they would find something like anywhere between $5 and $10 million revenue costs if we did that. So yeah. Insurance change, that almost seems like industry-specific change from income-based to a receipts-based model. That's it. I mean, I guess you sort of characterize it that way. It's sort of a receipts-based tax. It's on premiums, so yeah. It's different than an income tax. So we're past the topic of that table. I guess this is part of the presentation. I think Chris directed me to a lot. So here are some hot topic revenue ideas that I've done some work on. The first is cannabis tax. I get a lot of requests from legislators and the public. Well, how much can we get up and tax cannabis? So everyone in this room is probably aware that S54, I can't remember what act it ended up being, but Vermont has legalized the sale of retail cannabis. And our estimates are we think that sometime in fiscal year 23. So still kind of a, I don't know, shaky timeline. We don't know exactly when the first sales be happening, but fiscal year 23 corresponds to calendars years 22 and 23. So it could happen in late calendar year 22 or early calendar year 23, sort of our guess. But this was the estimate of revenue that we thought we could collect from Canada sales. And this was based upon a model that myself and the tax department put together, but also cross-referencing with the other states have collected. So there's a chart in the fiscal note that essentially compares if you scale other states down, their population to what ours is and what their revenue they collected, this is essentially more or less pretty close. So you might hear numbers like all Michigan collected $300 million per year in the best tax. That's because Michigan has 15 times the size of our population. So this is where these are our estimates. You're talking somewhere between on the high end, what's the market we think is fully online at fiscal year 25, $13 million in the low end and $25-ish million on the high end. We could be way off on that. JFO, this is on estimates all the time. That's not something that is crazy. These are, I would just say that if we do be to buy a lot, it'll be because Vermont cannabis users are a lot higher than any other state because, again, we've faced a lot of our estimates. I already know that, I know that. We've already accounted for that in our model but it would be looking at, it'd be well above what other states had done. So even Colorado, right? So like in that chart, we sort of compared what Colorado's money would be in Vermont terms with the same tax rate and it's about in this range. So I think it's something like, if we end up on the low end of this range, we will be something like, I think it was Washington, which had a really rocky out roll of their marijuana market. If we're on the high end, then we'll be something like Colorado and Colorado being known basically as the, the first state to do this. Nowadays, I think that's the last number, like 13 or 14 states have legalized cannabis sales. Maine being the newest one in New England, Massachusetts has been selling for the past two years or so. So the first mover advantage is not there anymore, like it is for Colorado. Ford's gambling, yeah. One question on that. So as currently in statute with these revenues, just go to the general fund or similar to that. Great question. Not all of them. No, not all of them. So there's two separate taxes here we're talking about. We're talking about 14% excise tax, which is what is on the sale of cannabis. Plus we're applying the 6% sales tax because we consider it as a tangible piece of personal property. 6%, that's 6% piece goes to the education fund. That's just a normal sales tax. The 14% tax, 70% of that is dedicated. I think 70% is dedicated to the general fund. If 30% goes to a substance misuse and prevention fund. I think that substance misuse and prevention fund is capped at 10 a year. So any, I don't know over that, would go into the general fund. There's been a lot of cannabis stuff moving as you guys know. It's been a long slob. There's so many things in my head remembering what exactly actually passed. The next thing is what I hear a lot about is sports gambling. So we have not done a formal estimate on how much sports gambling. A lot of it depends on what it actually gets put into place. A lot of states have a ton of different regimes. Some people essentially operate like a liquor control model where you have a sports book and they take the bets and whatever money they make, they send a chunk back to the state. Other states will have essentially a tax on the gross receipts of the sports book that is operating in the state. So there are lots of different models here, lots of different tax rates. We haven't formally done an estimate on this because there has been a bill, but it hasn't really been anywhere yet. But there is a study coming out in October by JFO and Ledge Council that is looking at the issues and putting some money around, money parameters, what was collected in other states. What would I can, yeah. Just curious, do we know what our sister state next door did? How did New Hampshire do with Revin there? I'm trying, oh, I don't know what the number is. I'm trying to remember the regime. I think they did a sort of standard 10% and he's 10% on the receipts of sports book. That's their model. And I think, so it was two and a half million dollar figures years was in the administration budget proposal last year. And I was told that that was based upon a scale down of New Hampshire's experience. So I don't know if you recall that. So I think, yes, in New Hampshire, I mean, they got the contract with DraftKings, right? And they, and DraftKings and New Hampshire. So New Hampshire didn't set up an infrastructure. It was like DraftKings infrastructure, then they share the revenue. I think it came online in like January, 2020. And then there were no sports for a long time. It was that issue. But I was trying to get that same question myself. It seemed like maybe the revenue is like three to four million in a high month for New Hampshire. But they also say that 40 to 50% of their sales are people from Massachusetts coming up to go to New Hampshire. So it's hard to, I think it's going to be hard for this study to determine that number. We'll see. But there are just other factors at play here. So we have New Hampshire right there in the border. But the other thing is Vermont's quite an agent population. And so you might lower the actual amount of estimates going on because those people don't tend to gamble as much, particularly on sports events. And so I think that was based, so the numbers I had seen coming in New Hampshire were higher since two and a half million a year. But I think rightfully the administration was conservative and lowering its down. But the sort of message I would convey here is we're not talking huge dollars. We're not talking a savior for general fund problems, particularly in the size of dollars that you guys are talking about. Not anything really. The final one that I've done a fair amount of work on is what are called high income tax surcharges. And generally what I've estimated on these are essentially a simple surcharge that applies directly to AGI. So we don't have to worry about any of that standard reduction or personal exemption or capital gain stuff. It's directly on income. So very sort of simple, one to 3% surcharge on incomes, on the value of the dollars over a certain amount. I've done many different iterations of this, but here are three of them. So imagine a 3% surcharge rate on any dollars just to gross income over 300,000. We preliminarily estimated that was about 60 to 70 million a year. One and a half percent tax rate on AGI over 150, 30, 40 million tax rates. 3% surcharge on AGI over 500,000 is both 40 to 50 million a year on a tax rate like that. So you're talking some pretty serious dollars there, but I would lay down some considerations for this committee and for legislators who have thought about this. First, as I've talked about, personal income tax is already quite top ed as it is. Doing this would, you'd be stacking another 30, 60 million dollars on top of that very small work for, you know, 1% top, 1% we're talking about somewhere around three to 5,000 taxpayers up to 320,000 resident returns. We get about 380,000 total returns a year. 500,000 you're talking, you know, anywhere between one to 3,000 taxpayers. So a very small share that you're relying on there. And the very progressive systems, especially at that level are very prone to volatility because of things like capital gains. A lot of the people who are making money up there, sometimes getting on average, half of their income is from capital gains and that stuff just bounces around a lot. It's unpredictable. So these numbers you see here, I'm putting a range around them, but it's plausible that say that 60 to 70 million that could come into 40. And I wouldn't blink an eye and say, okay, that sounds about right. I go to revenue conferences every year and you know, at least 20 years, like here's how we try to figure out how to forecast capital gains. Turns out we can't do it. So it's really tough to do. The other considerations I'd say that if one of these were put in place, only two to three states would have income tax rates that would be near that level. And you know, some of the income levels here will be the highest income tax state in the country. California notoriously has high income tax rates, but their highest rates really kick in at like $10 million of income, really high stuff. Hawaii's I think is probably the high. If I were making a judgment call, it's probably the highest income tax state because there I think they're like nine or 10% it kicks in at like $200,000. So I think I, when I did these- Hawaii's done a nine or 3000 miles for another state. It's true. I mean, they don't have a border with New Hampshire. They want to move very quickly. So I think when I did this, it was something like if you did the 3% on the age of over 300,000 Vermont, or Hawaii would be higher than Vermont up to 300 and then between three and five Vermont would be the highest and then after that California would be the highest. So it kind of depends on how much you can help it. You're talking about a select group of states there that have significantly different economies than Vermont's particularly larger. I would say. And then finally, fiscal monetary policy could be a huge impact on these groups. So I mentioned earlier, tax changes, right? If there's a change in tax rates being proposed, you see a bunch of high income people realizing capital gains in one year and then you get nothing the next year. You see shifts of income all over the place. You'll see these things right now we have really low interest rates, so high capital gains. But what if the Fed starts to increase interest rates? You might see asset prices fall a lot and therefore capital gains just completely fall off the cliff. So these do raise a fair amount of money but I would say it's not without, it's not sort of an easy, well, why haven't we done this already? It's lots of considerations, not to mention things like we have a state, you know, less than a hundred miles away that doesn't have any impacts at all. So. So we did have an attempt to amend the bill that created this task force to add a wealth surcharge. Did not pass the house. So one thing to keep in mind is political feasibility of doing a tax increase, you know, whether the legislature or the supporter or the governor. So that's something to keep in mind. So what's our, we are, I'm realizing it's 12, 15 and having so much fun. And so our, we can, I don't know how much you have left but I think these are important. And so if people are flagging here a little bit, are you able to come back at one to finish your slides and questions? Let me just double check it. I cannot be here alone. Okay. So I have a time to say about 12, 30, so. Well, let's see if we can cruise through that. Then let's go until 12, 30. I will try to give this the quick treatment, although I do think it's important. So I don't think I'm going to talk about here's tax expenditure. One more thing on the revenue right on the surcharge. Did JFO do a note and analysis on this? Cause that might help us. Did not do sort of a formal fiscal note. This was a lot of these were done in basically on four amendments. So I was essentially giving preliminary numbers so that people could have information for. I do not have formal estimates of these things because there are a couple of bills out there that I've given estimates or informally and none of them have moved in any of the committees. So I haven't written a fiscal note just yet. Now we have more to get through just before moving on. Do you have information that you can get to us about taxpayer migration in and out of the state? Yeah. Two summers go rote to issue briefs, examining that question is that I can send it to you online is that we did not find evidence of taxpayers moving in and out of the state because tax rates in fact, our biggest problem appeared to be amongst taxpayers with lower middle income that were aged between the ages of like 50 and 65. Our best strength was actually relative to we've lost the fair number of taxpayers over time, our strength was amongst higher income taxpayers and particularly young higher income taxpayers. So I can send those to each other here. Yeah, thank you. Okay, so tax expenditures. These are basically statutory provisions which reduce the amount of revenue that would otherwise be collected and they're usually done to encourage some sort of activity or advance to some sort of group. So, example of tax expenditures, tax credit or deductions. So the earned income tax credit reduces the revenue available in the personal income tax social security deduction where we've identified seniors as an area where we want to reduce their tax liability. So we would send the statute but it lowers our revenues. And then there's exemptions from the tax base. So example of that is clothing being exempt from the sales tax base. We don't tax clothing. Every two years we have to estimate how much these costs of the state. So that's what these three charts show you. So on the personal income tax side, we estimate that personal income tax expenditures are about $315 million a year. The vast majority of that is the Vermont standard deduction and Vermont personal exemption. I kind of say those are more or less mechanical types of tax expenditures. Look, they're technically, but they're not, the group is that they favor are so broad that they almost categorize as just sort of a tweaking of the tax policy. So the real tax expenditures, I would say are the earned income tax credit, the capital gains exclusion, the Vermont charitable tax credit, social security exemption, others. So see the earned income tax credit, the largest one that we have. Capital gains exclusion between $15 and $20 million a year. Charitable tax credit about 10 to 10. The social security exemption, I like to highlight this one a lot because Vermont's aging population makes this one grow really fast. So when I estimate this is basically 2019, it was put into law on display team. It was $5 million then. It's $5.5 million in display 2019. Preliminary investment about six and a half million this year. So it's growing about $500,000 a year or more because more and more people A are retiring. The population B, the people who are on social security now have had higher incomes than the ones before. And so their social security checks are higher. So the amount of work exempting is higher. Sales tax exemptions, I mentioned there are exemptions of plenty a year, $267.8 million of sales tax exemptions. We collect about $500 million of sales tax. So you're talking about additional 50% we estimate. Some of these we just can't estimate no data. And these are estimates, so they're not hard data. But groceries is the biggest one about $90 million a year. We think we're not collecting by not taxing groceries. Energy purchases for a resident. So any propane fuel oil, electricity that you buy for a resident is not taxed. Clothing and footwear, another 33 million. Medical products, 54.8. Agricultural inputs, 16.9. And then a slew of others that are 34. Pretty big dollars. But a lot of those are put in place all this is a legislature to make the sales tax less progressive. And then amongst the property tax, we estimate about $94 million of expenditures. This one is a little bit squishier because for properties that aren't their tax exempt, it's not like the appraiser goes around and appraises them every year. They're like, well, why do we need to appraise a church? Never taxed. So take that with a grain of salt. But the big ones that you see are UBM and the state colleges, about 20 private colleges. So the big ones there are Middlebury and Norwich account for about 14 and that's $18 million. Just those two universities account for a vast majority of private colleges. Pious organizations, that's churches and also things like orphanages run by pious organizations. Private slash public schools. This one was new to me when I decided to review of this tax, the property tax expenditures for public pious charitable organizations. A lot of these are for private or independent schools. So thank Bernd Burton or St. John'sbury Academy and St. Albans, I'm trying to remember. But yeah, $6.7 million. Hospitals, $15 million a year to the state. So the big one there being the UBM Medical Center but also any other hospital. They are all nonprofits in the state. So they do not pay. Then tax income and financing districts at $6 million. So what is that, what was it? Tax income and financing districts. It's an economic development tool that allows for municipalities to essentially keep state education funds dollars to finance infrastructure development. So, yeah. So basically if a town has $0 development in this area borrows the money to develop an area and it goes on the tax roll for the 20 years of the bond they can use all the tax revenue to pay off the bond. But then, but well, not all of it. So that still goes to the F fund. And then the whole point is in 20 years that all then goes to the F fund. So the concept behind that is you don't get that economic development without that investment locally with that debt. And so it's still in that positive scene to the actual property tax. So while it shows an expense, I know in St. Albans they probably add $70 million to the grant list in the city. So yeah, we might be eating $200,000 a year and there are a couple $100,000 a year in St. Albans that don't look like a tax expense. That $70 million in another 10 years at this point will end up going into the full fund that paid for schools and other things that wouldn't have existed otherwise. Yeah, that's, I'd say it's TIF districts are one of the sort of more controversial things in the state. I think basically centers around whether equal people develop without the use of the education but won't get into that another day. But for the purposes of calculating these expenditures and I have to present to the emergency board, the governor and the money chairs, this TIF district number every year and that assumed, what we're told to do is assume that all of it would happen otherwise. So it's basically education fund. Again, I'm not gonna get into that today but that's what we estimated. And then finally resources, if you have any questions, here are some resources that you can look into. If you wanna look into more tax stuff and then you can always contact me with any questions. I appreciate everyone's support. Any questions, final questions for Frank? Thank you. Thank you. Thank you. So folks, we're getting a late start on lunch but I also don't wanna entirely short change our afternoon conversations because we're gonna need to bump Chris Roup's discussion to right after lunch. So can we reconvene at 1.15? So we do a 50 minute lunch break instead of an hour.