Appendix 3

Table 4

PERSONAL INCOME TAX RATE HISTORY

Major Tax Law Changes

Year

Federal Rates

State Rates

Notes


Min.

Max.



1968



25%

Vermont income tax first coupled to federal tax liability at 25% of federal tax liability






1969



28.75%

25% plus 15% surtax






1973



28%

25% plus 12% surtax






1974



27.25%

25% plus 9% surtax






1977



25%

Form 103: 27.25%, reduced by 1978 Legislature to 25%






1977

0%

70%


1977 Amendment- established 0% tax liability below set thresholds (reduced from 14%). Raised taxable income brackets for different filer status' (Effective - 1977 tax year).






1979

0%

70%


1978 Amendment- raised taxable income brackets and increased personal exemptions (Effective - 1979 tax year)






1979



23%







1982

0%

50%


Economic Recovery Tax Act of 1981 - lowered rates, providing for cumulative across-the-board reductions of 23% on a 3-phase schedule. Placed the top income tax rate at 50% (Effective - 1982 tax year). Also, raised the highest taxable income bracket amount in 1983 and 1984 , eliminated tax rate distinction between "earned" and "unearned" income, and indexed to adjust for CPI changes.






1982



24%







1983



26%

24% plus 1% surcharge (April 28, 1983), 24% plus 2% surcharge (July 28, 1983) - retroactive to January 1, 1983






1985



26.5%

24% plus 2.5% surcharge






1987

11%

38.5%


Tax Reform Act of 1986 - gradually lowered rates for the highest-income taxpayers to 28% (Effective - 1987 tax year and continued through 1988), while raising the minimum rate. Also, indexed to adjust for CPI changes and broadened the tax base by eliminating certain deductions.






1987



25.8%







1988



23%

Added earned income credit






1988

15%

33%


The top rate, for the highest-income bracket, was 28%. The maximum tax rate, 33%, applied to the second-highest income bracket.






1989



25%

Added 2.5% withholding on real estate sales by nonresidents






1990



28%

Added 6% withholding on nonqualified deferred compensation






1991

15%

31%


1990 Amendment- increased the top rate to 31% and decreased maximum rate (Effective - 1991 tax year).






1991



28-31-34%

(25%- To become effective 1/1/94)






1993

15%

39.6%


1993 Amendment - increased the top individual rate to 39.6% and expanded the earned income tax credit (Effective - 1993 tax year).






1994



25%







Notes:

Vermont has had a personal income tax since 1931, but it was not coupled to federal tax liability until 1968.

Italics indicate Federal Income Tax Law changes

Bold indicates State Income Tax Law changes

Year indicates tax year to which rate applies

Source for VT information: VT Tax Dept.

Source for Fed. information: Significant Features of Fiscal Federalism, Volume 1, ACIR, 1995. Table 7; Tax Statutes and US Master Tax Guide.