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It's Time to Eliminate the Tax on Military Retirement Pay

By Governor Phil Scott and Lt. Governor Molly Gray 

It’s well known that Vermont faces a demographic crisis. We have an aging population, with a shrinking workforce and reduced school enrollment. As a result, Vermonters continue to shoulder an increasing tax burden. Both of us discussed this trend during the last election and we know that for Vermont to recover from this pandemic, as we emerge as one of the safest and healthiest states in the nation, we must take steps to expand our tax base and bring new and diverse skills to our workforce. This includes investments in workforce recruitment and retention initiatives for Vermonters, establishing Vermont as a welcoming state for refugees, promoting Vermont as a home for remote workers and eliminating the tax on military retirement pay.

Vermont is one of just seven states that taxes military pensions. Veterans and their families have dedicated their lives to service, and it’s imperative that we ensure Vermont is a place where they can live, work and raise a family in retirement. We both share a deep respect for our veterans and a commitment to ensuring they can experience the quality-of-life Vermont has to offer.

Fully eliminating this tax is not only about honoring our veterans for their service and sacrifice, but also about growing our workforce and increasing diversity in our state.

Many military retirees are in the forties. These men and women often retire from military service with a full civilian career ahead of them. Veterans have a high degree of training and the ability to fill essential, skilled jobs in our workforce. Additionally, because of their service and federal veterans’ programs, they also secure millions of federal dollars for provisions like healthcare – expenses state government does not ultimately have to pay.

In conversations with servicemembers, particularly those who proudly serve in the Vermont National Guard, we often hear that the tax on military retirement pay is a significant barrier to remaining and retiring in Vermont. With the exception of time spent serving overseas, many have lived here their whole lives – like the two of us, they love our state and want to stay. They tell us that eliminating this tax, as all our border states have done, would make Vermont a more competitive option, meaning we could keep these valued members of our communities here. Let’s listen to them.

Retaining these Vermonters would not be the only benefit. Eliminating the tax on veterans’ pensions would also attract much needed workers to our state. Vermont has taken important steps in these efforts already. Over the past several years, the Scott Administration, Legislature and Secretary of State’s Office have worked together to recognize military experience for civilian professional licensure – making it easier for servicemembers to begin their civilian careers in occupations essential to our communities and economy, including electricians, nurses, plumbers, welders, machine technicians and more.

These are just a few of the sectors in desperate need of more workers, and active duty servicemembers approaching retirement are not far away. Fort Drum in upstate New York, for example, is home to thousands of soldiers. Once they retire from active duty, they often wish to remain connected to the military and join state national guards. Eliminating the tax on military retirement pay would provide the Vermont National Guard another tool to incentivize relocation to Vermont and membership in the Guard’s ranks.

Furthermore, we both strongly agree that a diverse Vermont is a healthy Vermont, and we must work to establish Vermont as a more welcoming state for members of the BIPOC community. Over 35% of active duty servicemembers nationwide are members of the BIPOC community. Fewer than 6% of Vermonters are people of color. Let’s work to welcome more BIPOC veterans to Vermont, and ensure others come home after completing their service to our state and nation.

Eliminating this tax is not a new proposal. Legislation has been introduced for years with broad, bipartisan support. We know there is no single solution to solving Vermont’s demographic challenges or our workforce shortage. However, efforts like this will help and eventually lead to a stronger, more diverse, and economically viable state.

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