As budget talks continue, income tax hike proposed

Delaware State News · June 14, 2017 · Matt Bittle

DOVER — Saying they want to further discussions about raising revenue, top Democratic lawmakers are circulating a bill that would raise income taxes on Delawareans and create a new top bracket of greater than $150,000.

The not-yet-filed bill would increase taxes between .15 and .4 percent for existing brackets and levy a 6.95 percent tax on the state’s top earners. Currently, all income above $60,000 is taxed at 6.6 percent.

Supporters say the proposal would help close a budget shortfall and create greater equity in the tax structure, but others feel it is unfair to taxpayers.

Republicans believe the measure would hurt businesses and chase people out of Delaware, and some left-leaning Democrats say the measure hurts the lower and middle classes.

The new bracket of $150,001 and up would impact about 10 percent of taxpayers. The draft bill would go into effect Jan. 1 and bring in about $68 million next fiscal year and $211 million in the first full fiscal year.

The legislation would also raise the age limit from 60 to 65 over five years for pension exclusion eligibility and get rid of itemized deductions while increasing the standard deduction about 54 percent.

“This is the bill that needs to start the conversation, and it’s fluid,” House Majority Leader Valerie Longhurst, D-Bear, said, noting she is open to negotiating changes to it.

The proposal is based off a March recommendation from Gov. John Carney, but it adds a new top bracket.

Gov. Carney, a Democrat, has expressed concerns about pushing businesses and wealthy individuals away if taxes are increased too much. Wednesday, he said his main focus is getting an income tax bill that will pass, and he will back the Democrats’ measure.

“My proposal has always been one that we’ve looked at through the eye of not making us less competitive and one that’s fair and equitable,” he said.

But the measure needs GOP buy-in to pass, and while Democrats appear set on balancing the budget in part with an increase in income taxes, Republicans are resistant.

The proposed tax increase itself may be minor, but it is part of an “accumulation” of higher taxes placed on citizens in recent years, House Minority Leader Danny Short, R-Seaford, said.

House Minority Whip Deborah Hudson, R-Hockessin, agreed, saying: “My district is the more wealthy people, so you might think that they’re not even reading the news and care about this, but they do too, and they’re looking for cuts as well, because they’re familiar with what it takes to run businesses, have cuts, manage your budget.”

The leadership proposal is not the first income tax-raising measure to be considered this year. In April, a bill that would lower rates on most Delawareans and institute two higher brackets while phasing out itemized deductions for top earners was released from committee. However, it has not had a floor vote.

The main sponsor of that measure, Rep. John Kowalko, D-Newark, believes the bill backed by leadership simply continues a “regressive tax structure.”

“I feel I can accurately describe it as unresponsive to our needs and certainly even detrimental to the economy and detrimental to the middle-class taxpayer,” he said.

Rep. Kowalko said he will not vote for the currently unfiled bill.

Legislators have been meeting for months in an attempt to reach a compromise on balancing the budget, but the two parties continue to debate spending and taxation. Republicans want spending reform and say Democrats have been unwilling to consider large-scale changes. Democrats counter Republicans are holding the budget hostage over ideological issues.

Lawmakers met Tuesday and were scheduled to meet again Wednesday evening to continue discussion. The fiscal year ends June 30, leaving the General Assembly eight legislative days to pass a budget.

There’s also the chance, however slim, of a gubernatorial veto: Gov. Carney said he may issue his veto power for the first time if the budget goes against “sound fiscal policy,” although he was careful not to frame it as a threat.

“I’m not going to accept something that uses some kind of gimmick to get us through June 30,” he said. “We’ve got plenty of time between now and then to thoughtfully go through cuts and revenue.”

Proposed income tax hikes

A draft bill would raise income taxes, part of a Democratic proposal to balance the budget. Below are the rates as they would change under the proposal.

$2,001 to $5,000: from 2.2 percent to 2.4 percent

$5,001 to $10,000: from 3.9 percent to 4.2 percent

$10,001 to $20,00: from 4.8 percent to 5.2 percent

$20,001 to $25,000: from 5.2 percent to 5.5 percent

$25,001 to $60,000: from 5.55 percent to 5.7 percent

$60,001 and up: from 6.6 percent to 6.8 percent to $150,000 and a new rate of 6.95 percent at $150,001 and above

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