Lawmakers File Bill Creating Additional Personal Income Tax Brackets for Highest Earners

Delaware General Assembly

Press Advisory:
For immediate release
January 13, 2021
Contact: Rep. John Kowalko

Lawmakers File Bill Creating Additional Personal Income Tax Brackets for Highest Earners

HB 64 would establish three new brackets starting at $125,000

DOVER – Citing a fairness issues and the need for stable, predictable revenue, lawmakers unveiled legislation Thursday that would create three additional personal income tax brackets for the highest wage-earners in Delaware.

House Bill 64, sponsored by Rep. John Kowalko, would only impact Delawareans whose taxable personal income exceeds $125,000. All wages under that amount would see no increases in taxes.

“This bill is intended to ensure a more fair and equitable progressive tax structure that is sustainable and not overly burdensome to any category of earners,” said Rep. Kowalko, D-Newark South. “It has been carefully calculated to apply a minimal amount of tax increases while ensuring a sustainable revenue source in future economic downturns.”

Reports by the Delaware Economic and Financial Advisory Council (DEFAC) have shown that personal income tax (PIT) revenue is the most consistent and dependable revenue source during times of economic recession and that the highest earners do not suffer the same employment and income losses as Delawareans with lower incomes. During the past year’s pandemic, income by the highest earners has actually increased.

Under current law, after an individual earns $60,000 in a year – after deductions – subsequent earnings are taxed at a rate of 6.6%. The $60,000 level has been Delaware’s top tax bracket for more than 20 years.

“An income tax structure that has graduated rates for lower incomes but a flat tax for all top-earners is, to be blunt, only half-built. Rightfully, we tax the first $60,000 earned at lower rates, which increase step-by-step,” said Sen. Marie Pinkney, the lead Senate sponsor of HB 64. “But the final step – 6.6% for all income $60,000 and above – should be the middle of the ladder, not the end. Other states and the federal government recognize this and have brackets for incomes up to the millions. That makes sense, not just because it’s fair but because it is built to last. As inequality grows and wealth is moved from bottom to top, our tax policy should change with the times. This bill helps us do that and I am proud to be on as a Senate sponsor.”

HB 64 would apply only to the income of individuals who have earned more than $125,000, with new rates at 7.10% for taxable income in excess of $125,000 and up to $250,000; 7.85% for taxable income in excess of $250,000 and up to $500,000; and 8.6% for taxable income in excess of $500,000. A taxpayer who earns $250,000 in a year would pay an additional $625 in income tax under the proposed legislation.

“Fundamentally, this legislation is built around fairness and stability. It has been decades since we last meaningfully updated the structure of this tax – one of Delaware’s most stable, important sources of revenue – and we cannot keep waiting while inflation and rising income inequality gradually shift the burden further down the income ladder,” said Senate President Pro Tempore David Sokola, a lead sponsor of the bill. “This bill levels the playing field and better prepares us for our state’s long-term future. It’s fair and straightforward and I look forward to working with our partners in the House to get it passed this year.”

The adjustment to the tax rates on the highest incomes in the proposed legislation will enable a more sustainable and consistent necessary revenue stream for the state regardless of unanticipated economic downturns. It would keep intact Delaware laws that allow for different tax paying options for single filers, married joint filers, and separate filings for married filers.

HB 64 has eight additional co-sponsors and has been assigned to the House Revenue & Finance Committee.


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