Some Delaware lawmakers want to raise taxes for those earning $125K or more. What to know.

The News Journal | by Sarah Gamard

Progressive Democratic lawmakers want to raise taxes for people making six figures, hailing it as a step toward a fairer, more stable tax structure despite Gov. John Carney’s resistance to tax increases.

House Bill 64 by Rep. John Kowalko, D-Newark South, would raise personal income taxes for people who make more than $125,000 a year.

Tax brackets in Delaware currently stop after $60,000, and anyone making over that amount is taxed at 6.6% of their income regardless of whether they make just above $60,000 or $500,000.

The bill would change personal income tax brackets to the following:

  • 6.6% of taxable income between $60,000 and $125,000
  • 7.1% of taxable income between $125,000 and $250,000
  • 7.85% of taxable income between $250,000 and $500,000
  • 8.6% of taxable income more than $500,000

Kowalko estimates his bill would raise taxes for 5% of people in the state. He said the proposal to change tax brackets has been “carefully calculated” to apply a minimal amount of tax increases while ensuring a sustainable revenue source for future recessions.

It’s unclear exactly how much revenue the measure would generate because there was no fiscal note attached to the bill as of Thursday.

Financial officials are still working to confirm how much money his proposal would bring in, but Kowalko stressed that the bill is meant to make a more equitable tax structure in the state instead of creating a specific amount of revenue.

“What it’s intended to do is convey a more progressive system, a more fair system of accumulating revenue,” Kowalko said.

What the tax bill would do

Equitable or not, pressure is on the state to find more money after the COVID-19 pandemic last year led to a dive in state revenue.

The state was able to save itself from having to make drastic cuts or raise taxes last year, largely by dipping into savings and postponing construction projects while also leaning on COVID-19 aid from the federal government.

But savings pools are finite, and even before the pandemic, Democrats have called for policies that would cost more taxpayer dollars, including a higher minimum wage and mental health programs in schools.

The call for those costly law changes has gotten only louder after voters in November elected more progressives to the Statehouse, replacing more moderate Democrats and Republicans.

But it’s unclear if Carney, who is more fiscally conservative than many lawmakers in his own party, would sign the bill into law if it made it to his desk.

A statement from his office about the bill indicated that he’s unlikely to support it.

“The Governor is concerned about raising taxes on any Delaware families or Delaware businesses during a pandemic and significant economic crisis,” said Carney’s spokesman, Jonathan Starkey, in the statement.

“Also because of the state’s responsible budget policy, Delaware is one of few states not facing budget challenges this year.”

Starkey also said that the governor’s office doesn’t generally speculate on whether Carney will sign legislation before it’s voted on, and that the governor is focused on the COVID-19 pandemic.

Why a focus on income taxes?

Unlike other revenue sources in the state, state officials have found that the personal income tax is a consistent and reliable source of revenue during an economic recessions.

The Delaware Economic and Financial Advisory Council, which meets multiple times a year to study trends in state revenue, found that Delaware’s wealthiest residents do not suffer the same job and pay losses as people in the state who make less.

The council also found that, during the pandemic, income by the highest earners has actually increased, according to a press release on Kowalko’s bill.

At the same time, the state has lost revenue from less wealthy earners because those people were more likely to be laid off, Kowalko said.

Lawmakers began the 2021 legislative session on Tuesday and will draft and vote on bills for six months.

They’ve been working from home since the spring, when Legislative Hall in Dover was shut down to the public to prevent spread of the virus in that building.

Backed by nine other Democrats, the bill is one of the latest proposals from a growing progressive faction of lawmakers in the 62-person General Assembly.

One of the main backers of the bill in the Senate is Senate President Pro Tempore David Sokola, D-Newark, the highest-ranking lawmaker in his chamber whose approval indicates that the bill would have a good chance of passing if it makes it out of the House.

Sokola’s lower chamber counterpart, House Speaker Pete Schwartzkopf, D-Rehoboth Beach, indicated that he also may support the bill.

In a statement on Thursday, he said he has generally supported having wealthier people “pay their fair share” and pointed to the fact that he has voted to create upper tax brackets before.

He added that he doesn’t know where the rest of the House Democrats stand on the bill and that legislating from home has stunted conversations around proposals like this one.

“I expect the bill will get a committee hearing and we will discuss as a caucus how we want to proceed,” Schwartzkopf said in a statement. “But it’s an important discussion that we should have.”

Kowalko said he hasn’t heard any opposition from House Democrats about the bill, indicating that it could have a fair shot on the floor.

Because the bill raises taxes, it requires three-fifths of lawmakers’ approval in both chambers. Democratic lawmakers make up three-fifths of both the House and Senate.

The income tax bill also comes as lawmakers and the governor promise that one of their first actions of the legislative session will be passing a separate bill to exempt unemployment benefits earned in 2020 from state income taxes.

The move comes after a record number of people — more than 160,000 — filed for unemployment in the state after the COVID-19 pandemic forced businesses to shutter temporarily or permanently.

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