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Del. taxpayers will continue paying for policymakers’ bad habits

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In Christianity, when asked, Jesus took the Hebrews’ Ten Commandments of the Old Testament and said simply that we should love the Lord with all our heart and soul and mind, and we should love our neighbor as we would love ourselves.

Elegant in its simplicity, intuitive, and understandable. And compelling.

Translating the complexity of public finance, using Jesus’ executive summary style, it would boil down to live within your means, don’t spend money you don’t have to spend, and don’t kill off the taxpayer who pays the bills.

As simple as that executive summary may seem, our Delaware General Assembly has found it a bit tougher in execution. (And, obviously, Sam Waltz writing it does not carry the go-do imprimatur of Jesus’ New Testament admonitions!)

Today, entering the last month of Delaware’s six-month legislative session, it remains unknown how policymakers intend to bridge the apparent $400 million gap on the revenue side of the ledger between the $4 billion that Delaware intends to spend and the $3.6 billion in revenues its existing collections will likely generate. They think they’ve found about $100 million in prospective new corporate taxes.

Today, on the eve of June 1, we know one thing. On July 1, in just a month, Delaware taxpayers will be worse off than they are today, thanks to the financial predicament the General Assembly — and its predecessors — have set up.

Little hope exists that the Delaware General Assembly will listen to the Delaware Business Times, but here’s our three-part prescription.

MAKE GOVERNMENT MORE EFFICIENT

State government must do the same or less, with fewer people and lower, more market-based personnel costs.

An aristocracy of public employees has been created in Delaware by decades of TLC from the General Assembly — led by Democrats — to the public-sector employees, many of them Democrats, ably represented by a handful of public employee unions who have won the obeisance of their politically sensitive if not astute employers.

Two areas that can impact this are the size of government and the pay and benefits they receive. Today, after a recalibration of “middle America’s” paycheck, public sector employees have become the “new aristocracy,” entitled to better pay and benefits, with extraordinarily generous retirements, than nearly 90 percent of the people they are hired to serve.

The public sector as an employer has never recalibrated that, as the private sector has done. And, too, as the private sector has learned to do more with less, that’s a challenge the government needs to embrace. One task force convened in the last term of the last governor made several recommendations.

CUT GOVERNMENT SPENDING

In terms of cutting government spending, some areas represent flat-out waste, and others require an exercise in judgment.

Prevailing wage — the unique-to-government plan to pay above-market prices to union contractors — needs to be ended. Ditto the “closed shop” that forces unwilling employees to join a union in order to take a job for taxpayers, as well as forecloses the ability to use Enterprise Zones for economic development and redevelopment.

INCREASE GOVERNMENT REVENUES

The government must exercise the wisdom of Solomon to raise more money.

The Left’s solution — “piling on” those with higher incomes, or retirement benefits — is a loser because retirement checks, and even many paychecks, are mobile. They’re not locked into a jurisdiction, and the tax savings incents taxpayers to leave when such rates become predatory, as Delaware’s have become. Beneficiaries range from Chester County to Florida.

Instead, millions of dollars in the underground economy likely go untaxed, and user fees and taxes are the only way to grab government’s share of that — as well as of money that may not be as mobile.

In addition, it’s economic development and job creation that will be better served by reducing — not increasing — the tax rates on upper income taxpayers who make such economic development decisions. Eighty-nine percent of the personal income tax collections come from households with more than $100,000 of income.

Few Delawareans remember Hercules’ CEO Al Giacco’s confrontation of the early 1980s with Delaware political leaders, where he threatened to move the company to Texas. They relented on the rates, and he built a fancy new headquarters, added jobs and continued growing Delaware’s economy.

That leaves Delaware now to consider…
1. An increase (originally proposed by Gov. Jack Markell in 2014) in its Motor Fuel Tax, which are about 10 cents a gallon less than Pennsylvania.
2. Increases in its “sin taxes,” including tobacco and alcohol, which also are lower.
3. Property taxes, and, yes, the state may need to consider a first-ever statewide real estate tax.
4. Consumption taxes (yes, a sales tax).
5. Likely some others.

People who study such things as public finance have long told Delawareans that they need to take a more strategic and comprehensive approach to spreading the tax burden. Sound tax policy always has encouraged capital creation by focusing on taxing spending rather than taxing income, which is so rate-sensitive and mobile, easily leaving Delaware.

That will lead this General Assembly, we hope, to looking at spreading the tax burden more fairly among all Delawareans with such ideas as a statewide property tax coupled with lower, not higher, incremental personal income tax rates.

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