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House panel approves proposed income tax increase

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(AP) — A House committee voted Wednesday to send several tax increase proposals to the full House for a floor vote, despite concerns about hardships they could impose on Delaware residents and businesses.

The measures include competing proposals to raise personal income taxes, a bill to increase licensing fees for limited liability companies, and legislation to raise taxes on alcoholic beverages and tobacco products.

Lawmakers are eyeing the bills as Democrats and Republicans try to reach agreement on a mix of spending cuts and tax increases to balance a budget for the fiscal year starting July 1. According to Democratic Gov. John Carney’s administration, lawmakers must close a gap of more than $350 million between estimated revenue and proposed spending for next year.

One of the bills discussed Wednesday raises personal income tax rates across the board, eliminates itemized deductions while increasing the standard deduction, and creates a new 6.95 percent bracket starting at $150,000. The current top rate is 6.6 percent on income above $60,000.

Rep. Quinn Johnson, D-Middletown, said the tax increase was needed because of “structural issues” with the state budget, which he suggested has been dependent for too long on unreliable revenue streams, such as abandoned property and gambling, that tend to affect non-Delawareans more than state residents.

“We can’t keep this up. We can’t also cut our way out of this,” Johnson said.

But critics said getting rid of the mortgage interest and property tax deductions could cause hardships for thousands of homeowners in Delaware, which had one of the largest foreclosure rates in the country last year.

Meanwhile, advocates for nonprofit groups said eliminating deductions for charitable donations will affect fundraising and could lead to a reduction in services.

“Nonprofits face the grim reality that their fundraising dollars could take a hit,” said Alex Eldreth, policy and community outreach director for Autism Delaware.

State finance director Rick Geisenberger said officials had studied data on all 50 states and found no evidence to buttress such concerns.

“We found no correlation between charitable giving and what your state tax system is, nor home ownership and what your state tax system is,” he said.

Committee members also were told that keeping the mortgage interest and charitable donation deductions would gut the fiscal impact of the bill by more than half. As currently written, the bill is expected to generate an estimated $68 million in additional revenue next year and $211 million the following year.

“These are mathematical decisions, not political decisions…. Every Delawarean is going to have to be part of this solution,” Johnson said.

A competing income tax measure that also was sent to the House creates two new tax brackets, at $125,000 with a rate of 7.1 percent, and at $250,000 with a rate of 7.85 percent. The bill also provides for a tiered reduction of itemized deduction allowances for taxable income above $125,000.

Committee members also voted to release a bill increasing taxes on alcoholic beverages, despite overwhelming opposition from dozens of industry representatives, from distributors and wholesalers to craft brewers. Opponents said the measure, also opposed by the Delaware Restaurant Association, will cost jobs and lead to lower sales.

“When taxes go up, sales go down,” said Paul Ruggerio, executive vice president and general manager of NKS Distributors, a beer and wine distributor.

The committee also voted to release a bill increasing a variety of tobacco taxes, including hiking cigarette taxes by 50 cents per pack, from $1.60 to $2.10. It also includes vapor products in the definition of tobacco. Owners of businesses that sell vaping and e-cigarette products said the tax increase they are facing could put them out of business.

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