Publisher’s View: Now is exactly the time to cut taxes

Gov. John Carney’s State of the State speech included many examples of ways that the state is building a workforce for the “jobs of the future.”  But he needs to simultaneously focus on the jobs and employers of the present. That may require a willingness to support cuts in personal income taxes, the gross receipts tax on businesses, and even the corporate income tax rate.

Rob Martinelli
President
Today Media Inc.

The numbers he used to describe how “robust” the recovery has been exaggerate the situation for struggling employers and employees. We tend to pick the data points that best make our case, but the governor compared year-end 2021 numbers to those a year prior, during the worst part of the pandemic, rather than highlighting pre-pandemic numbers.

If you look at those numbers, you’ll see that there are roughly 6,500 fewer people employed, fewer people in the workforce and a more accurate look at the change in unemployment rate 3.9% vs. 5.0% this past December, which by the way is an identical gap to the current national average.

 And those numbers don’t include the people who have “disappeared,” either because they ran out of unemployment benefits, can’t go back to work because of child care issues, took earlier retirement, or joined ‘the Great Resignation.” It’s difficult for many businesses to find workers.

Since Delaware has no personal exemption for state income taxes, a person making $30,000 per year, or a $15 an hour minimum wage, will still pay $600 in state income taxes. If you are not going to cut all of the personal income taxes, why not at least eliminate this as an incentive to get people back to work?

When the General Assembly needed to address the challenge of an $800 million budget shortfall a few years ago, it raised the gross-revenue tax on businesses and the realty transfer tax. Now, with a more than $800 million surplus, it is time to have a real discussion about giving some of that money back to businesses and taxpayers as the state uses federal funds to improve infrastructure, strengthen workforce training programs, expand mental health services, and address housing affordability.

Delaware is one of just five states that levies a gross receipts tax (GRT), which is sometimes called a “hidden sales tax.” A GRT is an excise tax on the gross revenues of a company regardless of whether that company has profits or losses. It punishes firms with low profit margins and high production volumes and discourages start-ups that typically post losses in their early years.

Delaware’s GRT began in 1975 and has the distinction of topping all other states with 54 different rates by industry.  Delaware has tried to use the GRT to smooth out revenue effects stemming from the business cycle. In 2006, the state lowered the GRT by 20%. Following the recession, the state raised the GRT by 25% in 2009 and 8% more in 2010. From 2009 to 2019, total Delaware occupational license and GRT receipts climbed 58%.

Beyond the potential impact of the personal income tax cut would have on a state that consistently loses middle- and upper-class Delaware workers to neighboring states (Pennsylvania in particular), a decrease in the gross receipts tax would benefit existing lower-margin businesses and give similar types of companies another reason to consider relocating to the state.

Republican lawmakers have introduced several bills to lower taxes this year, but they have languished without a committee hearing for far longer than the 12 legislative days required under House Rules. That inaction comes despite estimates that passage would enable taxpayers to collectively retain more than $282 million in the upcoming fiscal year that begins July 1 and more than $321 million in the following 2024 fiscal year.

There are lessons we can learn from what’s going on in Washington. In a state where everyone knows everyone – there are many businesses and individuals still struggling from the effects of the pandemic – it’s time for some bipartisan cooperation that will enable each side to get what they want by helping the other side get what they want.

Rob Martinelli is the president and CEO of Today Media, the parent company of Delaware Business Times.