Publisher’s View: Who raises taxes in a pandemic?”

The Delaware General Assembly is considering an ill-advised bill that would increase the taxes of Delaware residents earning $125,000 or more a year. Under House Bill 64, the current tax rate of 6.6% on taxable income would be capped at $125,000, and the state would add three new tax brackets of 7.1% for taxpayers with taxable income between $125,000 and $250,000; 7.85% for income between $250,000 and $500,000; and a top rate of 8.6% for Delawareans with taxable income in excess of $500,000.

Rep. John Kowalko (D-Newark), who thinks of Delaware as a “parasitic revenue-source state that depends on corporate taxes and receipt taxes, etc.” is sponsoring HB64 in his third consecutive year of proposing tax increases. The difference this year is that he found a co-sponsor in Senate Pro Tempore David Sokola and the Democratic supermajority gives this bill a chance unless business leaders make a compelling case for the unintended consequences.

Now it’s certainly no surprise that the Democrat-led General Assembly would target more affluent taxpayers. But this is a stretch even for them given the pandemic, an anticipated state-budget surplus, and the continuing superiority of the Pennsylvania school system.

Author Travis Brown has written a fascinating book called “How Money Walks: How $2 Trillion Moved Between the States” and it has a website, IRS Tax Migration | How Money Walks, that indicates New Castle County lost $723.9 million in “wealth” to Chester County, Pa., and $104 million to Cecil County, Md., between 1992 and 2018. Another $380 million left New Castle County for Kent and Sussex counties, which is certainly a source of concern for our northernmost county and its cities even if the General Assembly sees it as a zero-sum game.

Should the General Assembly pass HB64, Kowalko’s dire description could come to pass as we see additional migration of jobs and residences to Chester County, which benefits from a flat 3.07% statewide tax rate and outstanding school districts. Additionally, both Maryland and New Jersey have lower tax rates than would go into effect here, except for a higher rate for the top bracket in New Jersey.

We shouldn’t be raising personal income taxes in a pandemic regardless of income levels. It’s a slap in the face of those higher-income taxpayers – many of whom are small-business owners whose businesses and key employees are struggling to survive. 

There are many other reasons why legislators seem to be pandering to lower-income constituents, much like their counterparts in Washington did with the COVID-19 relief bill when they chose to load the bill with non-pandemic-related initiatives.

1. Who raises taxes on residents of an economy that has seen no growth in a decade?
2. Why raise taxes when the governor has proposed a balanced $4.7 billion state budget for FY 2022 that doesn’t include tax increases?
3. Who raises taxes when their state has plenty of cash, promises of a windfall coming from the COVID relief bill, and the prospect of an economic recovery soon?
4. Who raises taxes when research from organizations such as the Caesar Rodney Institute says that higher-income Delaware workers have been leaving for Pennsylvania and elsewhere over the past quarter century?
5. Who raises taxes when you know that, over the past four decades, personal tax increases lead to decreased total revenues and tax decreases lead to revenue increases?
6. Who raises taxes when you realize that people can move to Pennsylvania and still work in Delaware because better schools and Pennsylvania’s lower tax rate on interest income, dividend income, and capital gains may offset having to pay the Delaware tax rate on wages? 

Perhaps legislators don’t look at business rankings where Delaware lags other states. To be sure, we remain attractive in terms of access to political leaders, the strength of our courts, and other innovation-centric areas, but this legislation sends a mixed message that economic development organizations like the Delaware Prosperity Partnership will be hard-pressed to defend with out-of-state prospects or in-state companies considering local expansion as the economy rebounds.

Let your state lawmakers know you think this is the wrong time for this change.

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