As America enters a recession and inflation reaches a 40-year high, one might think Delaware would take some of its $1 billion budget surplus to ease the burden on taxpayers and small businesses. If you ask a legislator, they might point to the one-time $300 “relief check” they graciously returned to each Delaware taxpayer. But the reality is, every opportunity the General Assembly had to provide meaningful relief that would incentivize growth and create economic opportunity – they met with inaction. That’s in stark contrast to 24 states which, during the same period of time, enacted lasting tax cuts.
[caption id="attachment_211407" align="alignleft" width="288"] Kathleen Rutherford | PHOTO COURTESY OF A BETTER DELAWARE[/caption]
According to the Tax Foundation, 10 states enacted individual income tax rate reductions, six states enacted corporate income tax rate reductions, and two states permanently exempted groceries from their respective sales tax bases.
Though meaningful tax relief didn’t happen, there were a few good bills that made it across the finish line. Senate Bill 188, for example, increases the $2,000 pension exclusion otherwise available for military pensioners under age 60 to $12,500, providing an incentive for military retirees under age 60 to locate in Delaware. The bill passed in both chambers and awaits the governor’s signature.
Yet, there were numerous bills that would have helped struggling taxpayers that never saw the light of day. Consider House Bill 358, a bipartisan bill introduced by Rep. Bill Bush (D-Dover), that would have cut the realty transfer tax by 25%. Delaware currently has the highest realty transfer tax in the nation. The realty transfer tax is levied on the purchase price of the home and is usually split between the buyer and seller. According to Zillow, the median price of a home sold in Delaware as of June was $356,744. Had it passed, HB 358 would have reduced the transaction cost for the sale of such a home by more than $3,500 and collectively saved homebuyers an estimated $83 million in its first year. According to the National Association of Realtors, realty transfer taxes are regressive because the tax burden is higher for lower-income households.
Additionally, increased closing costs on the transfer of existing residential property are likely to reduce the ability of new and current homebuyers to purchase a home, the association notes. “As a result, these taxes have a negative impact on housing purchases and therefore economic development,” the DAR said. Even if the bill passed, Delaware’s transfer tax would still be higher than most: Only Delaware, the District of Columbia, New Hampshire, New York, Washington, and Pennsylvania, have transfer taxes above 1%. Unfortunately, the bill was assigned to the House Revenue & Finance Committee, where it never received a hearing.
House Bill 191 would have cut each personal income tax bracket by 10%. The bill was assigned to the House Revenue & Finance Committee in May 2021 and never received a hearing. The bill would have also cut the corporate tax rate from 8.7% to 6.1%. At the same time, West Virginia’s House of Representatives passed a bill to cut each income tax bracket by 10%.
House Bill 445would have cut Delaware’s gross receipts tax by 50%. Gross receipts taxes are viewed as some of the most economically damaging, as they are assessed at each stage of a supply chain rather than at the final point of sale. This leads to tax pyramiding, which causes prices to rise as the cost of taxes is often shifted to the consumer. Reducing the gross receipts tax would have allowed small businesses to be more competitive and created a tax environment that benefits both businesses and consumers. Some refer to the gross receipts tax as “Delaware’s hidden sales tax” because it is applied to the business rather than the consumer. Inevitably, though, that cost is passed on to the consumer. Today, 45 states have repealedthe gross receipts tax.
Charlie Copeland, director of Caesar Rodney Institute’s Center for Analysis of Delaware's Economy & Government Spending, writes, “In short, during bad economic times, Delaware's hidden sales tax, [also known as] the gross receipts tax, ensures that Delaware small business owners pay among the highest personal income tax rates in the nation – taking money out of the business at the exact moment the business most needs that money. “Unfortunately, the bill was assigned to the House Revenue & Finance Committee, where it never received a hearing
With the state consistently bringing in hundreds of millions in surplus funds, now is the time to give taxpayers the chance to thrive, not to burden them with additional economic baggage.
Most importantly, voters must look beyond the $300 checks and realize how much of their hard-earned money Delaware’s government is keeping – not giving back – and keep that in mind in the upcoming elections.
Kathleen Rutherford is executive director of A Better Delaware, a non-partisan public policy and political advocacy organization that supports pro-growth, pro-jobs policies.