House panel rejects proposal for high-income tax brackets

March 24, 2021 GMT

DOVER, Del. (AP) — A state House committee dealt a blow Wednesday to a proposal by Democratic lawmakers to establish several new tax brackets that would result in higher-income individuals paying more to Delaware’s state coffers.

The Democratic-led committee voted 7-6 not to release the measure for consideration by the full House.

Democratic Gov. John Carney is opposed to the bill, with administration officials saying it could make Delaware’s income tax structure more volatile and actually lead to a decrease in income tax revenue.

Co-sponsors of the measure include the state Senate president and several progressive Democrats who were elected in November. Supporters of the proposal say it would result in a more progressive tax structure.


“This bill is about a fair, equitable tax structure,” said chief sponsor Rep. John Kowalko, D-Newark, adding that the changes would generate tens of millions of dollars that could be used to fund important government programs.

Administration officials said the changes would affect about 10% of Delaware taxpayers, including 5.4% of Delaware residents and 29% of nonresident taxpayers. That 10% of taxpayers currently account for 48% of Delaware personal income tax revenue but would pay about 52% under the proposed changes.

The current top tax rate in Delaware is 6.6% for taxable income exceeding $60,000. The legislation would apply that existing 6.6% rate to income between $60,000 and $125,000 and create a new rate of 7.1% for taxable income in excess of $125,000, up to $250,000.

Those with income between $250,000 and $500,000 would pay 7.85%, and a top rate of 8.6% would be established for Delawareans with taxable income of more than $500,000.

The new tax rates would result in an estimated $85 to $90 million in additional revenue, assuming no behavioral changes among affected individuals. Administration officials suggested that may not be the case.

Secretary of Finance Rick Geisenberger said the proposal carries the risk of actually decreasing personal income tax revenue if high-income individuals, including tens of thousands of people who pay nonresident taxes, decide to leave Delaware, work from home in neighboring states, or change how and when they record capital gains and other non-wage income.

“The reality is that a lot of this income above $125,000 is not wage income,” said Geisenberger, adding that Delaware already has one of the most progressive overall tax structures in the country.

Geisenberger said the bill also raises tax rates at a time when Delaware is looking at a surplus of more than $600 million and would increase revenue volatility, making year-to-year budgeting more of a challenge. The bill would also leave Delaware with more tax brackets than any other state except Hawaii, he said.

“Most of all, the bill makes us less competitive with our neighbors, particularly our neighbors in Pennsylvania,” he said, noting that Delaware’s top marginal rate would be higher than the rates in neighboring states, with the exception of New Jersey.