- The Democratic-led Delaware House Ways and Means Committee rejected a proposal to cut income taxes and overhaul the state's bracket system.
- Opponents of the bill expressed concern that the negative impact on revenue could lead to a financial shortfall for the First State.
- “Reducing this tax without alternative revenue offsets could leave the state with a significant budget shortfall now and for the foreseeable future,” said Rebecca Goldsmith, Gov. John Carney's deputy treasurer. Stated.
A Republican proposal to cut income taxes for all Delaware residents failed to pass a Democratic-led committee in the state Legislature on Tuesday.
The bill did not receive enough votes in the House Ways and Means Committee to be sent to the House for consideration.
The bill, sponsored by House Minority Leader Michael Ramone of Newark, would raise the minimum income subject to state income tax from $2,000 to $2,500. Also, he will replace his current six individual income tax brackets with three new brackets.
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The current tax bracket is 2.2% on taxable income of $5,000 or less to 6.6% of taxable income of $60,000 or more. Republicans are proposing a 2% tax rate on incomes below $10,000, 4% on incomes between $10,000 and $25,000, and 5% on incomes above $25,000.
Under the proposal, people with taxable income of $25,000 would get a 25% tax cut, and people with $50,000 of taxable income would get a 16% tax cut. A person with a taxable income of $1 million would pay 24% less in taxes compared to the current structure.
The proposed income tax cut failed in a Delaware House committee.
Analysts estimate the proposal would cost the state's general fund about $190 million in its first year and $479 million in the following year.
“What I'm concerned about is the loss of revenue…what happens if we lose this money?” said Rep. Kendra Johnson, D-New Castle.
Ramone explained that the proposal could be a stimulus package that would benefit those most in need while helping offset tax losses to the state. He urged the committee to publish the bill, but acknowledged that amendments were needed to pass it through Parliament.
Ramone also said he would not push for a floor vote unless revenue projections show there is enough money available. “This is just a starting point,” he said, noting that the state has run large revenue surpluses in recent years, largely due to an influx of federal funds.
Rebecca Goldsmith, Gov. John Carney's deputy finance secretary, said the bill comes with “high costs,” noting that the personal income tax is the largest single source of funding for the general fund.
“Reducing this tax without alternative revenue offsets could leave the state with a significant budget shortfall now and for the foreseeable future,” she said.
Republicans also introduced a bill that would require state income tax brackets to be adjusted annually for inflation by an amount equal to the change in the previous year's consumer price index.
The measure, opposed by the Carney administration, is intended to protect taxpayers from “bracket creep,” where increases in the cost of living relative to wages and salaries push people into higher tax rates without an increase in real income. There is.
“If it's just inflation, then you're not creating anything,” said bill sponsor Rep. Rich Collins of Millsboro. “All that extra money is just inflation, and you end up paying taxes on it.”
Analysts currently estimate that the proposal would cost the General Fund about $30 million in fiscal years 2025 and 2026 and about $38 million in fiscal year 2027.
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The committee deferred further discussion and action on the Collins bill until it reconvenes in March.
