5th Time’s The Charm, Right??
After facing intense scrutiny from Progressives, and even some moderate Democrats, online, over the phone, in emails, in letters, and even down in Legislative Hall, leadership in the Democratic caucus went back to the drawing board to draft a new Personal Income Tax (PIT) Bill. The big issues that sent HB 240 back to leadership were the increases for the lower income brackets, cuts on tax deductions for moderate and wealthy income families, and a concern that non-profit donations from citizens in those in the tax brackets that favor itemization will drop if the tax itemizations are gotten rid of. These are all valid concerns. The newest bill looks to solve these issues, while still making it appealing to enough Republicans in the House and Senate, whose votes will be needed in order to pass the bill by Friday. If the bill has to go back and forth, then it will not pass in time, and negotiations will start all over. Since the Left has all but bent over backwards in negotiations and cuts, any further negotiations will likely only hurt the Democrats and favor the Republicans. So, what does this new bill do?
House Amendment 1 to HB 240 (view here) cuts all tax increases below $25,000 a year. Tax rates for people in those brackets will remain untouched, as will their ability to claim the standard deduction that 63% of Delawareans (mainly those in lower brackets) claim. The bill also allows for 50% of claimed itemizations to be deducted from gross income. We will all still be able to deduct the full amount from federal, which has a much higher return than the state. So, all mortgage interest, charitable donations, medical expenses, everything, will still be able to be itemized at the federal level, and people will receive the full benefit there. However, on the state level, people will only be credited at half the rate. This will not affect low- or even moderate-income families because they are part of the 63% who claim the standard deduction. However, it will ensure that people living in mini-mansions with beach homes, and individuals making six or seven figures per year, will still have to pay something in state taxes. (They won’t get to write off their entire liability). Also, this entices people in upper-income levels to donate more money to charity, to offset the itemizations cut, and still retain the benefit to which they have become accustomed.
To summarize, this bill has upper brackets that everyone on the left has been clamoring for; it does not raise taxes at all on those individuals already on social assistance, or families making less than $50k a year (a couple each making $25k); it ensures that people will absolutely still donate to nonprofits (possibly even at a higher rate than before); and it raises the taxes of those on top by millions of dollars annually (on top of the millions they are currently paying) and does not allow them to simply right it all off. If every Dem votes for this bill, it will get through the House, but it still has to make it through the Senate with every Dem plus two Republicans. Problem being, Republicans have walked out of negotiations until Dems make drastic cuts to our state budget. Cuts that have already begun today to the tune of $88 million; mostly from nonprofits and public services. If we cannot get them on board with a PIT bill, plus a few sin tax bills or other revenue-generating proposals, we will not be able to have the revenue to avoid the cuts already made, or any of the others coming down the pike.
We have relied on unstable revenue for far too long, the Casino revenue has dried up; the shell corporation taxes have already been jacked up this year; abandon property revenue has leveled off; and everything else just simply cannot keep up. We have to find a way to get a PIT bill through that will pass the House and the Senate if we want to avoid cuts. All other bills can be negotiated and added to, but a PIT bill is the basis for our revenue going forward if we want to retain services.
This is the ORIGINAL proposal from Gov. Carney, NOT the new one:
You can see that those in the upper brackets were contributing far and away the most, while those in the lower brackets (making $14,803 actually were going to get a tax cut at the end of the year). These numbers have changed now that the standard deduction is not going to double, the upper income families will be allowed to itemize up to 50% of their write-offs, and that the brackets below $25k are not going to be raised at all. In the new proposal, the number for the top 3 quintiles will not be as high because they will also not have to pay any additional taxes on the income they made in the $0-$25k brackets, and the bottom two will not generate any additional revenue at all. However, we thought it would help to be able to envision who is going to be paying the higher share of the revenue, and this chart supplies that context. For those who want to see the dollar amount per year of additional taxes per the new amendment:
For those who want to see the dollar amount per year of additional taxes per the original HB 240:
Wondering why did the top brackets went down? That’s the math, when we cut out the increases at the bottom, that means those on the top end also didn’t pay anything additional into those brackets. That means it didn’t compound all the way up the chain to the top income brackets.