Unlocking Delaware’s Potential: The Case for Tax Reform
By: Jane Brady, Chair, A Better Delaware
The Governor recently signed a number of bills passed by the Delaware General Assembly to help, in their view, with increasing the rate of home ownership in our state. Included in the package were an incentive program to create and expand workforce housing, elimination of the expiration of the mortgage mediation and foreclosure prevention programs and excuse from certain, limited purchases from a particular state transfer tax for contractors. General home buyers and sellers are still required to pay the most expensive realty transfer tax in the nation, however, 4%. That means that for every hundred dollars you pay for a home, $4 is taken for the transfer tax. While it is often split between seller and buyer, as negotiated, that translates to a tax of $12,000 for a house costing $300,000. We would have been well served if the General Assembly had reduced that tax. It stifles the economy. It discourages people who would like to relocate or seniors who would like to downsize, from doing so, as they are required to pay twice – once to sell, and then again to buy.
But transfer taxes are not the only way government reaching into the till is affecting Delaware.
We have written here on many occasions that our General Assembly should repeal our gross receipts tax. Perhaps some explanation of why we are so adamant would be helpful. Gross receipts taxes are an archaic idea that started, according to reports, in the 13th century. Delaware remains one of only seven states to retain a state gross receipts tax. Most states have abandoned them for good reason. These taxes are on the money businesses receive from sales, before accounting for any of their costs for staff, materials, rent and other business expenses. They take money away that might be spent on expanding a business or adding a new product or service. For businesses with narrow profit margins, such as the mom-and-pop stores, or the new entrepreneur, it can eliminate most or in some instances, all of the profit, even jeopardizing the owners’ own compensation. And, of course, these taxes add to the costs of products and services to you, the customer. Delaware should repeal the gross receipts tax.
Delaware has seen an outmigration of talent over many years now. Bringing new business and keeping businesses that provide high paying, technical and manufacturing jobs should be a priority. It has not been. Whether in the bioscience area, the manufacture of alternative energy source components or chip and computer manufacturing and development, we should expand options in Delaware. We need to keep our citizens with skilled and bright young minds here in Delaware and attract new and competitive skilled workers to our state. Corporate income taxes impact our ability to do so. Research continuously shows that taxes are a factor in a state’s ability to attract and keep business. Our corporate tax rate is one of the highest in the country (we are ranked No. 7 by the Tax Foundation). Studies demonstrate that high taxes reduce investment in new and improved technology, impact efficiency, and result in lower wages, or fewer increases in wages, for employees. Freedom from a high tax burden allows businesses the freedom to grow, innovate and thrive. We should reduce our corporate tax rate.
The American Legislative Exchange Council ranks Delaware 30th of the states in economic outlook. Our tax rates are a component of that rating. Lack of innovation and imagination of what Delaware could be, what opportunities we could offer, what exciting challenges we could give to the talent and skill we have right now in our schools and universities, is holding us back. Let’s unleash that talent and turn potential into production.
Jane Brady serves as Chair of A Better Delaware. She previously served as Attorney General of Delaware and as a Judge of the Delaware Superior Court.
.