Delaware’s top earners could shell out a little bit more tax money come next year should state Democrats have their way.
Leaders on the left in both the House and Senate are largely embracing Gov. John Carney’s (D) plan to hike the personal income tax across the board.
There’s one caveat, though. They want to tack on a new bracket for those earning more than $150,000 a year.
In all, the measure would raise about $68 million next year and more than $210 million in fiscal year 2019.
“Sometimes we put too much of the burden on middle class and lower class and this is an opportunity to say there is a shared cost and the wealthy also have to be a part of that solution,” said House Majority Leader Valerie Longhurst (D-Bear).
Her bill would only increase the difference between the top two tax brackets by 0.15 percent – the smallest leap among all brackets across the spectrum. Each of the other brackets will see hikes between 0.2 and 0.4 percent, with proponents saying those will be greatly smoothed out by simultaneously raising the standard deduction and cutting out itemized deductions.
That has one of the more liberal members of Longhurst’s caucus raising his hackles.
A proposal from Rep. John Kowalko (D-Newark South) would lower each existing bracket by a small amount and create two new brackets with significantly higher tax rates.
“I consider it to be a concession, an abject surrender, of any kind of potential for a progressive tax structure that will relieve the revenue situation in a more stable way for years to come,” Kowalko said.
Even though Democrats need Republican support to pass any kind of tax increase, Kowalko says starting at such a low threshold during negotiations is like showing your hand at a poker table.
Longhurst notes nothing is set in stone.
“Everything is fluid. Right now, in the next three weeks, everything down here is fluid,” she said.
GOP lawmakers, on the other hand, say they want to fundamentally change how Delaware budgets its money.
Part of that includes studying how to shave some of the $765 million the state pays for Medicaid benefits. Also up for grabs is looking at consolidating school districts.
Senate Minority Leader Gary Simpson (R-Milford) says they also want a more significant way to reign in the state’s checkbook, rather than simply spending 98 percent of projected revenues each year like they do now.
“We’re proposing a new fiscal framework by which we use a combination of economic growth, income growth, population growth and inflation to govern our spending growth,” Simpson said.
Longhurst says she and other Democrats are on board with those points.
But they aren’t as keen on dropping prevailing wage requirements for school districts and local governments – something that could become a sticking point as June 30 looms closer.
A failure to embrace the plan as a whole, says Senate Minority Whip Greg Lavelle (R-Sharpley), could prompt another stalemate between party leaders.
“We need to do all of these things because spending more money and increasing taxes is the same old can that gets kicked down the road,” said Lavelle. “It’s not new and not systemic.”
All of these negotiations have pre-empted the budget writing Joint Finance Committee from kicking out a spending plan.
Democratic leadership blocked JFC leaders from cutting the budget two weeks ago after blowback from constituents.
They say they wanted to solidify a full tax plan before making such unpopular cuts, though Republicans accused them of being disingenuous.
Reacting to the Republicans’ press conference on Tuesday, House Speaker Pete Schwartzkopf (D-Rehoboth Beach) said such cuts would have a devastating effect on Delawareans’ daily lives.
“I honestly feel like they’re trying to make us into a third-world type state where we don’t provide services for our people, where we don’t provide a good education for our kids,” Schwartzkopf said.
“We’re going to stop Rep. Schwartzkopf from turning Delaware into a third world country,” countered Lavelle.
Carney (D) had his doubts about the recent JFC cuts, too, but his response to this latest budget dust-up was more even-keeled.
“My focus is, primarily, on a personal income tax package that will pass,” Carney said.
He says he’d support Longhurst’s bill, but warns the final budget that arrives on his desk can’t be like a beat up bike tire – patched from all sides by one-time fixes – or else he might veto it.
“I’m not going to accept something that uses some kind of gimmick to get us through June 30. We’ve got plenty of time until then to thoughtfully go through cuts and revenue.”