Nonprofits led the charge Wednesday against efforts to change Delaware’s income tax structure.
One proposal would eliminate itemized deductions – meaning charitable donations could no longer be written off – while also increasing rates for all earners.
“Nonprofits face the grim reality that fundraising might take a hit,” said Alex Eldrith, policy director for Autism Delaware.
State grants to organizations such as his could potentially face cuts already, Eldrith said, and dropping itemized deductions could lead to fewer spots in programs.
Others, from the March of Dimes to the United Way of Delaware all testified they fear declines in donations should the bill become law.
The plan from top House Democrats would raise rates between 0.15 and 0.4 percent across all income brackets, include a new top tax bracket for those making $150,000 a year and increase the standard deduction for all.
In the face of a projected $350 million budget shortfall, many Democrats have been coalescing around a personal income tax hike in recent weeks, saying it’s the only way to ensure a consistent cash flow for the state.
“We can’t keep this up. We can’t also cut our way out of this,” said Rep. Quinn Johnson (D-Middletown).
“We’ll be right back here again if we don’t make this as broad as possible, which means every Delawarean is going to have to be part of this solution,” Johnson said.
The plan would raise about $211 million when fully implemented in 2019.
Keeping itemized deductions would cut $133 million from that total, according to state Finance Secretary Rick Geisenberger.
“I don’t like this and none of us are going to like it,” said Johnson. “It’s tough, but they will survive.”
Republicans have been apprehensive about supporting the plan, wanting assurances that the state will study ways to save money on Medicaid, among other expensive programs.
Lawmakers eventually voted it out of a House committee.
It will now face off against another personal income tax plan from Rep. John Kowalko (D-Newark South).
His version relies solely on increasing taxes on the state’s top earners, adding new brackets at $125,000 and $250,000.
It would also taper off itemized deductions for wealthier Delawareans, but leaves them in place for those earning under $125,000 a year.
Kowalko called it a “stable revenue raiser,” but Geisenberger says his economists estimate the bill would bring in about half of the other proposal each year.
Johnson and others say they’re worried it won’t provide a permanent fix to perennial budget pressures facing Dover for the past several years.
“If we pin our budget on those higher income brackets, what’s going to happen is we’re going to be right back here again, the money is going to dry up…”
Both bills are ready for consideration by the full House.
During the same committee hearing, a coalition of Delaware’s microbreweries, alcohol distributors and industry groups swarmed Legislative Hall to try and bury a proposed hike to the alcohol tax.
Before the hearing started, House Speaker Pete Schwartzkopf (D-Rehoboth Beach) filed an amendment that would trim his original plan.
Under the plan:
· A six pack of beer would cost six cents more
· A 750ml bottle of wine would cost 13 cents more
· A 750ml bottle of spirits would cost 15 cents more
Projections peg new revenue from the bill at $7.1 million annually when it’s fully implemented.
“This is not fun. It’s not enjoyable in any way shape or form,” Schwarzkopf said, noting it was an option brought up during backroom negotiations with Republican leadership.
Brewers said the move would prevent them from expanding and hiring more people.
Rep. Mike Ramone (R-Middle Run Valley) echoed what distributors testified to – that the number of people crossing the border to buy their booze would drop.
Ramone called it “unrealistic” to think sales volumes would stay the same with any kind of tax increase.
The measure was eventually released to the full House for consideration.
The same committee also signed off on a bill increasing taxes on tobacco products and e-liquid.
