Democrats propose new income tax bracket for those making more than $125,000 a year

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Democrats introduced a  proposal Wednesday that would create a new personal income tax bracket for top wage earners, cut back on deductions for those nearing retirement age, and generate nearly $70 million in revenue.

The move comes as budget negotiations have reached an impasse, with Republicans demanding a change to the prevailing wage, a set wage for state construction projects and claiming Democrats are demanding rather than negotiating.

Sponsored by House Majority Leader Valerie Longhurst and Senate Majority Leader Margaret Rose Henry, House Bill 240 would increase existing personal income tax (PIT) brackets by varying amounts, increase the standard deduction and eliminate itemized deductions. It also would create a new tax bracket for individuals earning more than $150,000 of taxable income each year.

The bill, according to a Democratic caucus release, is nearly identical to the one Gov.  John Carney announced in March, with the new bracket added.

“We have less than three weeks to draft and pass a balanced budget that provides a quality education for our children, keeps our communities safe, ensures access to healthcare and protects the services that many Delaware residents need,” said  Longhurst, D-Bear. “For decades, people making just above $60,000 have paid the same rate as a person earning three, four or even 10 times as much. Working families are grappling with the high costs of everyday expenses from child care to transportation. We need to do what we can to take the financial burden off of their backs.

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“This bill represents a structural change to Delaware’s financial situation. Personal income tax is one of the most predictable and stable forms of revenue, so it needs to be part of our long-term solution to our budget shortfall. With budget cuts that could have serious effects on the services we provide, we cannot afford to kick the can down the road.

“I’m sure legislators and residents on both sides will have thoughts on the percentages and amounts. By filing this bill, we are starting the conversation on how we can lift the burden off of middle-class Delawareans by asking top earners to do just a little more to help keep our state a great place to work and raise a family.”

HB 240, which would take effect on Jan. 1, 2018, is estimated to generate $68.1 million in new revenue for fiscal 2018 and $211.5 million for fiscal 2019.

“We’ve cut positions, raised the health care burden on employees, reduced open space funding, and taken literally hundreds of other steps to control discretionary spending,” said Henry, D-Wilmington South. “And yet it still costs more to run government than it did several years ago. That means we’re going to need more revenue to do it, plain and simple.

“Everyone in this building, if you gave them truth serum, would concede that Delaware is the most tax-friendly state in the region by a large margin,” she added. “Moreover, our wealthiest residents have been getting an incredible deal – a deal that’s about to get even sweeter if we move forward with repealing the Estate Tax. When a Delawarean who is earning $600,000 a year pays the same tax rate as someone paying $60,000, we think it’s appropriate to ask them to do a little bit more to help preserve the programs that make our state so great.”

Under HB 240, existing PIT brackets would increase by amounts varying between 0.15% and 0.4%. The current upper bracket, taxable income above $60,000, would increase from 6.6% to 6.8%. The new bracket, for income greater than $150,000, would be set at 6.95%.

By increasing the standard deduction – a dollar amount taxpayers who don’t itemize deductions can subtract from their income before income tax is applied – many people whose taxable income is lower would pay less in state taxes. The standard deduction would increase from $3,250 to $5,000 for single and married taxpayers filing separately and from $6,500 to $10,000 for taxpayers filing joint returns.

The bill would also raise the eligibility age for the $12,500 exclusion from income of pensions and other retirement income from 60 to 65 during a five-year period.

HB 240 is expected to be filed Thursday.

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