Delaware tax climate – It’s complicated

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Good afternoon everyone,

A follow-up to Friday’s column on State Rep. John Kowalko’s plan to add to income tax brackets for higher income Delawareans. Kowalko wants to add two higher tax brackets for people earning more than $125,000 or $250,000.

One reader said that it is unfair to compare income tax rates without taking into account the state’s low property tax rate.

She has a point. When states are ranked on its tax burden, Delaware has pluses and minuses.

One of the best guides available comes from the Tax Foundation, which recently published a lengthy list of tax comparisons.

Delaware ends up with a mixed performance. The state’s business tax climate which includes corporate, income and other areas, is the 11thbest in the country. Other reports dispute that ranking.

In regard to state income tax collections per capita. Delawareranks in the top 15 in terms of the highest rate. When it comes to the property tax, Delaware ranks 44th.

The state is ninth in tax collections per capita. It means the state gets a lot of money from people and entities outside the state. Gas and alcohol taxes remain on the low side.

Delaware is in relatively good shape when it comes to funding of pensions – a fiscal time bomb for many states. Delaware ranks 11thamong the 50 states but falls short of the desired goal of full funding. Only Wisconsin and South Dakota come close to that status.

The danger for Delaware is a sharp drop-off in fees from incorporations and its reliance on the income tax. Even a moderate economic downturn would be bad news, thanks to the state’s reliance on the two revenue-raising methods.

Here’s to a smooth Monday. This newsletter returns tomorrow. – Doug Rainey, chief content officer.

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