There is no free lunch. Over the next several weeks, the General Assembly will craft a budget. It is already clear that the Governor’s 8% solution (which I have repeatedly said was Ruth Ann Minner-revisited) has been firmly rejected. However, the General Assembly is ignoring Senator Colin Bonini’s proposal of an Employee Buyout, which is the only plan I have seen that gets to the root of the budget problem (too many State employees supported by too little money). That leaves tax increases —- Delaware be prepared for a long, long recession.
There is no free lunch. Delaware has a sales tax. It is called the gross receipts tax (for an IRS definition of gross receipts, click here). Delaware’s “sales tax” is charged to the business rather than at the cash register. So, when you buy a loaf of bread, the “sales tax” or “gross receipts tax” is already included in the price rather than added on at the cash register. This tax is charged whether the business is profitable or not. The General Assembly will be raising the sales tax, again. Of course, every dollar taken from a company that is struggling pushes it closer to additional layoffs or closure. So raising the “sales tax” just prolongs the State’s failing economy.
There is no free lunch. The General Assembly will increase the personal income tax (PIT). Almost every small business is organized as an ‘S’ Corp or an LLC or an LP. These “corporate structures” are income pass-through structures. In other words, the income made by a small business is passed to the owner to pay the tax — at the owner’s tax rate. So, increasing the PIT also increases taxes on small business. As I said above, every dollar taken from a company that is struggling pushes it closer to additional layoffs or closure. So raising the PIT just prolongs the State’s failing economy.
There is no free lunch. PIT collections were down 8.4% though April 30. The “sales tax” or “gross receipts tax” was down .4% despite having been raised by ~20% this January. In other words, small businesses are struggling. With Corporate layoffs & closures, restaurants, stores, and entertainment venues are all in trouble. These businesses have no real lobbying force in Dover, so let me just point out that the State cannot employ every citizen of the State. By enacting policies that will lead to higher private unemployment and more need for government services (i.e. more tax revenues), the General Assembly is poised to push the State further into a hole.
Why a buyout? That just incentivizes the departures. Why not be sensible and eliminate the marginal performers in the agencies that have the most fluff? It’s easy to agree that we’ve got far too many employees for a state this size but, when we’re finally forced to do some cutting, let’s do it in a way that makes sense.
Rotten apples go first. Then the people who hold positions of marginal importance. If you “right size” with the right people, you’ve got a chance of getting more bang for your devalued buck.
Charlie you make a provocative point…”these businesses have no real lobbying voice force in Dover…”, and your right…because most small businesses have filled a need in the local community, never thinking “protection” might be needed. So the new Don is our state government, so to stay may be to pay.
And right under the state are the municipalities all wanting a piece of the action too–new in some areas over the last 5 years.
A state or federal clinic job is looking more attractive every day. And there are benefits with that, right?
Larry:
I agree with your fundamental premise. Managers should do their jobs — identify under-performing employees and get rid of them. Our unaccountable government will not do that. Pure and simple. That leads to the idea of a buyout.
Joanne:
Between the Teacher’s Union lobbyists and staffers along with the large number of members of the General Assembly who work for the State as employees (3 in the Dept of Labor, alone), the small business owner/operator is completely out-gunned, today. So much for the citizen legislator.
Charlie,
I’ve found a little money on the State’s table. As you know, companies withhold taxes when a 1099 employee fails to produce a valid W-9; usually its a bogus Social Security number, invalid address, or is an ineligible non-resident..
So far, I haven’t found anything preventing Delaware from requiring firms to withhold state income taxes from 1099 payments routinely.
Some of the uses for 1099 payments include payments to independent contractors, payments to board directors, consultants, stock dividends, interest payments, gambling winnings, etc.
While the money is owed to the State, it rarely gets declared. The IRS gets a 1099 tape from accountants, its not as detailed as the one they share with states from Social Security. And then there is the timing of the tape. It’s April of the following year before the tapes start being looked at.
Frequently, when the 1099s are consolidated, they are the basis for the tax payer’s income tax in a different state. The bogus social security numbers on the IRS tape mean the taxpayer is gone with all funds.
Contrarily, if the State gets their cut first, those same bogus social security numbers will make it difficult for their owners to get their money back. Also out of state residents leave a portion of their 1099 income money here in Delaware before tax season.
Consider proposing State income tax be withheld from 1099 payments. Its money presently owed to the State but not collected.
Best wishes,
Rollyn
Hello Rollyn:
Great idea. In other words, the money is already owed the State, but the standard collection process is after the fact (when the tax-cheat has already moved on). Thanks for the idea.