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.