Trouble in Delaware

Every day, I read about another state that is following the trend toward increasing the tax burden on its citizenry.  Delaware is raising its personal income tax rate for households with income of $60,000 or more from 5.95% to 6.95% and the state has reinstated the estate tax.  Taxpayers are getting frustrated by being robbed of their hard-earned money and are slowly leaving the state.  Delaware can’t deny the adverse affects of raising the personal income tax rate- just look to New Jersey, New York and California.  These high tax burden states have been driving wealth out and increasing the number of citizens migrating to other states. 


Delaware has benefitted from individuals leaving neighboring states with state and local tax burdens above Delaware’s.  Five states accounted for over 80% of the net migration into Delaware between 2005 and 2007.  The correlation is obvious.  Raising the state income tax will reduce the number of people moving to the state. 


This would be detrimental for Delaware, especially considering how it has been an attractive place for seniors to reside.  Social Security and other retirement benefits are exempt from the State income tax.  Taxpayers over the age of 60 can exclude $12,500 of investment, pension and military retirement pay from reported tax income.  Furthermore, Delaware does not have a sales tax, property taxes are low, and has additional property tax relief clauses for residents over the age of 65.  Reinstating the estate tax would make the state less attractive, especially to seniors. 


For three decades, the legislature has struggled to lower the top income tax rate and to make Delaware a haven for retirees and now it is reversing course.  Dr. John E. Stapleford, Director of Economic Policy at the Caesar Rodney Institute has published a short analysis of the situation.  Click here to read the full document.