House panel OKs tax hikes

DOVER — Bills to raise taxes on personal income, alcohol and tobacco products were passed by a Democratic-controlled House committee Wednesday, despite sometimes contentious testimony from members of the public in opposition.

All three bills now go to the House floor, where they can expect to be voted on by June 30, the final legislative day of the first leg of the 149th General Assembly.

The measures are being debated as legislative leaders discuss ways to eliminate the remaining $190 million of a $390 million budget shortfall. Top lawmakers in each caucus met Tuesday and will convene again today in an effort to reach a compromise on balancing the budget.

The bills include an income tax increase projected to generate $68 million in the fiscal year starting July 1; it would take another $211 million from taxpayers in the following year.

The alcohol tax and the tobacco tax would raise a projected $5.2 million and $11.6 million, respectively, in the next fiscal year.

Wednesday’s House Revenue & Finance Committee hearing lasted close to four hours with about 40 members of the public appearing before the panel to speak for or against legislation.

The income and tobacco bills received bipartisan support from committee members, while only Democrats backed the alcohol proposal.

Some lawmakers noted their support Wednesday does not mean they will back the bills on the House floor.

House Bill 240 would raise income taxes by 0.15 to 0.4 percent for existing brackets and create a new bracket of $150,001 taxed at 6.95 percent. Currently, all income above $60,000 is taxed at 6.6 percent.

About 10 percent of taxpayers would be in the new top bracket.

The measure would also eliminate itemized deductions, increase the amount for standard deductions and raise the eligibility age for tax credits and exclusion of pension dollars. It would go into effect Jan. 1.

“Personal income tax is one of the most predictable and stable forms of revenue, so it needs to be part of a long-term solution,” said main sponsor, House Majority Leader Valerie Longhurst, D-Bear.

Gov. John Carney, a Democrat, had proposed raising income taxes and getting rid of the itemized deductions but not creating a new top bracket, although he has since said he will support the bill. Several measures from Rep. John Kowalko, D-Newark would increase taxes by greater amounts on the state’s top earners, but they are less likely to pass the House.

While House Bill 240 was released from committee overwhelmingly, more than half a dozen representatives of nonprofits spoke against doing away with itemized deductions, which include write-offs for charitable donations.

Nonprofits are concerned the elimination would greatly harm charitable giving. According to the North Carolina Center for Nonprofits, Hawaii saw fewer charitable gifts after capping itemized deductions, while Michigan also witnessed a drop-off after erasing three tax credits based on donations.

“Having incentives to give to charitable organizations is absolutely necessary,” said David Kubacki, representing the Delaware Association of Independent Schools.

Eliminating itemized deductions, Autism Delaware Policy & Community Outreach Director Alex Eldreth said, could lead to nonprofits scaling back their services, in turn forcing the state to pick up more — and spend more in the process.

Delaware Secretary of Finance Rick Geisenberger dismissed concerns the change would lead to a decrease in donations, however.

Much of the discussion Wednesday centered on the proposed alcohol tax increase, with about two dozen people testifying against it. Just one person spoke in support, although every opponent represented a brewery, liquor store or alcohol distributor.

Under House Bill 241, Delawareans and visitors to the state would pay more for beer, wine and liquor. A six-pack of beer would cost an additional 6 cents more, while the tax on wine would increase by 13 cents for a 750ml bottle ounces and spirits with more than 25 percent ethyl alcohol would cost an additional 15 cents per 750 ml.

Speakers hammered the proposal, saying it is like “a sign that says Delaware’s closed for small businesses” and will lead to a fewer sales and, in turn, a loss of jobs.

“Nearly 50 percent of every bottle of distilled spirits sold in Delaware goes to pay a tax or fee,” said Jay Hibbard, eastern region vice president for the U.S. Distilled Spirits Council.

The alcohol industry mobilized in force for the measure: At least 45 people attended the hearing wearing stickers proclaiming their opposition to House Bill 241.

Several people said fewer people will come to buy alcohol from Maryland and Pennsylvania, although the state’s alcohol would still be cheaper because Delaware has no sales tax. Paul Ruggerio, executive vice president of NKS Distributors Inc., said about 40 percent of the company’s business comes within five miles of the state line.

Even lawmakers who supported voting the bill out of committee expressed reservations: “If this is what we need to do to get the talks going or negotiations started or let (House Speaker Pete Schwartzkopf, D-Rehoboth Beach) have the tools in his toolbox … I’m going to vote to allow this to come out of committee as well but not support this,” Rep. Andria Bennett, D-Dover, said.

Legislators attempted to increase taxes on alcohol in 2009 but the effort fell short. The alcohol tax rate was last raised in 1991, although it was later lowered — a necessary cut to offset the loss of business from the 1991 hike, speakers said Wednesday.

House Bill 242 would raise the state tax on cigarettes from $1.60 to $2.10 a pack and increases taxes on all other tobacco and electronic cigarette products. Gov. Carney had proposed increasing the cigarette tax by $1.

While the bill received opposition from speakers, no one protested raising the price of a pack of cigarettes — rather, vape shop owners argued the tax of 5 cents per mL on vape products would cripple the e-cigarette industry.

“You’re just going to murder our business,” Delmar Vapor Lounge CEO David Eisenhour said.

Although they did not testify, several representatives of health-related organizations issued statements calling for doubling the proposed cigarette tax.

“With a $1 per pack increase, Delaware had the opportunity to make a bold statement about our desire to address the leading preventable cause of death and disease in our state,” insisted Jonathan Kirch, government relations director for the American Heart Association in Delaware. “It is outrageous that some of our elected officials seem more concerned about keeping tobacco prices low than they are about keeping our youth from getting addicted to this deadly product. Compromising on public health is never the right answer.”

Five regularly scheduled legislative days remain.

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