Senate makes deal to hike one tax, eliminate another

DOVER — The Democratic-controlled Delaware Senate voted to raise the franchise tax Thursday, a key piece of the plan to balance the state government’s budget.

As part of a bargain to gain Republican votes, senators also voted repeal the estate tax.

House Bill 175, which would raise taxes on about 1,900 companies, all of which have more than $1 billion in combined revenue and assets, was approved by the Senate 16-4, with one member absent. Three Republicans and one Democrat opposed the bill.

The measure would take an additional $115 million from the companies, eliminating more than a quarter of the existing state budget shortfall.

House Bill 16 repealing the estate tax passed 13-7, with three Democrats and the entire Senate GOP caucus backing the measure. The bill officially removes the tax Jan. 1.

Despite Republicans and Democrats reaching a deal on the bills — estate tax for the franchise tax hike — the president pro tempore and majority whip both opposed repealing the estate tax, a sign of the division between Republicans and Democrats and yet another indication a budget will be very tough to come by.

“I was a little disappointed, since there was sort of a leadership agreement. But it passed, that’s the bottom line,” said Minority Whip Greg Lavelle, R-Sharpley, although he said he thought the bills should have been brought to the Senate floor last week.

House Speaker Pete Schwartzkopf, D-Rehoboth Beach, shot down concerns Republicans might back away from budget talks, saying they have no reason to be angry over the vote.

“I don’t see where it makes a big difference who votes for the damn thing,” he said.

President Pro Tempore David McBride, D-Wilmington Manor, previously said he wanted the Senate to vote on the franchise tax bill along with other tax proposals, but he opted to send House Bill 175 to the governor’s desk Thursday. Legislative leadership continues to discuss balancing the budget, with Democrats pushing for more tax hikes and Republicans seeking cuts that would provide long-term stability.

As in the House, the estate tax divided the Democratic caucus and saw more debate than the franchise tax. The policy imposed a tax of between 12 and 16 percent, depending on the value of the estate, with amounts totaling less than $5.49 million (or $10.98 million for a couple) exempt from the tax. The money brought in by the estate tax has varied over time, from $16.2 million in fiscal year 2011 to $1.3 million in fiscal year 2014, according to the Department of Finance.

The state first established the estate tax in 2009, with the provision the tax would expire in 2013. However, lawmakers later removed that sunset.

Removing the tax would save taxpayers an estimated $3.75 million in the first full fiscal year after it takes effect and $5 million thereafter, according to estimates.

A 2015 report put together by state officials and others recommended eliminating the estate tax, saying it was inconsistent at best and a “a negative influence on other revenue streams” at worst.

Several Republicans pointed to that report as evidence for doing away with the tax. But Sen. Bryan Townsend, D-Newark, said it was “hypocritical” as they cited the recommendations, noting the conclusions also called for raising the gross receipts tax on businesses.

“I think it’s shocking and morally troubling that the estate tax cut would pass the legislature, particularly in the current fiscal crisis and in the face of rampant and historic inequality in our country,” he said.

Sen. Lavelle said the tax chased people away from Delaware Sen. Colin Bonini, R-Dover, said it prevented people from passing down wealth to their children.

“The narrative that these are selfish people and these rich people are giving money to their rich kids, I don’t think that’s a fair narrative,” Sen. Bonini said.

Gov. Carney will sign both measures.

Other tax bills

A finished budget, however, remains unrealized and as June 30, the last day of the fiscal year, approaches, lawmakers continue to debate more taxes and spending cuts.

Democrats introduced bills Thursday that would raise taxes on income, tobacco and alcohol.

House Bill 240 would create a new top bracket of greater than $150,000 and increase taxes between 0.15 and 0.4 percent for existing brackets. The top bracket would levy a 6.95 percent tax. Currently, all income above $60,000 is taxed at 6.6 percent.

The state last raised income taxes in 2013.

Under House Bill 241, Delawareans and visitors to the state would pay more for beer, wine and liquor. A 12-ounce can of beer would cost 2 cents more, while the tax on wine would increase by 3 cents for every 5 ounces and spirits with more than 25 percent ethyl alcohol would cost an additional 5 cents per 750 ml.

Legislators attempted to raise taxes on alcohol in 2009 but the effort fell short.

House Bill 242 would raise the 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.

The alcohol tax increase would raise a projected $7.2 million and the tobacco tax would take in a projected $11.6 million next fiscal year. Also, $68 million dollars would result from the income tax proposal in fiscal year 2018.

All three bills are backed by Democratic leadership, and none has Republican co-sponsors.

Rep. Schwartzkopf said he plans to run the alcohol and tobacco bills next week and hold off on the income tax proposal until Republicans and Democrats reach an agreement on the budget.

He said he remains confident the two sides can find consensus before June 30.

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