Tax reform law could reduce Delaware revenue

DOVER — Federal tax reform could have ramifications for Delaware and its taxpayers beyond the obvious tax cuts, some officials warn.

The measure, signed into law last week by President Trump, lowers taxes for Americans.

But, it could also lead to less revenue for the state government, officials believe.

The changes in the bill, including decreasing income tax rates, eliminating personal exemptions and reducing corporate income tax rates, bring about uncertainty that could make it a little more difficult for lawmakers to balance the state budget, one official says.

Rick Geisenberger

“The GOP tax bill is generally designed, in the near term, to reduce the taxable income of most individuals and businesses in America including Delaware,” Secretary of Finance Rick Geisenberger said in a statement. “Since Delaware’s personal and corporate income tax system is ‘piggybacked’ on the U.S. tax code, the practical effect is that many Delaware individuals and business will report less taxable income which will reduce state tax collections.

“It’s important to note that many of the tax benefits for individuals in the GOP tax bill eventually expire creating an automatic major tax hike for many Delawareans in several years. There may also be increases in some state revenues if, for example, more businesses form corporations or LLCs in Delaware and if companies repatriate their overseas earnings back to the U.S. and Delaware.”

The Delaware Economic and Financial Advisory Council, which provides the official revenue forecast for the state, projected $4.24 billion in revenue for the current fiscal year and $4.32 billion for the fiscal year beginning July 1. The latter figure is the number the governor will base his budget off.

When the panel reconvenes in March, any projected changes will be included, potentially resulting in less funds for legislators to work with.

A presentation on the possible implications of the tax bill was shown at the last DEFAC meeting. The presentation notes questions as to the exact effects of the bill abound, but there are provisions that could hurt Delaware’s revenue forecast and provisions that could help it.

The repeal of personal exemptions and limitations on itemized deductions could result in a revenue boost of more than $50 million for Delaware, while changes to business deductions will allow many companies to keep more dollars.

The proposal, which passed in Congress solely through Republican support, could make things a little more difficult for Delaware’s General Assembly, which is controlled by Democrats.

If it does lead to a drop in revenue, Delaware lawmakers may cut spending or raise taxes as a result.

There is the potential for long-term gain for Delaware, as Mr. Geisenberger noted, if the breaks offered by the bill incentivize more people to create corporations in the First State.

According to the Congressional Budget Office and estimates from the Joint Committee on Taxation, the bill will reduce federal revenue by about $1.65 trillion over the next 10 years.

Staff writer Matt Bittle can be reached at 741-8250 or mbittle@newszap.com. Follow @MatthewCBittle on Twitter.

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