Delaware’s Manufacturing, Small Business and Finance Industries could benefit from Targeted Tax Cuts Proposed in Jobs Plan

Delaware’s coffers have a surplus, and the Delaware economy is still on the mend.

Projected state revenues have grown as the state begins to show signs of economic recovery. The Delaware Economic and Financial Advisory Council’s (DEFAC) latest projections show an increase in anticipated revenue since December 2010. While the increase offers good news for the economy and state’s finances, and provides an opportunity to invest in our future, there is reason for caution, given that two DEFAC projections remain in this Fiscal Year and much of the added revenue comes from one-time or volatile sources like escheat or abandoned property. Delaware Escheat revenue has grown significantly the past five years, but remains a source of revenue that is vulnerable to changes that the state cannot predict or control. The state also faces additional budget pressures from the growth of programs like Medicaid and the drop-off of federal stimulus money.

The Building Delaware’s Future Now plan announced by Governor Jack Markell yesterday, is aimed at finding the right way to meet Delaware’s budget challenges while ensuring fiscal responsibility. Today, he proposed a series of responsible reductions in targeted tax cuts and putting $20 million dollars towards paying down state debt as the second part of his “Building Delaware’s Future Now” jobs plan.

Additional information on the responsible tax and debt reductions:

· $8.5m for Financial Services Jobs Incentives – The financial services industry has been a core driver of economic growth in Delaware for many years, but this industry is undergoing significant changes both nationally and internationally. In just the past few months, we have seen two significant reductions in financial services jobs, first at HSBC and then as part of M&T’s acquisition of Wilmington Trust. Delaware’s ability to retain over 25,000 jobs we have in financial services, and to add more jobs to that number, will depend on how well we compare with other states in the future. When it comes to bank taxes and the other costs of doing business here, we have got to remain competitive. To help maintain and enhance Delaware’s prominence as a financial services center, our two-part proposal includes a slightly lower alternative method for computing bank franchise taxes, which will help preserve the critical financial services jobs we already have in Delaware. In addition, this reduction is coupled with a new tax credit policy for financial sector employers who bring significant new employment to our state.

The second part of the proposal would create an enhanced tax credit for banks bringing significant new jobs to Delaware. The new credit would provide a $1,250 credit for ten years for each new qualified employee of 200 or more new jobs. That’s a total credit of $12,500 for each job over the ten years. The proposal would retain the requirement that each new job attract an additional $15,000 investment per new employee. This combination of this new tax credits, coupled with the adjustments in the alternative method for computing the bank franchise tax, will put Delaware in a more competitive position to keep the financial services jobs we already have and build on that strong foundation in years to come.

· $9.5m Reduction in Public Utility Tax and Energy Efficiency Investment Program – The cost of energy is an important factor for small businesses and manufacturers looking to retain and add jobs. This energy tax proposal helps address this key concern for those doing business in Delaware. First, the proposal includes an investment program to promote improved energy efficiency and reduce the upfront cost of achieving long-term energy savings, which can reduce the on-going energy costs for businesses significantly. Second, the proposal includes a rate reduction in the Public Utility Tax from 5% to 4.25% for gas and electric brings down the overall energy bills of Delaware employers.

· $6.0m Gross Receipts Tax Reduction – Reducing the tax burden on small businesses and manufacturers will help create an environment for them to grow. This proposal increases the monthly exclusion by 25% from $80,000 to $100,000, reducing the tax on all payers and taking over 330 businesses off the gross receipts tax roll entirely. Additionally, manufacturers will see their monthly exclusion of taxable receipts jump from $1 million per month to $1.25 million per month which equates to $3 million annually of additional non-taxable transactions. Finally, this proposal will provide for an across the board 3 % cut on tax rates.

· $6.8m Personal Income Tax Reduction – Two years ago the top marginal personal income tax rate was raised to 6.95 % from a previous rate of 5.95% to help bridge the budget shortfall. This proposal takes a responsible step of incrementally reducing the top rate to 6.75%.

· $3.7m Unemployment Trust Fund – Interest payments on the federal loans to the Unemployment Trust Fund may come due this fall, which would require the State to raise assessments on Delaware businesses, even as we work to come out of these difficult recessionary times. Without this initiative, over 20,000 employers could be required to pay higher employment taxes this fall. If the federal government imposes such a charge, these funds will be dedicated for payment in lieu of an employer assessment.

· $20.0m Debt Reduction – Delaware governors and the General Assembly have a long tradition of pursuing debt defeasance when possible. Doing so reduces the debt burden on Delaware taxpayers and is another important part of this plan’s foundation of fiscal discipline. The three major bond rating agencies, all of which have given Delaware the highest rating, closely monitor each state’s issuance of debt and their plans to retire debt in a timely manner. By allocating one-time revenue to debt reduction, Delaware continues its adherence to fiscal responsibility.

• ← State of Delaware Revenue Surplus to be used in Three-Part Jobs Plan dubbed “Building Delaware’s Future Now”
• The Delaware Business Weekly Round Up – May 6th, 2011 →