When a state taxes something there will be less of it and when it rewards something there will be more of it. Delaware’s tax structure heavily taxes those who are most likely to create sustainable economic growth and new jobs, but rewards businesses like Fisker Automotive who receive generous state aid without creating any jobs.     High tax rates are a factor in a drop in the tax base when those paying the most decide states like Florida or Texas are more appealing.The principle to growing the economy is to levy low taxes where the tax base is least affected. The most growth-enhancing tax structure for Delaware would be to reduce/eliminate the corporate income tax and institute a low flat income tax with a minimum number of exemptions.   Decisions on where to start a new business or open a new business location are most sensitive to taxes on capital income and property levied at the source, such as corporate income taxes. Delaware’s corporate income tax is 8.7%, above Maryland (8.25%) and Virginia (6%[DTS1] ). Delaware should reduce or eliminate it, especially since it is likely that other states and countries will do so. Delaware should continue to keep business property taxes low.   Delaware’s high personal income and estate taxes also penalize its most productive citizens. Unincorporated businesses and highly compensated workers (the most productive) are likely to be mobile; they leave, taking their skills and entrepreneurship elsewhere.[1] At incomes of $150,000 Delaware’s rate of 6.75% is higher than Marylands (5.5%), New Jerseys (6.37%) Virginias (5.75%) and Pennsylvanias (3.07%). [2] Even at $60,000 of income this rate is higher than Maryland (4.75%), New Jersey (5.525%), Virginia (5%), and Pennsylvania (3.07%).   Reduced tax rates will encourage job growth. Regulation compliance will also improve as the cost of compliance is reduced. This will offset some of the tax revenue loss from past years. The rest of the tax collection could be made up by eliminating certain exemptions for individuals or businesses. Heavy reliance on the individual income tax will create a problem as the proportion of retired persons to workers grows. Since retirement income is exempt on the first $12,500 earned in retiree benefits[DTS2], state tax revenue collected will fall unless the tax base is expanded.   Offsetting increases in the income tax rate will give workers and business owners more incentive to move out. Delaware must reconsider every tax exemption and strive to reduce its total spending to avoid kicking off a spiral of ever higher tax rates on a shrinking and aging economic base.   The Gross Receipts Tax should be eliminated. It fails to meet multiple principles of good taxation. It is not transparent and it treats industries and firms differently. Since it is on revenue rather than on actual profit, businesses who had a bad year financially are still hit with this onerous tax. What may be particularly destructive is the differential treatment of firms in the same industry.   Tax breaks to favored firms over other firms in the same industry weakens that industry overall because it protects the economic inefficient at the expense of the economically competitive, thus making the industry less sustainable. Delaware’s recent trend toward granting tax breaks to attract out-of-state companies has the same effect.   Delaware has many locational advantages but its tax structure is not one of them. It is true that household property taxes are low and there is no sales tax. However, these are not the taxes that businesses, entrepreneurs and highly productive workers are most sensitive to.  Corporate taxes, income taxes and estate taxes factor in more on job creation and business growth than other tax rates. These taxes are high in Delaware compared to our neighboring states. This is a situation which is entirely under Delaware’s control.   When the government taxes something there will be less of it. when tax rates are beyond the ability of most businesses to pay them and still make a profit you will see more businesspeople either see their business go under or move it out of state if they can. If Delaware wishes to attract jobs and businesses it has to reduce its tax rates on economic growth. [1] Research indicates that their tax elasticity (sensitivity) is quite high, one or higher (Saez, Slemrod, Giertz, NBER, 2009) meaning that for every dollar in tax revenue, a dollar or more in tax base is lost.   [2] Rates for single filers from 2014 State Business Tax Climate Index (Tax Foundation, 2013). The tax base in Pennsylvania differs in that virtually no exemptions are allowed.  [DTS1]I would include Gross Receipts Tax info here. This what I have reported on the GRT “Delaware has the highest corporate tax rate in the country when corporate tax on earnings is combined with our Gross Receipts Tax (GRT) on sales. Only five states have a GRT and three of those have no additional tax on corporate earnings. The big problem with the GRT is it is levied whether or not a business is making money. It is a real job killer during a recession when Delaware businesses need cash the most.”    [DTS2]Retirees in DE have first $12,500 of pension exempt.