The state of Delaware gross receipt tax is levied against total business income, regardless of whether a firm makes a profit or not. Following the onset of the recent recession, one of the state’s answers to falling revenues was to twice raise the gross receipt tax. First, an increase of 25% in January of 2009 and then another jump of 8% in January of 2010.
As shown in the chart below, state gross receipts tax revenue then soared almost 50% during a time when earnings by Delaware private industry were flat. This is counter intuitive to economic theory that argues for tax breaks during a recession to encourage businesses to hire and invest. If the effective gross receipts tax rate from FY 2008 had remained unchanged, Delaware businesses would have had $153 million of additional earnings to plough back into their operations.
***Chart can be viewed on the PDF. Select "Download Document Here" below this article***
The state compounded this hit by raising the tax rate on personal income greater than $60,000 to almost 7%. The vast majority of Delaware’s higher income paying households report business income. It is no wonder that employment in Delaware still lags behind where it was five years ago.
Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis
The Caesar Rodney Institute is Delaware's Only General Public Policy Organization Committed to Protecting Individual Liberties and Preserving Fiscally Responsible and Efficient Government for the Common Good.