Franchise Tax Revenue Not Keeping Up With Spending
Jonathan Starky (@jwstarkey) has good article in today’s New Journal about what potentially would be a boring article to many except readers of this blog: “Revenues keep dropping in key state income source: Corporation fees falling as businesses decide not to go public”.
Delaware’s franchise tax is the state’s primary source of that corporate taxation, generating more than $600 million annually. Yet adjusted for inflation, franchise tax collections have fallen 20 percent in the decade since the technology bubble sent a tsunami of tax revenues flowing into Delaware. Franchise tax revenues have risen in absolute dollars, but dipped as a percentage of Delaware’s General Fund budget even as tax increases in 2003 and 2009 raised the franchise tax cap from $150,000.
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Now the financial council expects revenues from the tax to fall 1 percent in the fiscal year ending this June, and another 1 percent in fiscal 2013. Big-ticket items are causing pressure on the other side of the budget, with spending on Medicaid increasing 37 percent next year after reductions in federal dollars. Spending on state employee benefits also continues to increase, even after a deal last year to curtail benefits to save money.
Being so dependent on Wall Street for our money, Delaware is looking for ways to help kickstart IPOs. The recently signed JOBS Act, legislation introduced by Rep. John Carney, may be of some help. But in reality, Governor Markell is going to have to look at less spending over the next few years instead of more.
Tags: Delaware
More to the point, at some time in the not-so-distant future, Delawareans are going to have to grow up and realize that we’re going to have to pony up a little more of our own money to pay for the government services we want.
For years, Delaware’s middle class has been enjoying relatively low taxation thanks to welfare donations from out-of-state sources(casino patrons and businesses operating elsewhere but incorporated here). It’s obvious that this house of cards is beginning to fall.
Higher state income taxes must be considered, and, I dare say, we might have to change our brand to “the land of almost tax-free shopping.”
It will be interesting to see which elected official is adult enough to start the conversation.
I’m already paying sales taxes in this state. From a can of soda to a house, I pay them. I’d just like to stop fighting the residents of Garnet Valley School district for access to jobs, shopping and services here. I’m not holding my breath, though.
“I’m already paying sales taxes in this state. From a can of soda to a house, I pay them. ”
True enough… but take a look at the rates for the gross receipts tax. Example:
Franchise tax rates are complex, being negligible for small to medium sized businesses, and capped at $180K for the largest publicly owned corporations.
Even both of these taxes together are a fraction of even the lowest state sales tax.
The real problem is our elected officials have a bad spending habit. Until they get this under control the state will continue to slide into deeper debt.
Do they now? What spending, pray tell, would you eliminate? The point being that this bit of palaver is easy to say — you just proved that — and much harder to do.
None of our lawmakers are small business people, or not many. They are largely trough-feeders: retired cops and such. None of them realize that when you get a windfall of extra cash, you are supposed to keep it in the bank for times when cash is scarce. Small business people who follow this rule stay in business. The others tank. Governments want to spend it all, then raise taxes when cash flow slows down.
Many state and municipal budgets have significant structural problems. Until Governor Markell and pur budget writing legislators are willing to lay these on table with the public for serious discussion then they simply are “kicking the can down the road”.
I think it’s time for more public meetings. Some long range budget planning is needed with reduced dependence on “uncertain or declining” revenue sources. Some tough decisions ahead, so let’s begin the process and involve taxpayers now. The sooner the better.