Why Should Delaware Care?
Delaware is considering adding three new higher personal income tax brackets while lowering the burden on those who earn less. It is a major reform supported by Gov. Matt Meyer, but has drawn concerns from the state’s business community.
House Speaker Melissa Minor-Brown said Wednesday that while she supports higher income tax brackets, she did not want to rush the changes through the waning days of the legislative session, potentially signaling that a key reform backed by Gov. Matt Meyer would not be accomplished this year.
Speaking at the Delaware State Chamber of Commerce’s End-Of-Session Conference at Delaware State University, Minor-Brown said that there are inequities in Delaware’s current personal income tax structure, noting a person making $60,000 a year should probably not be at the same tax rate as a person making $500,000 a year, as is the case currently.
That is a phrase often touted by Meyer, who called for the reform of Delaware’s income tax system as part of his first annual budget during his State of the State address in April.
But the House Speaker also stressed that none of the General Assembly members are personal income tax experts and that she wanted those voices in the conversation.
“I don’t know what that looks like right now. Maybe that’s convening a group. Maybe that’s a task force … We have to do it right, and I don’t know if we’re ready to do it right right now,” she said. “It can’t be a rush job. It has to be a comprehensive approach.”
The top House of Representatives leader’s comment seemed to be in opposition those of her Senate counterpart, Senate President Pro Tem David Sokola (D-Newark). In opening remarks to the chamber, he made the case that reform of personal income tax, also known as PIT, is the route to a more equitable distribution of taxes.
“It’s something that will be a difficult decision – and I can’t guarantee there’s the votes to do it – but it might be the right thing to do, and if it is the right thing to do, delaying it is not the right thing to do,” he said.
What is proposed?
Delaware currently has a seven-bracket personal income tax structure with the highest level starting at $60,000 a year and seeing a 6.6% tax rate.
House Bill 13, which was recently amended to reflect the governor’s priorities, proposes to add three new brackets at $125,000, $250,000 and $500,000. The bill would lower the tax rates for the seven existing brackets while setting a 6.75% tax rate at $125,000, a 6.85% rate at $250,000 and 6.95% at $500,000 and above.
The new brackets would continue to push Delaware higher than all of its mid-Atlantic neighbors aside from New Jersey, which has one of the highest income tax rates in the nation at 10.75% top rate. Both Maryland and Virginia have a 5.75% top rate while Pennsylvania has a flat 3.07% income tax for all residents.
Delaware has a lower overall tax burden than its neighbors when factoring in property, sales and corporate tax rates among others, ranking 18th nationwide, according to the Tax Foundation’s 2025 report.
HB 13 has been introduced to the House Revenue & Finance Committee but hasn’t been heard.
Business community pushes back
Earlier this week, a coalition of business and economic development organizations, including the state’s four largest chambers of commerce and the Delaware Business Roundtable, which includes its top CEOs, sent a letter to legislators opposing the increase in tax brackets.
They noted that holding the line on income taxes “sends a signal about the business climate in our state,” while opining that the uncertainty at the federal level may require the legislature to revisit its brackets before the ink has even dried.
They also pointed to the impending property tax reassessment as a time when high-earners will see their burdens rise. Raising the income tax at the same time may be enough to “force the most mobile of our society, middle-to-high-income earners, to look elsewhere for housing and employment.”
Personal income tax is the single largest revenue source for Delaware, and the coalition noted that in tax year 2022 high-income taxpayers accounted for 32.8% of all total tax revenue.
Small or family-owned businesses would also be disproportionately affected because many such owners pay pass-through taxes, essentially charging their business profits to their income tax rather than a corporate tax. That could limit their ability to invest in their businesses if their taxes are increased on their business operations.
Finally, the coalition criticized a state government that is proposing to raise spending by 7.4% in the next budget while revenues are set to rise only 1.9%. The Fiscal Year 2026 budget would be balanced largely on savings accrued in the current budget.
“Alternatively, to find a similar amount of revenue that this proposed personal income tax is slated to yield, the General Assembly could ask each agency and department to trim its current spending by 2%, eliminate job postings for positions that have been vacant for two or more years, freeze hiring, and more,” they wrote. “In short, there are other meaningful ways to identify revenue for important priorities without making people think twice about living here.”
Leaders see the need
Minor-Brown agreed that Delaware, confronting potential declining revenue trends and stagnant inflation, needs to find ways to diversify its own income.
Legislators recently got a reprieve on this year’s budget after revenues improved, but concerns about federal spending cuts, a potential decline of its incorporation economy, a loss of escheatment revenue, and more, could one day require more ways to raise money.
She noted that she recently had dinner with Pennsylvania House Speaker Joanna McClinton, and they spoke about the differing tax structures and how they may lead to migration throughout the region.
“I think that there’s room for us to make some changes without looking like we are not still a place for people to come, to raise a family, and to retire. I don’t think we’re going to outdo those other states, but we have to consider what’s happening in our surrounding states when we make those decisions,” she said. “I think if we just take our time, not too much time, but if we take a moment and just really try to get this right, then we can find a path forward.”
Sokola noted during his remarks that when he was first elected in 1990, the top tax bracket in Delaware was 7.9% and started at $40,000 of income. The state also had a marriage tax penalty that taxed couples up to the limit and then every dollar over it.
Today, there are many more deductible expenses and many pre-tax savings options, such as 401(k)s and health savings accounts.
On top of that, the richest residents also benefit from the Social Security tax threshold that currently sits at about $176,000 annually, Sokola noted. Income beyond that level is not subject to the 6.2% federal tax that supports the payment of Social Security benefits.
“It’s one of those things that a lot of people tend to ignore, but it’s real,” he said. “When we talk about fairness, we’ve got to consider all of the line items in the tax bill.”
