Posted: May 21, 2015

DO NOT EVEN THINK ABOUT A SALES TAX

By Celia Cohen
Grapevine Political Writer

The economy was ticking up. State revenue was not. Time to call in the finance docs.

Jack Markell, the Democratic governor who has been through seven lean years with the state budget, did. What happened next tells a lot about the way Delaware thinks about itself.

By executive order in January, Markell set up an Advisory Council on Revenues. Its final report was released earlier this week.

The council was made up of 12 members, not an outside consultant among them, but Delawareans all, familiar figures in state government, drawn from both parties with executive, legislative and academic credentials and some judicial, legal and business experience thrown in.

This was a smart way to start, considering the most scornful thing a Delawarean can say about somebody else is, "I don't know him. I don't know her."

The chair was Josh Martin, a widely respected lawyer who presides over the Delaware Economic & Financial Advisory Committee (DEFAC), which provides the revenue estimates for state budgeters. He has also been a judge, the CEO of Verizon Delaware and president of the state bar association.

Anyone who does not know Josh Martin is not trying.

The finance doctors operated without political testiness, primarily for two reasons.

One, their recommendations were to be revenue neutral, meaning they could avoid the knee-jerk arguments about cutting taxes or soaking the rich. Two, this is a small state. More often than not, consensus politics rules.

They came up with a thoughtful, 67-page analysis, no petulant minority report attached, with recommendations ranging from politically reasonable to risky. People can see it for themselves on the Web site for the state Finance Department.

Markell acknowledged the work without endorsing it, kind of understandable for someone burned two years in a row for proposing to hike gas taxes and cut a property tax subsidy for retirees.

"I look at it as a menu of options to choose from. I don't know how quickly something will happen, but we need to be having these conversations, and we need to be having these conversations soon," Markell said Wednesday in a short interview.

"I understand there's a big difference between the math and the politics."

The finance docs came up with a diagnosis that reflected Delaware as people know it.

A sales tax was definitely out. There is a reason this state is one of four without one. The politicians here know if they tried to put in a sales tax, they would be dumped out of office the way the tea taxed in colonial times was dumped into the harbor.

"It's part of our legacy. It's part of our heritage," said Ken Simpler, the Republican state treasurer who sat on the revenue council.

Nor did anyone want to jeopardize the state's standing as a corporate capital, not with business taxes and fees financing roughly a third of the state budget. Like the Golden Goose, the famous financial fowl, this is the Bountiful Blue Hen, and it had better not be killed.

As a matter of fact, the council's report seemed to acknowledge somewhat sheepishly the state may have gone too far in squeezing corporations to turn over their abandoned property, financial items such as uncashed stock dividends and unspent gift certificates.

The finance docs' chief charge was to envision a healthy revenue system in terms of stability, competitiveness and fairness. As Glenn Kenton, a council member who was once a Republican secretary of state, put it, "If you had to redo the revenue stream, what would it look like?"

They warned against more "silver bullets," namely the Financial Center Development Act that brought the banks in, the casinos and the abandoned property audits, all of which generated windfalls but eventually faded.

They also found, as Markell had, retirees are getting a sweet deal through an assortment of tax breaks that ought to be revisited.

They concluded it was fine for the state to rely on personal income taxes and corporate franchise taxes and fees as the mainstays of its revenue, although the personal income taxes could stand to have itemized deductions eliminated and the top marginal rate lowered.

What they decided the state could use, though, was another steady revenue source. They identified a property tax as the best candidate, especially because Delaware has one of the lowest property tax burdens in the country.

Nobody should get too excited yet about this idea, one way or the other. Here is where it pays to remember Markell's remark about the difference between the math and the politics.

Other suggestions: Eliminate the estate tax. Shave the corporate income tax but nudge up the gross receipts tax. Recalibrate the realty transfer tax.

There was one last conclusion to be drawn. People ought to pay attention to that Ken Simpler guy. He appears to be the driving force behind a lot of the analysis.

It is so nice not to have Chip Flowers to kick around anymore.

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