In Fiscal Year (FY) 2016, Delaware collected $4.5 billion in state and local taxes—or $4,773 for every man, woman, and child. While this is an impressive sum of money, it tells us little about whether or not the average Delaware taxpayer can afford this level of taxation?
To better answer this question, this analysis will calculate Delaware’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
As shown in Chart 1, Delaware’s state and local tax burden (tax collections divided by private sector personal income) was the fifteenth highest in the nation for FY 2016 at 14.9 percent—or 5 percent above the national average of 14.3 percent.
#Delaware state and local #taxburden in FY 2016 was the 15th highest in the nation at 14.9%— 5% above US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #DEpol #DEgov #PolicyData (click to tweet)
As shown in Chart 2, Delaware’s tax burden has increased over time by 150 percent to 14.9 percent in FY 2016 from 6 percent in FY 1950.
To put Delaware’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Delaware’s 14.4 percent tax burden is greater than these combined industries: construction (6.8 percent) and retail trade (6.7 percent).
Delaware’s higher than average state and local tax burden is marked by extremes in tax policy. One the one hand, Delaware has no sales tax and a low property tax burden (2.8 percent, 3rd lowest), but, on the other hand, other higher taxes offset that tax advantage such as a high individual income tax burden (3.8 percent, 16th highest), a high corporate income tax burden (1.1 percent, 3rd highest), and a high all other tax burden (6.2 percent, 2nd highest).
A further complication is that Delaware’s all other tax burden includes businesses licensing. Due to Delaware’s favorable business legal and regulatory environment, many businesses incorporate in the state—even when they don’t do much, if any, business in Delaware. So, the state reaps this tax revenue, but not the income from the registered businesses which inflates Delaware’s tax burden.
The Tax Foundation, in their tax burden estimates, “exports” this business licensing revenue to other states. As a result, they report Delaware’s tax burden at a lower 10.2 percent, as of 2012, although their ranking is close to ours at #16.
While “tax exporting” is an important economic consideration, policymakers need to be aware of the size of tax collections relative to the private sector economy. Tax exporting may mean lower tax burdens in the short-run, but tax exporting is not a costless transaction as it creates distortions in the economy in the long-run. As such, the tax burdens estimates shown here at Key Policy Data and those published by the Tax Foundation are both useful to policymakers.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Delaware—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The local government tax burden for Delaware’s 3 counties are shown below (from highest to lowest):
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.