Dr. Richard F. Bieker of Dover is a retired economist. He has taught and/or conducted research at a number of institutions, including Delaware State University, the University of Delaware, Purdue University and Central Michigan University. He has also served as a Fulbright Scholar at Slovak University of Agriculture and the American University of Armenia, and his research has been published in a variety of journals.
It’s income tax season, and Delaware taxpayers will again be penalized by bracket creep. What is bracket creep? It occurs when inflation causes individuals’ nominal incomes to increase, pushing them into higher fixed tax brackets. This means that they must pay a higher percentage of their income in taxes even though their real income or purchasing power may not have increased significantly or may have even declined.
Taxpayers in Delaware are the victims of bracket creep because Delaware — unlike most other states that have progressive income tax systems, as well as the federal government — does not regularly adjust its tax brackets for inflation. Delaware hasn’t changed its personal income tax brackets in any significant way since at least 2014. In 2014, the median household income in Delaware was $57,520. By 2023 (the latest year for which data is available), it had risen to $86,340. However, during that same period, consumer prices, as measured by the consumer price index, increased by 30%. So, the real median household income or purchasing power of the average Delaware household increased by only 16% over that entire period.
And, because households were pushed into higher fixed income tax brackets by inflation (bracket creep), their Delaware personal income tax bill also increased significantly. Using the existing 2023 Delaware personal income tax brackets to compute the 2023 tax liabilities, an individual with a taxable income equal to the median Delaware household income would have had a tax liability of $4,664. Had the income tax brackets been adjusted for the 30% rise in prices since 2014, that tax liability would have only been $1,842. So, because of bracket creep, the income tax burden of the typical Delaware household more than doubled between 2014-23. As a result, households were left with less disposable income with which to purchase essential goods and services. Lower- and middle-income households were particularly hard hit by bracket creep. Higher-income households were less affected because they were already paying the top marginal tax rate.
In addition to reducing the after-tax income that Delaware households have to provide for their families, bracket creep has a number of other undesirable consequences (as discussed in this article). Given all these negative consequences, it is imperative that the General Assembly take the necessary steps during its current session to update the personal income tax brackets and, at the same time, make provisions to automatically adjust the brackets annually for inflation for future years. It should also make these same adjustments to the standard deduction and personal exemption provisions of the tax code.
In these tough economic times, legislators should look for ways to make the state government more efficient rather than asking Delaware taxpayers to continue to pay more taxes by employing the deceptive practice of bracket creep. Failure by the General Assembly to act on this critical issue would suggest that Delaware legislators have little regard for the economic well-being of many hardworking Delawareans.
Reader reactions, pro or con, are welcomed at civiltalk@iniusa.org.
