Copeland: Why decoupling is a strategic mistake

Delaware has built its brand as the place where sophisticated capital feels at home. The state continues to put this brand at risk.”

Charlie Copeland is the director of the Center for Economic & Fiscal Policy at the Caesar Rodney Institute.

Delaware’s decision to decouple from the federal accelerated depreciation rules (House Bill 255, as amended), which passed in November 2025 and was signed into law shortly thereafter, is being sold as a responsible way to “protect the budget.” In reality, it acts as a quiet tax hike on investment, signals that Delaware is willing to be less competitive and reflects a fundamental misunderstanding of accelerated depreciation.

Accelerated depreciation is not a ‘bonus’

When a business buys a major asset — machinery, a truck fleet, a data center — or invests in research and development, it pays real cash up front. The tax code then determines when that cost can be deducted:

• Under traditional depreciation, a $2.5 million machine might be deducted evenly over five years — $500,000 each year.
• Under accelerated depreciation/full expensing, the business deducts the full $2.5 million in year 1, with no further depreciation in years 2–5.

In both cases, the total deduction is exactly the same. Accelerated depreciation is not a larger deduction or a windfall; it is simply a different timing for recovering costs.

What decoupling really does

“Decoupling” from the federal rules does two key things:

• For capital equipment and qualified production property, it denies full first-year cost recovery for Delaware tax purposes.
• For research and experimental expenditures, it prevents the immediate deduction of those costs in Delaware.

The deduction does not disappear; businesses will eventually deduct the full cost. But, in Delaware, they will do so more slowly.

Why timing matters for growth and jobs

From inside the General Assembly, it is tempting to say: “Eventually, businesses get the same deduction; we just smooth our revenues.” But businesses do not make decisions based on convenience to the General Assembly. They ask:

• What is the after-tax return on building this facility in Delaware versus another state?
• How quickly do we get our money back?
• How does this affect our ability to grow, invest and hire in the next one to three years?

Accelerated depreciation improves that math. It makes more projects viable. It lets companies:

• Buy more equipment earlier.
• Hire more people earlier.
• Take on more R&D risk than they otherwise would.

By decoupling, Delaware is intentionally weakening those incentives at the state level.

Immediate deduction lets companies keep more of their own cash in the early, most fragile years of an investment, when they are hiring, training and scaling. Stretching deductions out does the opposite: It raises the effective cost of investing in Delaware.

Delaware’s competitive position

Delaware’s attraction has never been low taxes alone. It is the combination of a respected, predictable legal framework (Court of Chancery) and a long-standing reputation as a stable, business-literate jurisdiction.

By rushing to decouple in a special session — on the heels of Senate Bill 21, a controversial corporate law overhaul and questions about judicial consistency — we further undercut those pillars. Businesses rightly ask:

• If Delaware will tear up accelerated depreciation this quickly, what else might change overnight?
• If we can’t rely on state conformity to federal rules, what kind of tax policy risk are we assuming by expanding here?

Capital moves easily, and the message sent by decoupling is significant.

The false choice — and a better way forward

Defenders of decoupling insist we faced a binary choice: Allow accelerated depreciation and “blow a hole” in the budget or decouple and “protect” schools, public safety and services.

That framing is convenient but not honest, and it has now become the official justification for HB 255.

What the governor and General Assembly have really said is: We would rather collect more tax now and less later, even if businesses invest less in Delaware.

If there truly is a mismatch between spending commitments and state tax receipts, the right fix is on the spending side, not raising taxes on job-creating investments.

A more forward-looking approach would be to:

• Acknowledge that accelerated depreciation is simply a more economically advantageous way to treat investment costs.
• Recognize that timing matters for cash flow, risk-taking and competitiveness.
• Commit to realigning Delaware with federal accelerated depreciation as quickly as possible.
• Use the interim period to slow spending growth, so the state can promote pro-investment policies without triggering fiscal panic.

Delaware has built its brand as the place where sophisticated capital feels at home. The state continues to put this brand at risk.

If the debate around SB 21 was strike one, the passage of HB 255 is strike two. The next pitch will tell investors whether Delaware still wants to be at the plate.

Reader reactions, pro or con, are welcomed at civiltalk@iniusa.org.