Mike Smith is a Republican serving Pike Creek in the House of Representatives. This piece was written before the Nov. 13 General Assembly extraordinary session, during which the House passed House Bill 255 to decouple the state’s tax code from the federal one — a move to address a projected $400 million budget deficit. The legislation has advanced to the Senate.
As someone who had the privilege of working for one of Delaware’s greatest governors, Mike Castle, I learned early on that good policy is about balance — balancing our budget, our economy and our reputation as a state that means business. Gov. Castle taught us that stability, transparency and fiscal discipline are not partisan ideals; they are the foundation of Delaware’s economic success.
That foundation is what’s now at risk.
There’s growing talk in Dover about “decoupling” Delaware’s tax system from the federal Internal Revenue Code, in response to short-term revenue forecasts. On the surface, this may sound like a simple technical adjustment. In reality, it would be one of the most disruptive and shortsighted moves our state could make — one that would inject uncertainty into our business climate, complicate compliance for thousands of Delaware employers and undermine decades of fiscal credibility.
Delaware’s fiscal reputation was built on stability
Delaware’s status as the “corporate capital of America” is not an accident. It’s the result of careful stewardship and a commitment to consistency. In 1977, then-Gov. Pete du Pont created the Delaware Economic and Financial Advisory Council — known as DEFAC — to provide nonpartisan, data-driven revenue forecasts and to prevent the kind of political swings that can destabilize a state budget.
DEFAC’s role is to ground our decisions in facts, not fear. It is why Delaware has maintained one of the most predictable and transparent budgeting systems in the country. It’s also why, even in times of economic uncertainty, we’ve avoided the fiscal chaos that plagues other states.
The council’s most recent report showed a modest two-year revenue adjustment of about $146 million — roughly 1% of Delaware’s projected $13.6 billion in revenue. That’s well within the 2% “set-aside” we intentionally built into our 98% budget-spending rule. In other words, our system worked exactly as it was designed to. There is no fiscal emergency. There is certainly no justification for rewriting Delaware’s entire tax structure in response.
Decoupling would create chaos for businesses
Delaware currently operates under rolling conformity — meaning our tax code automatically aligns with changes to the federal code. This makes filing easier for businesses, reduces administrative costs and allows the Division of Revenue to efficiently leverage IRS systems. It’s one of the quiet, practical reasons so many companies choose Delaware.
Decoupling would break that alignment and create a compliance nightmare. Businesses would have to track separate state and federal rules, adjust their books and potentially file amended returns — all for a change that may not even move the fiscal needle. For small and midsize businesses, those costs are real.
Ask any Delaware entrepreneur — whether it’s Sam Calagione at Dogfish Head in Milton, the innovators behind startups like NIIMax, Avkin or Second Chances Farm in Wilmington, or the Encouraging Development, Growth and Expansion Grant recipients across Sussex and Kent counties — what they value most in a state partner, and they’ll tell you: consistency. They need to know the rules of the game won’t change midseason. Decoupling would do exactly that.
Bad optics, worse outcomes
Beyond the practical headaches, decoupling sends the wrong signal. States like Texas, Nevada and Wyoming — all competitors for new investment — would love to see Delaware trip over its own success. They would seize on this decision as proof that Delaware is unpredictable or that our business climate is no longer stable.
Let’s be clear: As a small state, whatever Delaware does will not move national markets. But it could absolutely move perception — and perception drives investment. If businesses think Delaware is turning away from its pro-growth, pro-innovation roots, they’ll think twice about where to expand, hire or headquarter.
Let DEFAC do its job and let Delaware stay the course
Decoupling would be a drastic departure from decades of bipartisan fiscal discipline. The better course — the Delaware course — is patience and prudence. Let DEFAC continue to do its work.
Let the new federal tax provisions play out. And, if future forecasts truly warrant action, we can revisit the issue with deliberation, not panic.
Gov. Castle used to say that Delaware succeeds when it “acts like a business — measured, steady and forward looking.” That philosophy helped us build a world-class corporate franchise, a thriving innovation economy and one of the strongest reputations in the country for responsible government.
We should not throw that away for the sake of a short-term forecast. Decoupling may sound like a technical fix, but it’s really a signal — one that says Delaware is willing to sacrifice consistency for convenience. That’s not the message we should send to the entrepreneurs, investors and workers who have made this state what it is.
Delaware has been the First State in more ways than one — the first to lead, the first to innovate and the first to earn the trust of American business. Let’s keep it that way.
Reader reactions, pro or con, are welcomed at civiltalk@iniusa.org.
