At a recent planning session, the edict went out that this year, there would be no new taxes. The state budget would be balanced without any new revenue….

Progressives cringed but accepted the verdict. This year the Democrats were not going to raise taxes to balance the budget; instead they would balance the budget with painful cuts…

As I have on occasion mentioned before, raising the marginal rate on the top one percent, does wonders for an economy… That is the reason the 90’s were so great. Dropping the marginal rate, sucks money from out of the economy. That is the reason the first decade of this century, is less prosperous than the good times under Clinton. It is all about the top tax rate.

That is for the Fed… However, and though I have mentioned it on the state level, there things are a little different. As we saw last November, when you try to raise the tax level by the tiniest amount on the fewest of the richest…. by the time it gets down to the voting public, all they hear is… “raising taxes.” “Hell, no, I won’t have my taxes raised, and they vote accordingly”…

There is another issue. Taxes by businesses are seen in a bad light. Delaware is in competition with 48 larger states, and one smaller state, for a piece of America’s economic pie. We are wooing businesses away from other states; they are wooing our businesses over to them….

Anything that gums up a deal, is counter productive. Sure, we could tax a wealthy person more, which winds up going to pay for the unemployment we could have prevented by bringing in a new manufacturer, one who chose not to come, because he heard we were raising taxes…..

So, is there a unique way to raise the top marginal rate (which does wonders for the economy) and do it in a way that doesn’t raise taxes?

Actually….. yes, there is…

Here is how. We include a new deduction. Money spent on capital investment strictly in the state of Delaware.

I know it is hard for most people to grasp what just happened, so I’ll elaborate a little more…

You make a million dollars each year (income). The top Delaware tax rate goes up 1%… One percent of $1 million is $10,000…. In 2011 since your income is stable, you will pay $10,000 more in taxes than you did on this year’s return, 2010.

Unless, you decide to use that for construction to improve your business, home, or trailer park. Lets say you run a business out of your home. You redo your roof, pave your driveway, and upgrade your data speed…

The rise in marginal tax didn’t cost you a thing. You were planning to go to Ireland this year and blow the extra money there but… because of the tax laws, you spent it on construction in Delaware. You are not out anything. If you put your house up for market, it is now worth $10,000 more with a new roof, new driveway, and top of the line data connection…

But wait, Delaware is out $10,000 dollars.. What’s the point? You didn’t want to cut programs, so you raised the top marginal rate, and then, didn’t take the money? What gives?

What gives, IS….. well, lets track where that money goes first. The business selling the material for the roof and pavement and hardware for the data upgrade, gets 1/2 or $5,000…. They pay a series of taxes on that transaction…The other half goes to labor… Where 10% in taxes is pulled yielding $500. When that money gets spent again, more tax is paid, by the workers getting paid by that money coming in..

Bottom line, is that even though the wealthy individual does not pay taxes, the fact that he spent money in Delaware for that tax deduction,.creates jobs that weren’t there which will pay something into the state treasury….

This is actually the Reagan argument backwards. He argued that if you cut taxes, people would invest in jobs and more would work, pay their share of lower taxes, and the treasury’s revenue would rise… Naively, he, like most of us, assumed that free money would be spent in America. It wasn’t. It was invested overseas, so those people could get jobs, make things cheaper, and profit margins could rise.

All we are doing is modifying Reagan’s proposal, by saying, you can keep your tax liability where it is, only if you build something new here in Delaware.

All we are doing, by raising the top marginal percent …. is forcing that money to stay in Delaware….. Now what Republican could possibly be against that?