Gov. Meyer’s proposes new tax brackets for wealthier Delawareans, offers new housing and education initiatives

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This story was supported by a statehouse coverage grant from the Corporation for Public Broadcasting.

Delaware Gov. Matt Meyer proposed new tax brackets that would increase the amount of personal income tax wealthier individuals would pay in his budget address Thursday. It’s a reset of the budget former Gov. John Carney introduced before leaving office.

Meyer is proposing a budget of nearly $6.6 billion for fiscal year 2026, up 7.4% from $6.1 billion for FY25. The plan does not touch either the state’s Budget Stabilization Fund or the Rainy Day Fund, relying on new revenue from the change in tax brackets and a hike in cigarette taxes, state park entrance fees and tolls.

Budget Director Brian Maxwell said Delaware is facing looming financial difficulties. The state is forecasting it could deplete the Budget Stabilization Fund, which currently holds $469 million, over the next two years, even if budget growth dropped to 5%. Maxwell said a slowing economy could force the state to take $380 million out in FY27, completely empty the fund in FY28 and still have a fiscal deficit of $480 million for that year.

Under Delaware’s current income tax system, Delawareans making over $60,000 a year pay a 6.6% tax rate, which is the state’s top rate. Meyer said he wants the new brackets to start at $125,000, then go to $250,000 before topping out at $500,000.

Meyer said Delawareans who make under $134,667 would see no income tax increase.

“For too long, hardworking Delawareans who come home with dirt under their nails and stains on their shirts have paid the same as the wealthiest among us,” he said. “That changes now.”

Maxwell said the state could raise an additional $16.5 million in personal income revenue in 2026 and $35.2 million in 2027. An extra 50-cent per-pack cigarette tax would generate $8 million next year and $11.5 million in 2027. New revenue from other tobacco products would amount to $12.5 million over the next two years.

The governor’s recommended budget includes $937 million for capital improvements, $255 million for transportation projects, $83 million in Grant-In-Aid funding and a $60 million supplemental bill. It calls for investments in areas like housing, education and healthcare.

Meyer is calling for emergency funding for school districts and charters with large numbers of students who are failing to read at a proficient level. He declared a “literacy emergency” in Delaware earlier this year after 8th-grade reading scores dropped to a 27-year low. He is also proposing investing $3 million directly into classrooms while also raising $3 million from private donors to put into the effort as a pilot program.

His proposal also calls for a $12 million increase for affordable housing initiatives, including $6 million for state rental assistance. The plan includes reducing homelessness and streamlining the process for constructing affordable housing.

“I like to say the rent is still too damn high,” Meyer said. “There are 50,000 Delawareans that are rent burdened, meaning they pay more than 30% of their income for housing.”

Meyer’s budget spends $85.5 million on Medicaid and sets aside about $22 million to offset potential federal spending cuts. Delaware and other states have seen federal funding freezes since President Donald Trump has taken office, and the members of the state’s congressional delegation say Republicans plan to cut Medicaid spending.

State Rep. Jeffrey Spiegelman, R-Clayton, said he was concerned that creating the new tax brackets would hurt small businesses at a time when the state was facing economic strain.

“I appreciate the governor mentioning that we want to do all of these things for small businesses,” he said. “We want to get regulation out of the way. We want to take a look at some of these land deserts, these properties that can be developed a little easier, make them shovel-ready. And all these things are great. But at the same time, we’re also turning around saying, ‘Hey, small (and) medium manufacturing firms, we’re going to tax you more to pay for these other things.’”

House Minority Leader Tim Dukes, R-Laurel, said there were things about Meyer’s recommended budget he liked, such as money going into classrooms, using Artificial Intelligence as an educational tool, and housing initiatives.

“The question I think that we’re all left with is, how do you pay for it all?” he asked. “That’s where we’re going to have to kind of go back to the drawing board and figure out what our true initiatives are and what we want to get accomplished here in this fiscal year as we’re laying out the budget for 2026.”