Rhode Island Politics & Taxation, Part XXIII: Ranking a Dismal 48th in our Business Tax Climate

In an article entitled Research group finds state's business-tax climate dismal: Rhode Island gets poor marks for its high unemployment -insurance tax, high property taxes and high personal-income taxes, we have yet another example of how the economic policies of Rhode Island are miserably ineffective:

Rhode Island has one of the most unfriendly business-tax climates in the nation, according to a study by a nonprofit think tank in Washington, D.C.

The Tax Foundation, a tax research organization, released its third annual state-by-state ranking of business-tax climates earlier this week. Rhode came in 48th in this year's study.

With a high unemployment-insurance tax, high property taxes and high personal-income taxes, Rhode Island's climate is one of the most unattractive in the nation for businesses, according to the study.

This is not the first time the state has fared poorly in a ranking study. Rhode Island came in 37th in a competitiveness report released in December by the Beacon Hill Institute, a think tank at Suffolk University in Boston. And in prior Tax Foundation studies, the state also landed near the bottom.

While state legislators questioned Beacon Hill's results, the Tax Foundation's study does have some merit, said Gary Sasse, executive director of the Rhode Island Public Expenditures Council, a business-backed research group.

Property taxes in Rhode Island communities and the state's decision to "levy several wealth-based taxes" are deterrents to business, according to the study. In addition, the state's temporary-disability insurance, its double-digit unemployment-insurance tax rate, and its top income-tax rate all contributed to its low performance in the rankings.

"My concern is that we do have a punitive tax environment for company builders," said Michael McMahon, executive director of the Rhode Island Economic Development Corporation.

RIPEC research has generated similar results, said Sasse. For example, during a recent property-tax study, RIPEC found that Providence's commercial property tax is 70 percent higher than the national average, and 72 percent higher than the New England average.

"There's nothing that's unexpected in the work of the Tax Foundation. In terms of benchmark and direction, I think it's an accurate description of our relative situation," said Sasse.

Rhode Island was ranked lowest of the six New England states. New Hampshire, with no sales tax, was ranked highest in the region and was the sixth-most business-friendly state in the nation. All of the states in the top 10 reached that status because they did not have one of the three major taxes -- business, income or sales, according to the study. Massachusetts, known in prior decades as "Taxachusetts," came in 27th...

Some state officials either get it or are beginning to get it:

Although Governor Carcieri said earlier this year that broad-based tax relief is not an option in the fiscal 2007 budget due to a $222-million deficit, he would like to eventually lower the state's sales tax to match Massachusetts'.

House Democratic leaders took a more aggressive stance this year on addressing the state's tax climate by proposing last month a tax-cutting package that includes a two-day sales-tax holiday in August; an income-tax credit for low-income, disabled or elderly people; an increase in the tax credit for low-wage workers; and a flat-rate income tax for Rhode Islanders making more than $250,000 a year.

And some people will never get it:

There are some people, however, who disagree with studies that contend Rhode Island's tax climate is unfriendly to business. The Poverty Institute at the Rhode Island College School of Social Work, has spoken out about the proposed tax cuts and the notion that the state's tax structure is unattractive. The income tax Rhode Islanders pay is not that high when deductions and tax credits are factored in, said Ellen Frank, senior economist for the institute.

"It's an anti-tax foundation that counts all taxes as bad," said Frank, adding that the Tax Foundation hasn't proven that the tax issues it measures in its index actually affect business decisions.

Delusional thinking by ignorant fools. Go read the Executive Summary on pages 2-3 of the RIPEC report entitled Rhode Island 2010: Charting a New Course and try to tell us again there are no major problems building in this state.

Then go read Tom Coyne's testimony before the Rhode Island Senate and try to tell us again there are no problems with the cost and performance of social services in this state.

High taxes, lousy public schools combined with ineffective and costly social services. What a formula for success!

As a corporate CEO who has worked in venture-financed healthcare companies for 21 years and lived in Silicon Valley for 17 years, I can state emphatically that I would never bring a business to Rhode Island until there are serious changes for the better in the business taxes, personal income taxes, and public schools. And, since there are many of us who feel that way, think about the cumulative opportunity cost of lost jobs and the many lost societal and financial benefits that those jobs would have brought to this state.

We are not competitive in our region, in our country or in the global economy and this report is another wake-up call.

There is no rational reason to live long-term in Rhode Island. And once the intangible reasons that hold some of us here are gone, the cost of continuing to live here will become even more expensive.

It doesn't have to be that way. Let's put real pressure on our state and local officials to change the status quo for the better.

This posting continues a periodic series on Rhode Island politics and taxation, building on twenty-two previous postings:

I - Guiding Principles for Sound Public Policy
II - The Outrageous Tax Burden in Rhode Island
III - 2004: The Year in Review
IV - The NEA's Disinformation Campaign
V - Governor Carcieri's State of the State Address
VI - "Citizens for Representative Government's" Deceitful Manipulation of the Constitutional Convention Vote
VII - The Extreme Tax Burden in the City of Providence
VIII - Rhode Island Gets a C+ on its Report Card
IX - How Speaker Murphy's Changing of the Rules of the House Reduces Your Freedom
X - East Greenwich Teachers' Salary and Benefits Data
XI - What Was Rep. Fox Doing in Portsmouth?
XII - Why Do RI Citizens Passively Consent to Governmental Control by Powerful Interests?
XIII - RI House Leaders Show No Respect for Rule of Law by Undermining Separations of Powers, Part I
XIV - More Bad Faith Behavior by the NEA
XV - RI House Leaders Show No Respect for Rule of Law by Undermining Separations of Powers, Part II
XVI - Tom Coyne - RI Schools: Big Bucks Have Not Brought Good Results
XVII - RI Public Pension Problems
XVIII - Union Doublespeak, Again
XIX - Another Stab at Killing Off Future Economic Growth
XX - Defining a Core Problem in Rhode Island
XXI - Blocking More Charter Schools Means Hurting Our Children
XXII - Will Financial Disclosure Requirements Be Dropped?