What’s in a Tax Reform?
RI House Leaders unwrapped a slew of tax reforms entitled the “Taxpayer Relief Act of 2006.” Here are the bullet points of the nine-point proposal:
- Personal Income Tax Reduction: Instead of the current rate of 9.9% of their federal taxable income, which is then subject to adjustments, deductions, and tax credits, taxpayers could elect to pay 7.5% of their Adjusted Gross Income (AGI), but without any of the reductions. Over the course of five years, the flat rate would be gradually reduced to 5.5% to make it closer to the rate that taxpayers would owe if they lived in Massachusetts.
- Sales Tax Holiday: This proposal would institute a sales tax holiday weekend on August 12 and 13, 2006.
- Comprehensive Sales Tax Review: A new study commission would aggressively investigate the state sales tax and whether some changes to it are necessary.
- Increase Earned Income Tax Credit: The refund that low- and moderate-income taxpayers could get as a result of the earned income credit on their state income tax returns would go up.
- Energy Star Tax Break: This proposal would institute a weeklong sales tax holiday in March 2007 for any item under $2,500 that carries the federally designated “Energy Star” label for energy efficiency.
- Car Tax Phase-out Acceleration: The phase-out of the auto excise tax would continue, but with changes that would get more relief to taxpayers sooner.
- Property Tax Relief: The refundable income tax credit that elderly, disabled, and qualified low-income residents receive under the property tax “circuit breaker” law would increase.
- Transparent Income Tax: The Tax Administrator would be required to submit recommendations for a Rhode Island Personal Income Tax Code that would include tax rates, income brackets, and personal exemptions.
- Create New Department of Revenue: A new Department of Revenue’s sole purpose would be to collect taxes and tax data. House leaders believe this department is necessary to provide the state with a continuous review of the tax structure so lawmakers can stay on top of trends and changes and keep Rhode Island’s tax laws competitive with those of other states. Rhode Island is the only state in New England without such a department.
With this type of tax reform, how do house leaders propose to pay ever-increasing social service programs or state pensions? I’m all for reducing income and sales taxes, and especially making the overly burdensome car tax moribund at a more rapid pace. However, tax reform cannot come without review of various state programs/expenditures.
Lastly, has House Speaker Murphy been attending conservative economic theory classes? I ask because he says:
The ultimate goal is to put more money directly into people’s pockets both by giving relief to those who need it and by making Rhode Island a more attractive place for businesses that will provide high-paying jobs for more Rhode Islanders.