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.

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Will
Will
15 years ago

I have yet to read all the details, however, it looks good on the surface. You just know that this has got to be driving those folks over at the lefty blog totally nuts!
The way I look at it, they’re trying to “out-Carcieri” Governor Carcieri. You don’t think there could be a POLITICAL motive, do you?
I’m sure Gov. Carcieri doesn’t mind this kind of imitation. As Reagan used to say “There’s no limit to what a man can do when he doesn’t mind who gets the credit.”

rightri
15 years ago

Don, I too would like to know where the spending cuts will be made. But I won’t be arguing for it loudly. Let them cut taxes as a first step. Spending cuts will follow. Identifying specific cuts now will alienate individual representatives, who will base their votes on how their districts and special interests will be affected. Reform would be doomed.

Andrew
Editor
15 years ago

Don’t you think the Democratic leadership is taking their “tax-cuts for the rich” meme too literally? Their using a talking point detached from reality — Dems use “tax-cuts for the rich” to describe any Republican tax relief plan — to establish policy, which can’t be a good thing.
Wouldn’t either a cut in corporate tax rates, making it easier for anyone to start a business in Rhode Island, or lowering taxes on investment income, which would benefit people in the middle class, as well as “corporate decision makers”, be more sensible alternatives?

john b
john b
15 years ago

Don touches on something that foreshadows why this plan is going nowhere.
There won’t be any spending cuts. The Gov. (rightfully) will ask for them. The Dems are duty bound to reject them.
They’ll get to blame the gov. for sabotaging tax reform and a minimal tax reform package will pass with the same out of control spending still in place.

Don Roach
15 years ago

John,
I think you’re right. However, there is something positive to take from this and as conservatives we shouldn’t miss this point.
The House, by making these proposals, is shifting to the right. That means what the governor has been preaching resonates with Rhode Island and the House Dems are trying to wrest ‘economical sense’ away from the governor’s office into their own hands.
But they’re going to have a very difficult time as the list of social service programs grow and tax revenue doesn’t grow at the same rate.

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