What’s Not in the Numbers
A few important considerations are missing from Tom Sgouros’s comment of his “review” of state tax revenue statistics:
I was reviewing some statistics about state tax revenues last week, and looked at business taxes. Along with the income tax and sales tax, business taxes were once the third important leg of funding state operations, but no longer. Between 1996 and 2006, income tax collections rose by 76%, sales tax collections by 97% and business taxes by — wait for it — 14%, far less than inflation over that decade.
Why have business tax revenue declined so much? The economy has suffered recently, but not for all of that decade. The biggest reason for the decline is a nearly endless stream of special tax breaks. We offer businesses several different investment tax credits, an R&D credit, a credit for wages paid in an Enterprise Zone, a jobs development credit, a job training credit, a biotechnology tax credit, an “innovation and growth” tax credit, and much more. Some of these are worth millions of dollars. For others, we simply don’t know what the effect is on the state budget. But the result is that 94% of the businesses in our state pay the minimum corporate tax of $500.
For one thing, it’s difficult to measure the significance of percentage change without knowing the dollar amount for each category. More to the point, however, Sgouros’s analysis requires that one ignore economic realities: It may be, for example, that the same policies that kept business taxes down enabled or encouraged increases in salaries and sales, thus increasing those taxes. One ought also to remember that offshore outsourcing has also expanded during the period in question, peeling off business revenue and making it advisable for the state to decrease the cost of doing business here.
Rhode Island clearly doesn’t do economic development well, but presenting percentage change statistics isolated from context and lamenting pro-business tax policies bespeak precisely the approach that will bury Rhode Island, if permitted to affect our tax structure.