Reshuffling the Tax Deck

Neil Downing explored the governor’s taxation panel, and beyond my complaint that it strove to remain essentially revenue neutral (rather than decreasin taxes), if we strip away the specifics, none of the proposals are very attractive in their predicted effects:

  • The first solution would transfer the income tax burden from the top and the bottom to the middle and increase tax revenue by less than a million dollars.
  • The second solution would also transfer the income tax burden from the top and the bottom to the middle, but it would decrease tax revenue by $3.4 million.
  • The third solution would decrease income tax across the board, but the sales tax rate would remain the same and apply to more goods and services, bringing in an extra $38 million in revenue.

The direction of the shift in income tax for the two solutions that are effectively revenue neutral suggests that the tax panel didn’t look closely at the demographics concerning the sorts of people who have been leaving the state. Middle-income families — the key for productivity and growth — have been fleeing the state for years, so increasing their share of the burden would likely prove counterproductive.
Broadening the sales tax will also be counterproductive. More people will simply move their shopping over the state border, and the more aggressively the state cracks down on that, the more contentiousness will exist between citizens and their government, and the more likely they’ll be to throw in the towel and move.
Bottom line: there is no way out of this mess that doesn’t require huge cuts to government spending.

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Mike
Mike
12 years ago

“Bottom line: there is no way out of this mess that doesn’t require huge cuts to government spending.”
Unfortunely that is not true. The lottery and the VLT’s can be sold off. Bonds can be floated in the bilions of dollars, supported by sales, income and excise tax hikes. Federal loans can be solicited from George Jefferson after Jan. 20.
Obviously, all these “solutions” are temporary, cannibalizing, illusory and ultimately doomed for the reasons you discuss. But faced with the choice of derailing the union/welfare/crony gravy train or accelerating the 75 year death spiral they started, is there any doubt which way the “progressives” shall procede?
The hiring of a well-coonected felon and junky for $135K plus benefits should provide the answer.

chuckR
chuckR
12 years ago

What felon and hired by who and why hasn’t the ProJo covered this? Asleep at the switch yet again?

John
John
12 years ago

Mike,
Not sure of the market value for the lottery and VLTs, since gaming revenues and profits are down everywhere. On the other hand, I’m pretty sure that the market for RI General Obligation debt is looking pretty bad in light of the ratings downgrade and worsening conditions. On the other hand, as you point out, perhaps the Treasury or Fed could directly purchase them — that would provide, however, at best a stop gap measure (unless you think Federal forgiveness of debt so acquired is in the future cards).
However, I am completely in agreement with you that (a) the Democrats in the General Assembly — both progressive and union factions — desperately want to go down this path rather than raise taxes or make spending cuts, and that (b) said path will just prolong the destruction of what is left of RI’s private sector, productive, wealth creating (as opposed to wealth redistributing) economy.
As I’ve said many times, it is the end game that is interesting here (i.e., whether the unions can get theirs at the expense of the welfare crowd, or vice versa), and the sooner the final crisis descends upon RI’s economy, the sooner we’ll begin the long painful path to recovery.

Mike
Mike
12 years ago

What felon and hired by who and why hasn’t the ProJo covered this? Asleep at the switch yet again?
Posted by chuckR at December 8, 2008 12:50 PM
Tom Coderre, paid $135,000 plus benefits by the JCLS as newly hired chief apologist for Paiva-Weed.
his chief “qualification” is being a long term felonious dope addict. Oh, and being the lucky sperm of corrupt Pawtucket hack Rep. Elaine Coderre, one of Murphy’s leadership in the House.

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