Taxes Aren’t Mysterious; the Question Is Merely Who Pays

Could be I’m missing something:

Governor Carcieri’s administration director, Gary Sasse, gave a roomful of state senators a list of “two to three things” to do over the next few months as the state tries to climb out of its financial abyss. …
The third was a variation on a key piece of an ambitious proposal to solve deficit-wracked California’s budget crisis: lower the tax burden on the wealthy, repeal sales taxes and replace the corporate profits tax with a new levy pegged to business revenues. …
According to information compiled by the Rhode Island Public Expenditure Council, a business-backed research group, most states, including Rhode Island, have corporate income taxes that are levied against profits, defined as gross receipts minus expenses. Gross receipts taxes apply to all business revenues with few or no deductions. All transactions are taxed, including business-to-business purchases of supplies, raw materials and equipment.
Rhode Island has already taken a very small step by taxing public utilities (telecommunications, electric, gas) on their gross earnings; insurance companies on their gross premiums; and certain health-care providers on their gross revenues.

We all know that Rhode Island’s business environment is the state’s core problem (to which other central problems contribute, of course). Even if we assume that the untrustworthy state government of Rhode Island follows through with step 2 and eliminates other taxes, rather than just keeping the additional revenue, the gross receipts tax would essentially shift the tax burden to businesses.
Perhaps there would be a modest bump in perceptions of the state, but it would be founded on a gimmicky trick: Two of the ways in which businesses would adjust to the new tax would be to pass it on to consumers and decrease the salaries that it pays. With the principle that state government revenue must remain flat, all these changes can do is to transfer the burden, and in this case, it appears likely to take less from wealthy families and more from everybody else — especially the working and middle class families who are already hollowing out our society by emigrating.
Why waste waning political equity on this? As I said, I may be missing something, but as it stands there’s a taint of benefiting upper class Rhode Islanders as an a priori consideration in the name of economic development.

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14 years ago

“Rhode Island has already taken a very small step by taxing public utilities (telecommunications, electric, gas) on their gross earnings;”
Hey Gary, no you haven’t. RI has basically just added another tax for the consumers. I have a “gross earnings tax” on my bills each month. The utilities don’t pay it, I do. Along with all the other various taxes imposed. Don’t start getting all full of yourself that you’re not taxing the people with such things.

14 years ago

No matter how you think you are going to increase revenues by imposing additional taxes, businesses have a very simple way of thwarting it by: increasing the cost of the product or service; decreasing the quality of the product or service;laying off employees; closing up; moving out of RI.
Is this part of the Administration’s plan to attract new business to RI?
Will certain businesses be exempt from this change? Because RI has handed out money (exemptions) for years without following up and finding out if the return to the state has ever materialized.
Instead of focusing on raising revenue, focus on cutting expenses. That’s what everyone out here in the real world is doing to survive.

Ragin' Rhode Islander
Ragin' Rhode Islander
14 years ago

This does nothing to address the real problem – spending – it’s merely rearranging deck chairs.
Just as the “gross receipts tax” line item added to electric bills is really just a sales tax on electricity, will this tax be assessed against services as well as goods, and so line-itemed on invoices just as would a sales tax?
In any case, whether line-itemed or not, 100% of any gross receipts tax will be paid by the ultimate consumer, just like a sales tax.

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