Strange Agreement on Income Tax Changes
So, the revised income tax scheme is now law, and we’ll soon enough find out whether it’s actually beneficial or just shuffles some numbers around. I continue to be suspicious that it’s just a roundabout way of freezing the flat tax with a positive spin. I’m also concerned that it further favors those who are less productive and less economically active, which puts me in an uncomfortable agreement with left-winger Peter Asen, of Ocean State Action:
Peter Asen of Ocean State Action, a coalition of community organizations and unions criticized the law, saying it does not do enough to help taxpayers. He said that some of the credits being eliminated, such as the mortgage-interest deduction, may hurt middle-class families.
As I’ve said, the flat tax and phasing-out capital gains tax had been maintaining Rhode Island’s wealthy population, but the productive class (including, essentially, the middle and upwardly mobile working classes) has been fleeing the state. On top of which, Rhode Island’s welfare system and tax code have actually being attracting those who would be an overall drain on our economy. This legislation appears to worsen the situation for productive working/middle class families (by eliminating itemization) and to worsen the expected situation for upper-income residents.
Consider this, from the folks at the Tax Foundation blog, which generally likes the new law (albeit tempering its praise with a list of other things the state should look at):
I should note that at the last minute, the proposal was made revenue-neutral by phasing out the standard deduction for high-income earners, a tactic also used in Utah and Maine recently. This results in a higher marginal effective tax rate than the statutory rate…