Budget Thoughts
After I looked at how other states deal with sales tax, I began to think that it would be a clever move by Governor Chafee to lower the overall rate while expanding its application. It would both increase “revenue”–its a tax hike after all–but also would provide a lower number for the various state tax ranking entities. In other words, I think there’s a good chance this move will end up making it look like Rhode Island is more tax friendly to the various tax ranking entities out there. I guess we’ll see.
Meanwhile, various fees will increase and medical marijuana will be taxed. And there will apparently be one sector of the real estate market that will expand: toll booths. These measures are classic examples of “not raising taxes” but “raising revenue”.
As for combined reporting, I recall that former Governor Carcieri and Gary Sasse looked into it the question and there was no cut-and-dried answer. As reported by John Kostrzewa at the time:
Gary S. Sasse, the panel’s chairman, pointed out that the state Division of Taxation recently studied the issue and found that if combined reporting were required, some businesses would pay more in tax, others less, but most would see no change.
When Carcieri’s tax-reform panel issued its final report yesterday, however, the panel declined to take a position on combined reporting.
That was because the panel could not reach a consensus. “Strong arguments were advanced both for adopting combined reporting or rejecting it,” the panel said in its report.
Now that that’s cleared up….Overall, Chafee’s business tax reform looks to be positive. Lowering rates is a good thing, even at the expense of a few tax credits. It’s the sort of general tax improvement we advocate for around here. However, the belief that removing the movie tax credit will result in $1.6 million in additional revenue betrays a fundamental flaw in tax revenue projecting: You won’t raise $1.6 million if no one films here because the tax credit is gone. So strike that one off of the books, folks.
The proposal to raise the pension contribution requirement for state employees to 11.75% caught my eye. Union leaders aren’t happy about it, but this is a case of reality catching up with increasingly obsolete and untenable defined-benefit plans. To get what they expect–those defined benefits–current employees are going to have to contribute more at the front end. Are they paying for the sins of the past? Of course, so maybe they should take it up with the retirees. That’s the system they’ve bargained for.
In the end, of course, none of the Governor’s proposals really matters. It’s up to the Democrats in the General Assembly to craft the budget, no matter what the Governor presents to them. So, ultimately, as tempting as it may be to blame Governor Chafee for whatever budget results, we can’t forget that the Democrats in the General Assembly are the ones ultimately in charge.
While I am aware of the historical, political, and psychological reasons why such a system does not and possibly cannot exist, I often wonder how differently people would think about government and taxes if they received a one-page consolidated tax bill every month with a single monstrous total bolded at the end of it. No income tax, sales tax, gains tax, excise tax, property tax, tolls, service fees, or taxes masquerading as fines like parking/speeding tickets – just one big number hanging out there buck naked for the entire world to see. I think we’d have a lot more libertarians in our society if people only knew just how much of their disposable income is being siphoned off in the dark of night through the death of a thousand paper cuts. Right now people just stare blankly at their bank account at the end of the year and wonder why it’s so much lower than they planned it to be.
Instead of petty theft on a daily (hourly) basis, just one big stick up at the end of the month. Bet we’d defend our money a lot better.
I hereby begin the lobbying of the General Assembly concerning the broadening of the sales tax by requesting an exemption for tanning salon owners who already singlehandedly are funding the Affordable Health Care Act, or Obamacare if you will, with a mandatory 10% tax on their sales.
Let the games begin!
I can’t believe they are, once again, trying to toll 95, particularly aiming at getting people travelling to and from CT. How hard is it to understand that the Federal government owns that particular road, not the state, that CT residents have just as much ownerships as us, that the Constitution prohibits states from putting up trade barriers, that a toll on 95 would encourage more traffic on and more deterioration of local roads, and that so far the only times they have allowed interstate tolls is to reduce congestion (oh, that awful Westerly traffic!). Even if the FHA were inclined to grant the request (which, this time, they at least recognize as being necessary), they would very likely insist that the money raised go toward the section of road being tolled. If they want to toll the roads (which I like in theory, if not in application), we have plenty of state roads where it would actually be legal. Routes 10, 6, 4, and 1 come to mind. Of course, despite being legal, tolls on those would have a lot of the same downsides as the 95 toll would, except the target wouldn’t be interstate commerce, which is presumably why it doesn’t come up. Removing the movie tax credit would generate some revenue because of how the law was designed (I don’t know how much compared to what they are claiming). If a project doesn’t generate enough tax liability to use up the full credit, they can sell the excess to other companies that have state tax liability. Removing the credit would get back that revenue, even if no more films were made here. Dan: I can’t link to it, obviously, but Senator Brown is pushing for a Federal tax receipt law, so that people can at least see… Read more »
“These measures are classic examples of “not raising taxes””
Well, not exactly. If you “flatten but widen” and end up raising revenues, then I’ve paid more in taxes at the end of the year. Thus, it is raising taxes.
“Are they paying for the sins of the past? Of course, so maybe they should take it up with the retirees.”
Or, why haven’t they gone the direction of the Providence firefighters and simply sue the state for underfunding? If there’s any chance of the promised money not being there, as there is definitely that possibility, then the union leaders should sue to have it properly funded. That should have been done years ago. By not doing that, they’re seeing the problem with standing by idly.
Smoke and mirrors.
We could stay revenue-neutral with a no-exemption 3.8% sales tax. I say we legislate a flat 5% sales tax on everything, and use the extra revenue to:
1. Fix the budget.
2. Appease those who think paying a 5% tax on food and pills is actually going to matter in the big picture (hint: it won’t, other states deal with it fine)
This would have a super bonus effects that the combo 7+1 or 6+1 plans don’t:
1. It’s simple. Multi-tiers and 70-something exemptions are NOT simple if you’re programming your store’s Point of Sale systems.
2. It’s regionally competitive, people might even drop into RI to save a few bucks on big-ticket items, which will boost the retail sector (read: lower unemployment and more stores = less state government spending and lower local tax rates)
3. It makes RI look good in national comparisons. These actually -do- matter for some places when the consider relocating. Having what looks like a low sales tax, even if we ‘cheat’ by having no exemptions, casts us in a favorable light.
4. It makes policy math easier to do. Really, it’s easier to govern based on the truth when the truth is easy to figure out. Having simple, clear taxes is part of that.
Mangeek,
Is your 3.8% figure on all goods and services, or goods only?
I appreciate the sentiment from Senator Brown, but I don’t particularly care about getting a federal tax receipt. If I received a 30-page document in the mail telling me that $200 went to the Department of Agriculture and $300 went to the Department of Labor, that doesn’t really mean anything to me. I don’t want to micromanage government, I just want it to cut costs. I don’t need to know how much the Virginia Verizon office costs to heat each year or how much their vice presidents make, I just want an affordable service. And if I get a bill for $300 next month I’m going to call them up and scream at them until they lower it. State governments spread out the collections incrementally to keep people in the dark because the citizenry would fill the streets with torches and pitchforks if they knew how much they were actually paying. People can at least conceptualize how much of their income taxes are going to the federal government. It’s the state governments that nickel and dime us to death in the most underhanded ways imaginable. I just got an excise tax bill from the City of Pawtucket for a car I owned two years ago. I don’t view that as paying my fair share, I view that as $200 stolen from me at gunpoint and flushed down the toilet by a gangster state I don’t even live in anymore. Ditto with the 36mph “speeding” ticket I got passing through Rhode Island last year – just another surprise stick-up at gunpoint to plug their budget. Nobody could possibly account for the amount of sales tax they’re paying on everything unless they save every single receipt. It’s all by design. People can’t effectively organize and complain if they can’t keep track of… Read more »
Andrew, that was based on the current structure and estimates of what adding 1% would bring in. Do we tax ‘services’ now? If so, I should probably skip town, because I’ve never accounted for that in my Schedule-C consultancy.
Lemme see if I can recreate the math:
Current Gross Taxable Sales = about $11.4B
Current Sales Tax Revenues = about $800M
Current Gross Exempt Sales = about $9B
Total Gross sales = $20.4B
Goal = $800M
$0.8B/$20.4B = 3.92% to stay revenue-neutral
Not to mention that there would likely be a boost in overall sales caused by a small influx of retail activity.
But let’s use this to fix the budget:
$20.4B * 5% = 1.02B (additional $220M with flat 5% vs 3.92%)
$20.4B * 5.5% = 1.12B (additional $320M with flat 5.5% vs 3.92%), still beats CT and MA sales tax.
“Not to mention that there would likely be a boost in overall sales caused by a small influx of retail activity.”
What would that curve look like? If 3.8% would get a boost, wouldn’t 3% get a bigger boost? And 2% get a bigger boost? What is the line where you’re as low as you can go and still collect enough?
Patrick, I don’t think it would be dramatic. We wouldn’t see twice as much sales activity here if we went from a 7% sales tax to a 3.5% tax. The power of tax cuts drops as the original amount drops. Sure, cutting a 50% tax to 25% (a 50% tax cut) might work like you’re saying, because 50% is a -big- surcharge that prevents sales outright. Cutting a 5% tax to 2% (a 60% cut) would probably just bankrupt the state.
The trick is to raise the revenue needed and stay competitive with our neighbors. I suspect they won’t care if we poach a little bit of sales activity from a few miles into their borders, but it’ll bleed us dry if they both have lower tax rates that encroach ‘a few miles’ into our border, since we’re only a few miles wide!
I am looking at my WalMart receipt from this morning
Arizona state sales tax 9.9%
Apache Junction city sales tax 2.2%
Total tax 12.1 %
And yes.. unlike RI they tax clothes
Sammy
You need less clothing in AR. Just be careful if those include a poncho and sombrero.
I say move the sales tax to a General Excise Tax (GET) and tax everything (except prescription drugs) like the State of Hawaii does. Honestly after 5 years living with it it’s so ingrain that I don’t even notice the GET tax (4% GET on all islands except Oahu where it is 4.5% GET; ½% surcharge to pay for $5.5 billion high-speed light rail). Hawaii reasoning for taxing all goods and services is that the state did not want to show any preferential treatment to any one entity. Unlike the sales tax in RI which the burden of paying the state sale tax is placed on the purchaser or consumer, the HI GET is placed on the business making the sale and gross profits which the true GET rate on Oahu is 4.712% per each dollar. This is the rate the State of HI expects to receive from the business based on reported gross sales. It is up to the business to pass on the GET tax on to the purchaser or consumer. If the business does not pass the GET on to purchaser or consumer then the business is responsible for paying the GET not the purchaser or consumer. Benefits of this type of flat tax is the state always gets its tax up front based on reported business gross sales. Reduced over-sight paperwork and tax field agents needed to monitor the state GET system. It creates a more stable tax base year to year. Plus it would drop RI to one of the lower tax base states improving the state ranking for tax friendliness. The Tax Foundation has indicated the State of Hawaii has one of the simplest forms of sales tax (GET) in the nation which at 4% is below the national median of 5.85%. “In 2007… Read more »
It makes me so happy when Ken puts “Hawaii” in the first line or two of his posts. Then I know I can scroll down seven inches and just go on to the next comment.
One of these days Ken is going to come out as an artificial intelligence bot that pastes random 2010 Hawaii encyclopedia entries as comments.
“I hereby begin the lobbying of the General Assembly concerning the broadening of the sales tax by requesting an exemption for tanning salon owners who already singlehandedly are funding the Affordable Health Care Act, or Obamacare if you will, with a mandatory 10% tax on their sales.”
That’s a reasonable request which is looking iffy right now, Michael. The tide could turn, though, if you, your wife, your children and all of your pets make generous campaign contributions to everyone on that committee.
What they will do, in the meantime, is try to decrease your customer base with a bill that would ban anyone under 18 from getting a tan (… at a tanning salon; not sure what they’re going to do in May when the young’uns begin sitting out on the lawn and on the beach to get color the old-fashioned way).
http://www.foxprovidence.com/dpps/news/local_news/region_1/providence-teen-tanning-ban-bill_3742291
Some rep from the East Side puts that bill in every year, and every year the bill dies. No worries, but it would be nice to not have to pay the $500.00 corporate tax every tear.
Ken is real-we had some discussions about Vietnam and an artificial intelligence wouldn’t know the details he did.LOL.
KEN-GET TO HIGH GROUND NOW!!
We can’t always be serious here.
joe Bernstein,
Yes I am real and I’m not always serious but I try to be practical!
I am on high ground not in a Tsunami inundation zone but can walk to the beach or two 18-hole championship golf courses and one resort from my house. Short 3 mile drive to an MWR Army R&R Center on the beach with night club, shows, bar, buffets and discounted prices.
After working with various RI state departments I think I have an understanding how RI government works.
As for Vietnam it was the best two volunteer years of my life. If I could do it over again I would not skip a heartbeat getting to the front of the line!
Living where I am now is like being on perpetual R&R with no script needed.
Joe Bernstein prices are right for first time in state VA buyers @ up to $360,000 with property tax $150 a year; no winter heating bills, no car tax and sales tax 4% plus no state income tax on your retirement income.