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.