One Bad Tax Plan Shouldn’t be Replaced by Another

The ProJo reports that there is a bill in the RI House proposing an alternative to Governor Chafee’s 6%/1% “lower and broaden” tax policy. Let’s call it “promise to lower and broaden”:

The bill, cosponsored by Representatives Brian Newberry, R-North Smithfield, Samuel Azzinaro, D-Westerly, Scott Slater, D-Providence, and Peter Palumbo, D-Cranston, would also add the equivalent of a dorm tax on the rental charges for student and teacher housing at the state’s educational institutions.
The way the bill is drafted, many of these exemptions would go away as soon as the bill passed, but the sales-tax rate would remain at 7 percent until July 1, 2012, Monica S. Staaf, legal counsel for the Rhode Island Association of Realtors, told the House committee.

She’s entirely correct. According to the revised text offered in H5740 (PDF):

provided, further, that for the period commencing July 1, 2012, the tax is six percent (6%); and provided, further, that for the period commencing July 1, 2013, the tax rate is five percent (5%); and provided, further, that for the period commencing July 1, 2014, the tax rate is four percent (4%); and provided, further, that for the period commencing July 1, 2015, the tax rate is three percent (3%).

Let’s say, come May 2012, it’s realized that the tax revenue just isn’t coming in and before you know it, the reduction plan is “frozen” until such time as it is decided that the state can “afford” to implement it. Could never happen, right? The basic rule being that promised tax cuts are ephemeral while temporary tax hikes are permanent. Regardless, both ideas result in more taxation, not less, thanks to the “broadening.” These aren’t so-called revenue neutral plans, after all. They’re meant to raise”revenue” instead of shrink government spending.

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Brian C. Newberry
Brian C. Newberry
13 years ago

To be clear about this bill. It is designed to be revenue neutral. It is NOT meant to “raise revenue” as you state. Rather, the purpose is to look at our tax system and see if it can be made more fair while not increasing overall taxes. There are good arguments to be made about why services (and other exempt items under current law) should not be taxed. There are also good arguments to be made as to why they should be taxed IF the overall sales tax is substantially lowered so as to make the state’s retail sector stronger.
Obviously depending on which business you are in, you will view this proposal differently because within it there are certainly winners and losers. The ultimate question is whether from an overall public policy perspective, it is a good idea or not. I don’t know the answer to that question but I co-sponsored it in order to get a conversation going. Rep. Edwards has put a lot of work into this idea and has planned to introduce this since last year, long before the election and independent of whomever was Governor and what might have been proposed in the budget. It is unfortunate that it has hit the committee process and the press just after the Governor’s (terrible) budget plan which sounds similar but is really quite different in the details because the issues are being conflated.
To be clear: the Governor proposes one of the largest, perhaps the largest, tax increase in Rhode Island history. This bill is aiming at something very different.

Warrington Faust
Warrington Faust
13 years ago

The decision by Fidelity investments to move 1,100 employees from Mass. to RI and NH has me wondering. This seems to flyh in the face of the idea that RI is too unfriendly. On the other hand, maybe they simply couldn’t afford to walk away from their investment in Smithfield.

Tommy Cranston
Tommy Cranston
13 years ago

Come on Brian-if it is revenue neutral you go to 3% NOW, not in 5 years which we all know will be “temporarily” postponed to feed the union, crony and welfare pigs.

13 years ago

Great question, Warrington, I’ve been wondering about that myself. The only item that I’ve come across pertaining to possible factors in the decision was that their Mass facility was older than their Rhode Island facility.
There is no question about Rhode Island’s business-unfriendly environment. But that’s not always the sole basis for making these decisions, apparently.

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