Aaron Regunberg: Let’s Make Rhode Island Competitive
Friday, February 10, 2012
The Beacon Hill Institute, an economic research firm based out of Suffolk University, recently released its Tenth Annual State Competitiveness Report, which ranks the 50 states by their “policies and conditions that ensure and sustain a high level of per capita income and its continued growth.”
I usually don’t put too much stock in these kinds of ranking systems, because I think it’s fairly easy to mess with the methodological weighting systems to prove any point you might want to make. And I don’t think that this report is a particular exception to that. But I found it extremely interesting, nonetheless, in no small part because it gave Rhode Island an overall competitiveness ranking of 20.
Twenty isn’t the top of the pack, of course. But it’s far closer to the top than it is to the bottom. What makes this so significant, to me, is that this report doesn’t come from a research entity that has any reason to try to make a Democratic-leaning, historically (though I don’t know about nowadays) labor-friendly state like RI look good: the Beacon Hill Institute is well known for its conservative bend, and describes itself as “grounded in the principles of limited government, fiscal responsibility and free markets.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTPretty Significant Ranking
Considering this clear right-wing orientation—I mean, indicators like a higher minimum wage and a higher percentage of the labor force represented by unions are counted against a state’s competitiveness in this report—I think a 20th ranking for Rhode Island is pretty significant, particularly because of the researchers’ inclusion of a broad range of different indicators, including security, infrastructure, human resources, technology, business incubation, openness, and environmental policy.
The utilization of such an extensive array of indicators makes clear that competitiveness is about far more than a state’s corporate and income tax rates. Take, for example, the three lowest-ranked states in this analysis: Alabama, West Virginia, and Mississippi. Each of these states has some of the lowest income taxes, benefits, and unionization rates in the country. Yet they are still ranked 48th, 49th, and 50th because these specific indicators are overwhelmed by the states’ glaring deficiencies in other areas.
Rhode Island’s overall ranking is comparatively high—despite having higher taxes than the Alabamas and Mississippis of the nation—because of its strengths in the areas of human resources, technology, and security. Needless to say, these are three indicators that are greatly affected by an active state. The fact is that it takes resources to deliver the high-quality education and accessible healthcare necessary to improve the human capital of a state’s population. It takes resources to support technological innovation, and it takes resources to effectively maintain security. We need revenue to create the circumstances where our economy can flourish, and we’re not going to make ourselves more competitive by continuing to slash the services and regulations that create and reinforce the competitive advantages we have. Indeed, our state was hurt by its low rankings in the indicators of infrastructure and environment, two areas that Rhode Island’s government has been guilty of neglecting in the recent past because, of course, reinvesting in our crumbling infrastructure would require more revenue.
Struggling Cities and Towns
While we’re on the subject of revenue and taxes, I want to point out another important aspect of the Beacon Hill report, which is the way it measures taxes. The Institute’s analysis looks at both state and local taxes per capita, instead of simply focusing on state-level income tax rates. This is significant because a narrow focus on the state income tax serves to obscure a crucial fact—most state tax cuts end up translating into municipal tax hikes. Over the last decade, our state has reduced tax rates for the wealthiest earners, but that hasn’t come free of charge; on the contrary, the resulting revenue loss has led Rhode Island to slash state aid to cities and towns.
This, in turn, has greatly added to our municipalities’ cash crunches, forcing cities across Rhode Island to increase property and car taxes. The ironic thing is that these are the taxes that have been the most damaging to the real engine of economic growth in our state, Rhode Island’s small business owners. I’ve had conversations with a lot of small business owners in Providence and East Providence, and I’ve never heard one of them complain about state income taxes. But nearly all of them mentioned how rising property taxes were dragging down their own profit margins, often forcing them to postpone expansions, lay off workers, and—in some cases—close shop all together. And I’ve got to assume that there are similar stories taking place in cities and towns across the state.
Of course, all of this draws a very different picture than the rhetoric and policy coming from our state’s nominally Democratic leadership, whose main strategy to increase competitiveness seems to be continued tax cuts for the wealthiest Rhode Islanders. Now, I don’t know if they earnestly think this is what’s best for RI or if their views are colored by the campaign contributions they receive from corporations and high-income earners (I’m not trying to be snarky with that line—I think most of us can agree that campaign contributions affect politicians’ decisions, and the legislative leadership at the State House disproportionately receives cash from major corporations and high-dollar donors).
But whatever the case may be, this strategy is at odds with the facts on the ground, which indicate that Rhode Island needs more—not less—state revenue to improve our economic competition, to lower economically paralyzing municipal property taxes for our cities and towns and to make the investments in infrastructure, environmental protections, and human resources that we need to make RI vibrant and productive. So let’s be smart. Let’s stop taking our cues from states like Alabama and Mississippi that are not doing very well, and let’s start pursuing economic and fiscal policies that make sense for Rhode Island.
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