Chafee Considering Tax Hikes To Deal With Budget Shortfall
Monday, January 09, 2012
As Rhode Island Governor Lincoln Chafee heads into 2012, his administration’s second year in office, he has said that he’s considering some form of tax increase to help overcome the state’s projected $120 million deficit.
Paul Dion, the chief of the state’s Office of Revenue Analysis, refused to comment on specifics. “Although the governor has made some public comments about a plan for this year,” said Dion, “there is no plan yet.”
Last Year's Plan
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTLast year’s unsuccessful plan would have reduced the state sales tax from 7 percent to 6 percent by imposing a 1 percent tax on currently untaxed goods and services like movie tickets and taxi fares.
Despite the $300 million lawmakers were able to eliminate in 2011’s budget, the Chafee administration is doubtful that next year’s shortfall can be overcome with cuts exclusively.
Chafee tried to sell the plan to lawmakers as a favorable alternative to cuts in education and infrastructure. RI House Speaker Gordon Fox called the plan “unacceptable,” echoing the concerns of business owners who turned out in droves to oppose the plan at a hearing last April.
Part of the rationale for reducing the state’s sales tax, according to a March 8, 2011 press release, was to bring Rhode Island’s rate, “to a level at or below neighboring states.”
Connecticut's Plan
Like Chafee, Connecticut Governor Dannel Malloy assumed office during the first week of 2011. But where Chafee’s sales tax plan failed, CT’s has seemingly succeeded, increasing from 6 percent to 6.35 percent last summer and expanding to include previously untaxed services like yoga classes and airport valet parking.
Malloy enters his second year in office with a projected fiscal year 2012 budget surplus of $83.7 million. “We have a surplus,” said Governor Malloy’s Director of Communications Andrew Doba. “We have balanced the budget. We cut spending.”
But the higher sales tax rate has not been without its critics. Fiscally conservative CT residents would prefer to see smaller government to higher taxes.
“The business community is not happy about it,” said Brian Parker, host of the Hartford Online Radio Network’s weekly NewsTalk Tonight. “Business owners feel as if they are paying way more than their fair share.”
Of the projected surplus, Parker laughed. “That’s the funny thing about Connecticut. There isn’t actually a surplus. The way the accounting is done in a biennial system allows the administration to report a surplus where none truly exists.”
Parker continued: “Recently we spoke to State Comptroller Kevin Lembo. He explained, as did his predecessor Nancy Wyman [now Connecticut’s Lieutenant Governor], that it is possible to report numbers properly showing a one-year surplus, but in the two-year budget there’s still a deficit.”
CT sales tax revenue, according to Lembo, is expected to top an early budget projection by $66 million, adding to the state’s continued “slow and erratic growth.”
According to Paul Dion, some of Connecticut’s ability to tinker with the sales tax is partially related to geography. Most of the state’s population lives in the western part of the state bordering New York. Many of the previously untaxed goods and services CT now taxes were already taxed over the border in NY.
What Mass is Doing
Dion continued: “Our situation’s just the opposite. Most of Rhode Island’s population lies in the northern half of the state primarily, on the border with Massachusetts.”
In 2009, Massachusetts raised its sales tax rate from 5 percent to 6.25 percent but, said Bob Bliss, communications director at the Massachusetts Department of Revenue, “We do not tax services.” As a result of the close proximity, RI businesses owners—especially those currently exempt from sales tax—are very protective of the status.
According to Bliss, “Jay Gonzalez [Massachusetts Secretary of Administration and Finance] has said that in developing budget options for [fiscal year] 2013 he is assuming no broad-based revenue increases.”
“You have to remember, Rhode Island’s sales tax was put in place in 1947,” said Dion. “At that time 70 percent of household consumption was tangible goods and 30 percent was services. Now it’s the other way around.”
Dion said that while Chafee’s plan last year wouldn’t have imposed a sales tax on essentials like healthcare, prescription drugs, food or gasoline, it seemed reasonable to expand the sales tax to include some services and recreational activities.
The sales tax expansion was touted as a temporary measure to be automatically repealed, according to the abovementioned press release, “if and when Congress passes the Main Street Fairness Act, which allows states to collect sales tax on Internet and other remote purchases.”
Economic conditions—shifts in consumption expenditures, increases in remote purchasing and what Dion calls Rhode Island’s “relatively narrow sales tax base”—mean that Chafee will almost certainly be forced to readdress sales tax policy in the very near future.
Though Dion was cautious not to reveal details of ongoing discussions pertaining to Chafee’s plans for 2012, a rehash of last year’s controversial initiative seems highly unlikely.
Related Articles
- BREAKING NEWS: Vast Majority of RI Opposes Some Chafee Taxes
- Business Groups Say Chafee Taxes a Job-Killer
- Fox Calls Chafee Taxes ‘Unacceptable’ and ‘Offensive’
