Rhode Island Ranked Least Tax-Friendly State for Retirees
Friday, August 30, 2013
Labor Day is once again right around the corner, and while the long weekend marks the unofficial end of summer, it is also intended to recognize workers throughout the country, who if they're lucky, get the Monday holiday off.
While many spend the best years of their lives working towards enjoying the golden ones later on, a recent ranking by Kiplinger, the business forecast and personal finance advice publication, bestowed on Rhode Island the distinction of being the "Least Tax-Friendly State for Retirees".
See Where New England States Rate in Slideshow BELOW
So what happens when Rhode Island retirees decide the climate -- whether the weather or the economy -- isn't best suited for them?
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST"By losing the older population, we lose some of our history and knowledge base. In the long-run, their departure to other states will affect volunteerism, philanthropy, mentoring the young and survival of family businesses," said URI Distinguished Professor of Business Edward Mazze. "We need to do something fast to slow down retirees moving to other states since this demographic has most of the wealth."
Local taxpayer association OSTPA's Lisa Blais agrees. "When the plus fifty and older crowd leaves, Rhode Island loses institutional knowledge, so to speak, which in turn serves to weaken the depth and breadth of our larger community."
"They take with them professional experience and knowledge, and in some cases, philanthropic activity. So, in turn, the opportunities to strengthen the younger generations by tapping this group for educational and workforce expertise is lost," she continued. "By incenting the older generation to leave, Rhode Island sends the message that we devalue our elders and that is a poor message to send."
Rating the States for Retirees
So how did Rhode Island take "top" honors? The rankings by Kiplinger note the various facets of Rhode Island's tax structure that contributed to its score.
"Not only does [Rhode Island] tax Social Security benefits, similar to the way the federal government taxes up to 85% of benefits, it also taxes virtually all other sources of retirement income, including pension income," the report states.
The analysis does note, however, that the state dropped its highest income tax rate and collapsed the three middle rates into a lower one as well -- but still had the fifth highest median property tax.
The states that ranked "friendliest" include Alaska, Florida, and eight other "low-tax" states inbetween.
However, no New England state made the fiscally warm-and-fuzzy list. In fact, Vermont and Connecticut were ranked as being directly on the heels of Rhode Island as being financially frowned upon for those in their post-work years, earning them the labels of second and third least friendly tax states.
Can Rhode Island Step Down from the "Top" Spot?
Gary Sasse, Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University and former Executive Director Rhode Island Public Expenditure and Director of the Departments of Administration and Revenue, earlier this week penned his first column for GoLocal advising ways to restore confidence in the state's government.
On Thursday, Sasse offered up advice for addressing the fiscal issues facing Rhode Island retireees.
"There are three policy options to consider that would encourage retirees to maintain their residence in Rhode Island," said Sasse. According to Sasse, those include: phasing out the Estate Tax or increasing the exemption to $5 million; reducing the emphasis on the property tax in funding education ("Property taxes are constantly increasing, but retirees are often on a fixed income," said Sasse); and improving the state's competiveness so that the "child of retirees can find jobs and remain here," wrote Sasse.
Mazze similarly thinks the state needs to address property taxes -- and acknowledge the different "types" of retirees, as well.
"Change the state estate tax to where it matches the federal tax and lower property taxes are the action items needed to keep retirees from moving to other states. These actions will improve the retiree's financial situation," suggested the distinguished professor.
He continued, "We have three different retiree groups, each having their own needs - those who retired voluntarily and enjoy the quality of life in Rhode Island, those who were pushed out of jobs while they were in their 50's and 60's because of downsizing/rightsizing and would like to continue working and those who have been out of the workforce for an extended period of time and are in their 60's and are no longer searching for jobs. If there were full and part-time job opportunities available some retirees may stay in Rhode Island."
Blais noted that the tax parameters placed on the retiree population had additional ripple effects.
"The more concrete issues are twofold: first, we lose the economic activity that retirees create and secondly, we force those retirees of lesser means out of their homes because they can no longer keep up with the demands of local and state government. The pendulum has swung too far and the prime example of that, in terms of residential property taxes, is the recent over-the-top increase in Providence."
Blais noted remedies could include "reducing property taxes, which is one of the most regressive forms of taxation; repealing the death tax (or as a first step only tax the first dollar above the current exempt threshold); and amending the car tax formula and lowering sales taxes across the board."
"Lastly, officials must stop asking the culturally entrenched question " how do we replace that money" and do the heavy lifting to figure it out," said Blais. "Retirees and all other taxpayers don't grow money on trees and driving people out or worse dropping the heavy hand of government by taking people's homes or forcing folks to close businesses is no way to serve our communities."
Moderate Party Chairman Ken Block pointed out a number of similar issues with the ranking as his peers. "When Rhode Islanders leave the state, there are a number of negative effects. Property values can decline because there is more unsold real estate. There is a loss of commercial activity – with fewer customers, local businesses sell fewer goods and services. And when the tax base shrinks, there is a greater burden on the remaining taxpayers."
"To address this problem, we need better fiscal management at both the state and local level. We need to save money by eliminating wasteful spending, regionalizing certain public services, and changing the General Assembly’s terrible budget process," said Block.
"At the same time, we must adopt economic policies that will stimulate growth, attract businesses to Rhode Island, and create new jobs. In this way, we can increase the number of working Rhode Islanders who live in our wonderful state, pay taxes, and fund the public services we need. By expanding the tax base, we will lower the tax burden on our citizens, including our retirees."
Finally, Block offered, "Rhode Island should also limit the amount of high value real estate that is occupied by non-profits, which do not pay property taxes. We must increase exports and promote more tourism. Most importantly, we need to analyze and address the reasons why our business climate is uncompetitive with Massachusetts and other neighboring states."
See how those neighboring states did BELOW.
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