Study: $4.6 Billion Moved out of Rhode Island

Wednesday, January 19, 2011

GoLocalProv News Team

 

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High taxes are driving the wealthy out of Rhode Island, taking $4.6 billion in taxable income with them and costing the state and local communities as much as $540 million in lost tax revenue, according to a new study that will be released tomorrow.

The study, produced by the Ocean State Policy Research Institute (OSPRI), faults the state’s unfavorable tax climate the main reasons for the wealth migration.

“Make no mistake, RI is losing people and money as a result of our tax policies. In order for our state’s economy to reach its full potential, we must reverse this trend and create a more competitive tax structure that will attract human and capital resources to Rhode Island,” said Bill Felkner, the Director of Policy and Organizing for OSPRI and one of the authors of the study.

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1 out of every 10 residents left

A total of 100,000 people, or approximately 1 out of every 10 residents, made their exit between 1995 and 2007, according to data from the study obtained by GoLocalProv. As a result, the state has also seen about $78 million in annual tax revenue go away. (The $4.6 billion figure is the cumulative total of the wealth that has left the state.)

The study points to Rhode Island’s estate tax—the third most punitive after Ohio and New Jersey—as the culprit. Many of the departing wealthy are heading to states where the estate tax, more commonly referred to as the death tax, is lower or even nonexistent. For example, after Florida eliminated the death tax, the migration of wealth out of Rhode Island went up by 44 percent, according to the study. (Felkner said the study took into account other possible factors, such as a warmer climate.)

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“The most significant positive impact for the state would come from the elimination of the estate tax,” Felkner said. “For every $1 we collected on the estate tax we lost $1.58 of tax revenues from the people moving out of the state.”

The full study, entitled “Leaving Rhode Island,” will be unveiled at a press conference at 2 p.m. Thursday at the Statehouse rotunda. The research, which was done by J. Scott Moody, a tax policy analyst based in New Hampshire, was funded by Alan Hassenfeld, chairman of Hasbro.

State lawmakers promise action

Several key state lawmakers yesterday told GoLocalProv that they are taking the findings of the study seriously as they gear up for the 2011 legislative session.

“We look forward to reviewing the recommendations of the Ocean State Policy Research Institute. The General Assembly has taken steps in recent years to make our tax climate more favorable to everyone in order to grow our state’s economy,” said House Speaker Gordon Fox.

“We will continue to look at all tax reform proposals, while keeping in mind the projected budget deficit approaching $300 million for next year.”

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State Sen. Edward O’Neill, an independent representing Lincoln, North Providence, and Pawtucket, said the migration of wealthy residents is hurting the state’s economy. “They buy things. They generate sales tax revenue. They go out and spend money,” O’Neill said. “So when we lose them, we lose far more than meets the eye.”

Some tax reforms already in place

O’Neill, who is a member of the Senate Finance Committee, said he will ask the committee’s chairman to study the issue. “We have to look at the estate tax—should we abolish it?” O’Neill said. “We want to look at what other states have done.”

A vice chair of the House Finance Committee told GoLocalProv that his committee would be looking at the issue. “Definitely, we have to look at the estate tax,” said Raymond Gallison, Jr., D-Bristol, Portsmouth.

But he said the exodus of wealth was not something that had gone unnoticed by the General Assembly. “We did look at that situation and that was one of the reasons that we created the flat tax,” Gallison said.

But, after national studies continued to rank Rhode Island as having the highest taxes in the nation, he said the General Assembly revisited the tax code last year, reducing its top income tax rate. He said that was the top priority in 2010—ahead of any changes to the estate tax. “We were really looking at that 9 percent tax rate. That kept hitting us,” Gallison said. “It was like a bull’s eye.”

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That reform, Gallison said, has already improved the state’s tax climate. “There’s more to be done and we know we have to do that,” he added.

Study findings disputed

Meanwhile, one other prominent local research institute yesterday disputed the findings of the study.

“The claim that Rhode Islanders are leaving because of taxes has become a favorite urban legend,” said Kate Brewster, executive director of the Poverty Institute at Rhode Island College.

“There is simply no evidence to support this argument,” Brewster added. “In fact, both our population and the number of wealthy taxpayers have grown in recent years.” (Brewster was not able to provide supporting data in time for publication. She said her organization would be releasing a response later this week.)

Image credit: Charlie Hall

 

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