Aaron Regunberg: Shame on You, Speaker Fox

Friday, January 27, 2012

 

That’s a line that many progressives repeated throughout last year’s legislative session, during which the Rhode Island Speaker of the House refused to go all in on marriage equality, fought against the closing of corporate tax loopholes, and eliminated all funding for the Neighborhood Opportunities Program (one of the state’s most effective affordable housing programs), among other failures.

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And I’m repeating it again here because it’s looking like this session will be more of the same from our purportedly Democratic leader. Case in point: last week, Fox gave an interview on WPRI in which he made clear he would not be open to even considering making progressive changes to the state’s income tax in order to deal with Rhode Island’s need for more revenue.

Nothing New

The rationale he provided for this refusal is nothing new. The Speaker repeated the old “Flight of the Earls” myth, a convenient tale that says that states cannot enact progressive taxation because if any one state (particularly, according to advocates, one so small as Rhode Island) raises its tax rates on the wealthy, those wealthy folks will just pick up and leave.

It’s an argument that has long been used to keep those most able to pay their fair share from having to make the sacrifices the rest of Rhode Islanders have been asked to make. And it’s an effective one, because it’s difficult to disprove anecdotally—if I ask a bunch of rich people whether they will leave Rhode Island if we marginally raise their taxes, they’re going to say yes because it will keep us from raising their taxes.

Fortunately, over the last decade there have been a host of academic, peer-reviewed studies that have looked into this issue. And the scientific consensus is compelling. The “Flight of the Earls” myth is just that: a myth. If Speaker Fox would take the time to substantiate his claims by reviewing the research, he would see that income tax increases cause little or no interstate migration.

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One of the most recent studies, conducted out of Stanford University, provides an easy-to-understand example of this reality by examining the migration effect of New Jersey’s “millionaire’s tax.”In 2004, the state of New Jersey enacted a significant tax increase on filers with incomes exceeding $500,000. At the time, conservatives in that state were quick to cry wolf, claiming that such an increase would cause New Jersey’s wealthy to flee. They used many of the same arguments Speaker Fox repeated last week, stressing New Jersey’s small size and its extreme proximity to a number of other states with lower tax codes. But what this exhaustive study found was that during the years the tax existed—2004 to 2007—the net out-migration of folks making over $500k did not accelerate any faster than that of other groups not subject to this tax.In short, New Jersey was able to raise $3.77 billion in extra revenue, while not losing any more of its wealthy citizens than it otherwise would have.

Basic Common Sense

These conclusions follow basic common sense. I mean, does anyone really think that the most important bonds connecting people, rich or poor, to the states they live in are their marginal tax rates? Think about your own situation. What is stronger, your ties to Rhode Island through your job, your family, your friends, and your community, or your feelings about Rhode Island’s taxes? I’d be willing to bet that most readers, even those with higher incomes, value the first four more.

And even for those who really do put money above these other factors, the truth remains that taxes aren’t what they’re primarily worried about. While the differences in interstate taxes typically equal just a few percentage points of income, the differences in the cost of housing between states is far more significant. Take the case of Florida, which has no state income tax. I have often heard people in Rhode Island point to the significant numbers of Northeasterners who migrated to Florida during the 1990s and early 2000s as proof that higher progressive taxes are causing all Rhode Island’s wealthy citizens to leave. What they don’t mention is that during this period, Florida also had far cheaper housing than states in the Northeast, meaning that high-income earners could increase their disposable wealth by selling their expensive houses in the Northeast and purchasing comparable or better homesin Florida for a lower price (constituting a wealth increase much greater than they might gainfrom lower taxes). As further proof that housing and not taxes drove this trend, in the last few years Florida’s in-migration has slowed and actually reversed itself, corresponding directly with the state’s sharp, mid-2000srise in housing prices.

It seems, then, that Rhode Island is crippling itself through service cuts and a more and more regressive tax structure because of an argument that has no realbasis in reality. In fact, Speaker Fox’s attempts to make our state more “competitive” by protecting tax loopholes on the wealthiest Rhode Islanders and the biggest corporations have actually been making us far less competitive. What policy-makers like Fox forget—or perhaps choose to ignore—is that tax-financed amenities such as quality public services, strong infrastructure, well-funded education systems, accessible recreational opportunities and the like are all powerful attractions for potential migrants, socutting these services to pay for tax cuts is a double-edged sword. When Gordon Fox chose to eliminate all affordable housing funding for the Neighborhood Opportunities Program last year, he didn’t make Rhode Island a more appealing state, but rather a state with a more intractable homelessness problem (which, last time I checked, is not the kind of criterion folks value when they are deciding where to invest). When folks at the State House repeatedly cut state aid to cities and towns over the last decade, forcing municipalities to raise their property taxes, they weren’t making Rhode Island more friendly to economic development—they were erecting another barrier to the growth of small businesses while adding to the differential between Rhode Island’s cost-of-housing and that of other states.

Listen to Working Families

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Now, I don’t want to be unfair to Speaker Fox. I understand he’s got a hard job, and that he presides over an ideologically diverse caucus. But the Rhode Island state legislatureisn’t a rank-and-file arena—leadership means everything at the State House, and Gordon Fox has more power than literally anyone else in this state to set and enforce an agenda. If he wanted all Rhode Islanders to pay their fair share, they would. Inversely, if the wealthiest have been given unfair advantages at the expense of everyone else (and it’s hard to see the state cut taxes for the top bracket while directly and indirectly raising them on everyone else and not agree that this is the case), it’s because Gordon Fox has chosen it to be so.

So my question to the Speaker is this: who are you going to listen to in 2012? Will it be the corporate lobbyists who I know receive so much face time in your office at the State House, and the wealthy campaign contributors who can afford to cut you $1,000 checks? Or will it be the hard-working Rhode Island families who are struggling to get by, who desperately need you to stand up for them and show some real leadership? Will you take your cues from Republican standard-bearers like Mitt Romney, who made $45 million in the last two years while paying a lower tax rate than most working-class Rhode Islanders? Or from the leader of your own party, President Barack Obama, who spoke out during Tuesday’s State of the Union address about the need for economic fairness and—yes—higher taxes on the wealthy?

The choice is yours. I hope that you will prove my expectations wrong. If not, I believe strongly that the people of Rhode Island are going to hold you accountable. The tide is turning, Speaker. For all of our sakes, please, do the right thing, so we can stop saying, “Shame on you, Gordon Fox,” and get on with the business of making Rhode Islandthe fair, prosperous place it should be.


 

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