Dan Lawlor: RI’s Tax Policy Just Isn’t Working
Monday, August 27, 2012
“Institutions that once worked well enough for the major stockholders are no longer adequate to bear the burden of all our mistakes.” -Gore Vidal, “Political Melodramas”
In 1997, during a boom economy in RI- remember the Renaissance? - the top income earners had a 27.5% income tax rate. Our jobless rate was 5.3%.
Top income earners now pay 5.99% in income taxes. Our jobless rate is 10.8%.
Since that time, college tuitions have gone up, jobs have been cut, RIPTA services have been cut, the DMV has been centralized, we've grown more dependent on gambling revenue, school buildings are poorly maintained, ponds are still polluted, there are more documented homeless than in any time, and, despite our tax cuts, we still rely on sweetheart deals for large companies to come to Rhode Island (a la 38 Studios). Is this what prosperity looks like?
For a trip down memory lane, let's take a peak at revenue sources for Rhode Island's state government since WWII.
RI Revenues
In 1947, the Rhode Island General Assembly instituted at 1% sales tax.
According to Dr. Jay Goodman, in 1961, the state had a 3% sales tax. The AFL-CIO was opposed to the sales tax, and put forward a proposal to cut the sales tax while creating an income tax. It was ignored.
The early 1970s were a time of crisis in the state. Factories closed, city streets were destroyed for highways, and violence broke out on many streets. In 1971, under Governor Licht, the state began collecting an income tax, at a rate of 15%.
In 1974, still reeling from the naval base closures, the state established a lottery to generate additional revenue.
By the 1980s, under Governor Garrahy, the state had a 6% sales tax. In 1983, the top income tax rate was 26.75%. Our unemployment rate was 8.5%.
In the mid-1980s, the state entered a building boom, influenced by insider deals and protections. Republican and Democratic leaders alike cashed in. At one point, in June of 1988, our unemployment rate was 2.9%.
In 1990, under Governor Diprete, the state initiated a two year temporary 7% sales tax. Our unemployment rate was 6%.
Following the credit union collapse and a dramatic rise in unemployment, Governor Sundlun moved to make the 7% sales tax long term to help stabilize revenue.
In the 1996, the top income tax rate was 27.5%. Our jobless level was 5.3%. Let's repeat that. Our top income tax rate was 27.5%. Our jobless level was 5.3%.
In 1997, the General Assembly and Governor Almond began a five year plan to cut the tax rate by 10%. There was discussion of cutting the sales tax to 6.5%, but it did not materialize. In 2002, after the Almond reductions, Rhode Island's income tax rate was around 11%, not counting deductions. The state's sales tax remained at 7%. Our unemployment rate in was 5.5%.
In 2010, the General Assembly and Governor Carcieri reduced the top income tax rate from 9.9% to 5.99%. The state's sales tax remained at 7%. Our unemployment rate was 11.6%.
In 2012, we still have a temporary 7% sales tax, with cities and towns having the ability to add on a 1% meals tax. Local property tax bills have soared as financial aid to cities and towns have been dramatically cut, in large part due to the dramatic reduction in income tax revenues. Our unemployment rate is 10.8%.
Since the 1970s, regressive taxes like the sales and property tax have gone up, while progressive taxes like the income tax have gone down (from a top rate 27.5% in 1997 to 5.99% today). We're more dependent than ever on sales, property, corporate, and lottery money, as our income tax funds have decreased. Our employment situation is worse now than at any point when our income taxes were higher, even the 1982 recession which peaked at 9.5% jobless.
Tom Sgorous once made a similar argument here.
Our tax policy has basically been that the rich pay less in income tax, and we all pay more in property and sales tax. Let alone that our corporate is higher than both Massachusets and New Hampshire. This strategy for growth doesn't seem to be working.
Policy Suggestions
The political leadership of Rhode Island needs a model that works, and must follow it. New Hampshire has opted for no sales tax, no income taxes (except for dividend and interest income), tourism and meal taxes, a lottery, an 8.5% corporate tax, and high property taxes, resulting in high business growth and job creation, with services varying greatly by town. Massachusetts has opted for a diverse revenue stream of 5.3% flat tax on income, a 6.25% sales tax, an 8% corporate tax, a lottery, and property taxes- and has a sales tax holiday, some of the best public schools in the country, excellent research and development, and a strong public transit system.
Whichever way we choose to grow, our political leadership from all parties, Democrat, Republican, Green, Moderate, Libertarian, need to consider what is the mission of the State Government of Rhode Island, and how do we construct laws and a budget around that mission?
Comments:
donatello gori
7:14am on Monday, August 27, 2012
unfortunately dan, mass gets it and our pols don't. the losers at the ga will never allow any change that will benefit the people of ri because they know that once they do, they will no longer be needed. nice article though
Michael Napolitano
7:54am on Monday, August 27, 2012
Once again an article without all the facts! Tax the rich, blah, blah, blah. Yes it sounds nice to all of us who are not wealthy. Make the individuals who have money coming out of their ears pay more taxes. But this argument never reveals all the facts! In addition, you cite a tax rate of 27.5% in 1996, but you have grossly misstated this! In fact, that rate was not based on the taxpayer’s income but on the taxpayer’s entire federal income tax liability. In other words if a taxpayer paid $100 in federal income tax they in turn paid $27.50 to the state of Rhode Island. The rate was piggybacked on to the federal rate and not on their wages. This clearly shows you lack of understanding of not only economics, but taxes as well. What is disturbing is you go out of your way to point out a tax rate of 27.5% twice in the same paragraph, and then tie it to a low unemployment number of 5.3%. Your entire argument is flawed!
The legislation in 2010 reduced the highest marginal income tax bracket from 9.9% to 5.99%, for 2011. It also reduced the number of income tax brackets from five to three. It eliminated the option to itemize deductions, increased the amounts of the standard deduction, reduced the amount of the personal exemption, and limited the types of credits that may be taken. The new 2011 tax rates $0-$55,000, 3.75%; $55,000-$125,000, 4.75%; and over $125,000, 5.99%.
According to the Tax Foundation, “Most economists agree that tax systems should have broad bases and low rates: if targeted deductions, credits, and exclusions are avoided, substantial revenue can be raised with low tax rates. Such tax systems reduce political distortions of economic decision-making and promote overall economic growth. Overall, the reform was designed to be revenue-neutral and actually increase progressivity, while dramatically reducing compliance costs and barriers to economic growth. While Rhode Island still has problematic property and corporate income taxes and although the income tax changes are still new, their tax reform will greatly boost the state’s competitive position.”
We must compete with other states. When a business makes a decision to locate in a particular state, it looks at the income tax rates. There is a pattern here of businesses closing their doors and moving elsewhere. It is no wonder CNBC has ranked us 50th for business for the 2nd year in a row. If our state drives out all of the high income earners who pay into the system we will be left with more individuals who require services from the system. We need to create a pro-business atmosphere where businesses will prosper, hire more employees, who will then generate tax revenue. Remember we are ranked 3rd highest for unemployment. Private sector job creation is the key. Individuals also make the same decision on whether or not to move to Rhode Island. Why pay more in taxes when you can move a few miles down the road into Massachusetts.
URI Economist Len Ladaro has stated and more than once, that this type of tax cut takes time to work its way into the economy and have an effect. This new 5.99% lower tax rate was only first utilized last year! By the way, even with the change the Tax Foundation states that Rhode Island's top rate of 5.99% is the 3rd highest nationally.
Next time you write an article do your homework!
Lance Chappell
8:10am on Monday, August 27, 2012
The states tax laws are out of step with the economy. The dems have not given the state budget a haircut EVER. This budget that was just passed went up 6% to a record level of $8.1 Billion dollars. This legislature and municipalities have piled up over $1.6 Billion dollars in bonded indebtedness. The roads are in deplorable state because over 50% of the transportation budget goes to debt service. This was the first year that voters won’t have to approve another transportation bond issue in decades! This state is driving business to neighboring states because their tax levels are lower. Massachusetts “got it” decades ago when it passed proposition 2.5 which limited local budgets to 2.5%. That has worked for them. Rhode Island is presently at 4% but it should match the 2.5%! There needs to be cuts in spending! This state is spending at a level people can no longer afford. One third of the state budget is funded by the federal government. If that aid is ever cut back, there will be massive cuts in services.
Chris O.
10:45am on Monday, August 27, 2012
lol. Lawlor is such a dope. I guess that's what happens when you rely on TOM SGOUROS for your data!
William Suffik
10:52am on Monday, August 27, 2012
Mr. Lawlor, it's the spending. Knock this stuff off.
WS
P.S. Quoting a far-left lent no credibility to your argument for those who remember Gore Vidal.
Russ Hryzan
11:47am on Monday, August 27, 2012
Mike N is 100% correct - the author of this article is a liar. The state tax rate is intentionally mis-stated (it was never a rate of 27.5% of their income. That's such an outright lie, that it actually overstates what the rate actually used to be by nearly 200%!!! All just to bolster his argument which is based entirely on false logic.
The problem is the spending couples with excessive taxation. The state budget has nearly doubled between 2001 and 2011, and we've had almost no population growth and a drastic reduction in state workers.
Time to cut the fat, and we have about $3 billion of it in the RI budget. Lets look at NH people...lowest taxes and lowest unemployment. Time for RI to change paths to a system that actually works and is actually efficient. No more liberal brainwashing by the Dems, no more pushing of the communist/socialist "progressive" agenda garbage onto our state, we just need low taxes, small limited efficient government, and more freedom and prosperity for RI & our citizens. That's the only thing that will solve our problems.
Captain Blacksocks
2:34pm on Monday, August 27, 2012
Why can't the state of RI try some innovative thinking like this??
http://www.courierpress.com/news/2012/aug/15/voice-herp/
We rely on the chuckleheads in the statehouse to come up with solutions to the state's economic problems, when it is the business owners in this state who could probably come up with 100 great solutions in just one afternoon.
Captain Blacksocks
2:51pm on Monday, August 27, 2012
The state of RI has YET to do any of these actions that would make real, lasting change in our economic mess:
-Consolidate city services on a large scale.
-Implement real penalties for corruption and cronyism.
-Form a respected and effective econ dev agency and make them accountable to RI's business community.
-Do a statewide audit to reveal major areas of wasteful spending, then take real action to end that spending...before any tax increase.
-Logical and sustainable municipal employee pensions
John Waddington
3:07pm on Monday, August 27, 2012
Tax suggestions from a clueless idiot. How Rhode Island.
Here's a clue Dan:
It's a spending problem. We tax plenty already !
Ken Block
3:26pm on Monday, August 27, 2012
Our problem is that we have not been competitive (in terms of tax policy) with our neighboring states for a long time - AND - our General Assembly essentially keeps us uncompetitive by continuously trying to undo the recent reformed income tax.
This is worth a read, if I should say so myself!
http://myemail.constantcontact.com/How-certain-House-Finance-Committee-members-are-hurting-our-economy.html?soid=1102054253269&aid=7GWLwkHfdjg
David Cann
3:50pm on Monday, August 27, 2012
Dan, this article is embarrassingly inaccurate in comparing the old 27.5% tax rate (which was calculated as a percentage of our federal tax liabilities) with today's 5.99% rate (no longer a "piggy back tax")
You say above, "Massachusetts has opted for a diverse revenue stream of 5.3% flat tax on income, a 6.25% sales tax, an 8% corporate tax, a lottery, and property taxes..." in an article where you're advocating for a much higher income tax? How does that make us more like Massachusetts?
Scott Dickerson
4:03pm on Monday, August 27, 2012
Another shameless plug for himself by Ken Block. Don't you have enough to do by helping your pal Linc find welfare fraud in RI. Or maybe you can help your former campaign manager Christine Hunsinger, who also ran your party once upon a time, write a press release for Linc in her capacity as his press secretary. So transparent! You politicians are all the same.
Ken Block
4:11pm on Monday, August 27, 2012
Gosh Scott -
You have a lot of rage there, don't ya?
I would have helped any governor go after the waste and fraud - AND - it just so happens I JUST wrote the attached piece which was published in this week's Providence Business News attacking those legislators who continuously try to wreck our economy by making us uncompetitive with our neighbors.
I don't see too many other folks actually taking that fight to the legislators responsible for keeping our economy in the tank.
But you aren't at all interested in any of that, right?
Scott Dickerson
4:23pm on Monday, August 27, 2012
Mr. Block your party has failed. You put less than a handful of candidates in the election and were forced to run yourself, splitting the vote and giving us the worst governor this state has ever seen. The only thing your party does is help the existing power base by splitting the vote. We've been there done that with the reform party. How many candidates is your party running this year? Get my point. Of course you're not self-promoting so this means we won't see you run for Governor again in 2014? The money you wasted on your own campaign could have funded many general assembly candidates and really made a difference.
Ken Block
4:29pm on Monday, August 27, 2012
LOL - I was right.
Can smell the 'blamers' a mile away.
Yawn.
He is more interested in trying to 'blame' the 2010 election results on someone or something instead of dealing with the problems of today.
Scott Dickerson
5:06pm on Monday, August 27, 2012
Blamers, you're funny, so answer the question, how many candidates do you have on the ballot for this year? 1 maybe 2? That is a failure Mr. Block. You have failed as the head of your party. With all the money you have you could easily fund 20 candidates for the General Assembly and make more of a difference than running for Governor. So debate me all you want but it is true. Also if you had any values the last person you would help is the worst Governor we have ever had. Perhaps your assistance will assure him victory in 2014? You really don't get it do you. The rumors appear to be true I guess it really is all about you.
Ken Block
5:17pm on Monday, August 27, 2012
Tis interesting who is not answering the questions!!
The topic here is tax policy and competitiveness with our neighboring states via a vis tax policy.
You are doofus who jumped the rails into the non-sensical debate regarding who is to blame for RI's 'worst governor ever'.
And just for jollies - do you know how much an individual can give in aggregate to all RI candidates in any calendar year?? The answer is $10,000 Einstein - or $500 per each of your theoretical candidates. Get a clue.
Scott Dickerson
5:32pm on Monday, August 27, 2012
I guess you aren't aware that you can create a PAC? So give me a break. The poor column written by the author above has already had all its flaws pointed out by several individuals well before you commented. Once again, it really is all about you. Dufus? Name calling too? What else can one expect from you?
Scott Dickerson
5:37pm on Monday, August 27, 2012
Congratulations Mr. Block, while you were busy helping Linc Chafee you were able to recruit one candidate for the general assembly for your Moderate Party, Josepph Botelho. You are tied with the Libertarain Party, they have 1 too.
Ken Block
5:41pm on Monday, August 27, 2012
Scott -
What have you done to make this state a better place besides act out in a bitter way because your guy didn't win the race?
How many opinion pieces have you written? How many candidates have you written checks to? Have you donated services or time to help out in some substantial way?
Ken Block
5:51pm on Monday, August 27, 2012
And by donating time and/or services I am not talking about working for partisan political purposes.
What are you doing to constructively help? I'm betting you aren't.
Ken Block
5:54pm on Monday, August 27, 2012
Scottie isn't putting his money where his mouth is - no political donations of any kind to anyone under that name.
How's the view from the cheap seats, Scott?
Scott Dickerson
6:30pm on Monday, August 27, 2012
You are incorrect Mr. Block. I find your insults to be elitist and condescending. Given you are head of the Moderate Party and a public figure just the fact that you can’t answer the questions I have posed and now chose to question and insult me shows what you are really all about. Is this how you treat voters? Transparent aren’t you?
michael riley
11:04am on Thursday, August 30, 2012
the entire article is wrong and biased ....incorrect facts ,,ridiculous analysis, unsupported conclusions......I hope mr lawlor didnt get his facts from progressives because they are nearly always wrong