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Donna Perry: RITE is Wrong Again on RI Tax Policy

Thursday, January 31, 2013


You know it must be late January in Rhode Island when we are in and out of a deep freeze, there is slushy, brown snow on the ground, and the “still don’t get it” crowd is up at the Legislature trying to push through another round of misguided tax policy for our economically teetering state. 

The progressives-labor union coalition has returned with what seems destined to become an annual attempt to take Rhode Island further off course, by pushing for a return to an unfriendly and non-competitive high income tax rate for the high end earners. Rhode Islanders for Tax Equity (RITE) is proposing that the state consider hiking the income tax rate from its current rate of 5.99%, only reformed in 2010, and raise it back up 2 points to 7.99% --- on incomes of $250,000 or above. Despite the fact that those income earners are very often RI small business owners, and all thing considered, are not really as “rich” as the progressive coalition claims.

Such a proposal would completely reverse the fragile but steady progress the state is making in rebuilding its overall tax policy into a more attractive and competitive profile. But thankfully, coinciding with RITE’s announcement of its expected legislation this week was some sane counterpoint proposals that are aimed at taking the state’s overall tax policies forward, not backward. There were several indications that the “still don’t get it” coalition will certainly not get traction though, judging by the agenda of items under consideration by the Senate Finance Committee.

There was sound testimony brought forward on legislation concerning capital gains tax policy that represents not only the more forward looking changes the state needs to enact, but also presents a real opportunity to do what most opinion leaders say the state needs to do: give a good jolt to its flat business investment climate once and for all.

Among those testifying on the bill, which has been proposed by Barrington Senator David Bates, was entrepreneur and Moderate Party founder Ken Block, who underscored that the direction of business investment traffic, that normally is headed north toward Massachusetts --and away from our own border-- could at last be reversed should the Legislature embrace a stronger capital gains tax policy.

In testimony, Block pointed out that “companies based in the Bay state would have an incentive to move across the border to take advantage of a capital gains tax exemption should RI pass it.” He also noted: “the type of businesses who would make the move would be the ‘rocket ship’ class of companies … with rosy five-year growth projections … that are highly desirable businesses and it is possible to get them to move here.”

Block emphasized that giving RI the capital gains tax exemption advantage would also entice existing RI companies to expand and invest further in their facilities around the state. Bottom line: that activity, Block noted, causes new job jobs to be created.

Adding to the chorus in a written statement to the Committee was RISC lobbyist Lisa Blais, who was refreshingly blunt and on target in calling for action on the legislation, not just more contemplating:

“It’s one thing for everyone to talk about what it will take to improve RI’s economic rankings … It’s another to do something about it,” she urged.

Well, bills like S 23 seem offer the chance to do something. Though there is reportedly now an effort to make some technical adjustments to the first version of the bill, movement on it this session would also build on the Governor’s proposal to reduce the state’s corporate tax rate, long urged by the state’s business community.

They add up to a forward-looking business investment and tax policy climate for the state that stands in vivid contrast to the “go backwards” tax changes the RITE coalition is advocating.

Furthermore, other business leaders point out that RITE’s claim that returning to an outdated and woefully uncompetitive tax rate is actually going to end up helping any citizens of the state is disingenuous. The projected $69 million in revenue the tax rate increase could yield is a misleading argument they say because the 2010 law was actually revenue neutral—not a revenue loss-- due to the elimination of many itemized deductions that came with it.

The biggest disservice—and biggest threat-- to RI’s citizens, whether they are among the most vulnerable in social service programs; overburdened city and town taxpayers; or those depending on an affordable higher education at our state colleges and university, is the estimated billion or more in revenues the state has lost in recent years from non-existent and departing businesses, as well as fleeing residents. Finance Committees and the entire

Legislature must look for and embrace the signs that will take the state in the right---not RITE—direction this session.

Donna Perry is Executive Director of RISC, RI Statewide Coalition, www.statewidecoalition.com


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