Russell Moore: Chafee Should Pursue Bold Economic Reforms

Monday, October 14, 2013

 

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After a dismal ranking by the Tax Foundation, it's high time that Governor Chafee make some changes to RI tax laws.

It’s as predictable as Dunkin' Donuts pumpkin lattes in autumn or Del’s lemonade in the summer. Each and every passing year brings another horrendous ranking for Rhode Island in the Tax Foundation's annual report on state business tax climate.

This year, the state’s crushing overall tax burden on businesses (not to mention on those citizens who don’t own businesses) placed the state 46th out of 50 in the nation. Since the survey’s inception in 2004, the state has always been a cellar dweller—somewhere between last and 5th from last.

By comparison, New Hampshire ranked #8—which means according to the Tax Foundation’s matrices, they have the 8th best business tax climate. New Hampshire doesn’t have a massive city like Providence and the unfortunate poverty we have here, and therefore they don’t need to raise as much tax revenue to benefit the needy—an obvious advantage.

Let's be copy cats

But how do we explain Massachusetts? Our neighbors to the north ranked 25th best business climate in the nation. To a state like New Hampshire, that probably seems a lot like mediocrity, but if Rhode Island could ever find itself in the top half of this ranking we’d be singing “We Are The Champions”.

Capital goes where it’s treated the best. Regardless of how one feels about Walmart, there's a reason why they're the biggest retailer in the world—they charge less than their competition. We can't expect to outdo our neighbors if we charge more to do business here.

Lets raise the tide

We can dismiss truths we dislike from now until the rapture, but we’re only hurting ourselves by ignoring our shortcomings. I’d venture to say everyone either travels to New Hampshire once a year to make some large purchase, or knows someone who does. And with no state income tax, it's inarguable that the state is a great place to work.

Does anyone really believe it’s strictly correlation and in no way causation that the state with no sales or income tax also boasts of an unemployment rate of just 5 percent? That’s nearing full employment.

There’s a lot of cynicism here. Sometimes it seems like there’s this loser’s mindset out there that regardless of what we do, we’ll always be a laggard economy. Whenever someone dares to present solutions, they're tossed aside as unrealistic. Let’s reject that notion.

What's unrealistic is the status quo.

I refuse to believe that Rhode Island is cosmically destined to be a laggard amongst our neighbors as well as the rest of the country. With some forward thinking and some innovative ideas from our would-be state leaders, we could make some game changing policy decisions that would put the state on stronger footing both now and in the future.

Chafee needs a change of heart

All is not lost. Or, it doesn't have to be, at least. Believe it or not, Governor Lincoln Chafee, if he is so inclined (and he claims he is) has an opportunity to lead the fight to enact bold, aggressive reforms in his last year as Governor. The Governor should propose to reform the tax code in a way that makes us more tax competitive, which ultimately would improve our economy.

To most, it sounds like a pipe dream to expect Governor Chafee to use the bully pulpit to fight for game changing economic reforms. After all, most of his proposals up to this point would have made us less competitive—not more. I get that. If anything, his agenda thus far has been antithetical to growth.

But if legacy means anything to the Governor he should open his mind to tax reforms that put a relieve pressure on our state’s businesses and, by extension, their employees. If the Governor had a change of heart, and reformed our taxes in a way that makes it easier for businesses to operate, the state moving in the right direction—instead of the wrong one, when he gives up the Governor's office next year.

The next Governor, whomever that might be, would then have a much easier job. And history would look kindly on the Governor. He'd be remembered as the guy who moved taxes, and therefore the economy in the right direction—not the guy who fought with Christians over what to call a Christmas Tree.

Taxes: simplify and cut

The Governor should take a look at North Carolina’s approach. This year, North Carolina slashed their  state income tax from a system with a graduated rate that topped off at 7.75 percent, to a single rate of 5.9 percent. The state also slashed their corporate income taxes (a tax we all pay, as its built into the price of everything), from 7 percent, to roughly 3 percent come 2017. The Tax Foundation said that the reforms will move the state from 44th this year, to easily the top half in subsequent years—perhaps to the top 20.

Earlier this year, the Rhode Island Center for Freedom and Prosperity has proposed the total elimination of the Rhode Island sales tax. While the notion might not be feasible considering the amount of revenue we’d lose, the state would do well to reduce its sales tax to a rate at least lower than Massachusetts. Why not give consumers a reason to shop in Rhode Island? This really isn't rocket science.

Ignore the naysayers

Detractors will say that economic improvement is seldom the result of one big maneuver, change, or idea. Instead, they’ll argue, it’s the small changes, like hiring an Economy Czar—or something, that move the needle. And then they hit you with platitudes instead of ideas.

(Here’s a great way to evaluate political candidates in the upcoming year’s elections. The candidates who offer specific plans and ideas are for real. Those who merely criticize others and offer nothing themselves are the pretenders.  It’s easy to sit back, criticize your opponent’s ideas, say nothing will work, and offer nothing but platitudes. It’s much harder to come up with solutions, but those who do are worthy of our vote.)

It’s true that progress will come at a slow pace and with patience. But that doesn't mean we don't need aggressive reforms. If Rhode Island doesn't make itself more marketable to businesses, it will always be an economic laggard. We're better than that.

 

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A native Rhode Islander, Russell J. Moore is a graduate of Providence College and St. Raphael Academy. He worked as a news reporter for 7 years (2004-2010), 5 of which with The Warwick Beacon, focusing on government. He continues to keep a close eye on the inner workings of Rhode Islands state and local governments.

 
 

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