Double Trouble Economic News In RI - Slowing Economy and Less Competitive Tax Climate
Thursday, January 12, 2023
Two economic studies released just 24 hours apart point to a slowing economy in Rhode Island and a less competitive tax climate.
An analysis of the Tax Foundation’s 2023 Business Tax Climate Index (the Index) by the Rhode Island Public Expenditure Council shows Rhode Island entered the bottom ten states for business tax competitiveness for the first time since 2015, ranking 42nd highest (ninth worst) in the nation. The Index annually demonstrates how competitive a state’s business tax climate is and informs the general reputation of a state as friendly or antagonistic to business.
Rhode Island fell two spots in 2023, from 40th to 42nd.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST"As other states have enacted reforms to make their business tax systems more competitive in the last few years, Rhode Island has stood still, enacting no major reforms,” said RIPEC President and CEO Michael DiBiase. “Rhode Island is in a favorable position to make its tax structure more competitive due to large inflows of federal funding and strong state general revenues.”
After Five Years of Improvement, Falling Back
Rhode Island's rank followed a generally positive trajectory between 2014 and 2019, improving from 44th best (or seventh-worst) in the country to 38th, before beginning to backslide over the past four years. Regionally, Rhode Island’s business tax climate in 2023 is more competitive than Connecticut’s business tax climate and somewhat more competitive than that of Vermont, but less competitive than that of Maine, Massachusetts, and New Hampshire.
Published each year by the Tax Foundation, a think tank based in Washington D.C., the Index provides a comparative analysis of each state’s business tax climate. A state’s overall score is produced by comparing 125 variables across five major tax categories: individual income, sales, corporate income, property, and unemployment insurance tax. Rhode Island ranks in the bottom half of states for every tax category but sales tax (24th) and in the bottom ten states for property tax (41st) and unemployment insurance tax (49th).
To improve Rhode Island’s business tax competitiveness, RIPEC recommends several priority areas for policymakers to consider:
• Rhode Island should improve its property tax structure by resisting efforts to shift a greater proportion of the property tax burden to businesses and reforming its tangible personal property tax.
• Rhode Island should explore changes to make its corporate income tax more favorable to business. The state should at minimum make it easier for taxpayers to deduct net operating losses and should also consider liberalizing the state’s carryforward provision and eliminating its throwback rule.
• Calls to increase individual income tax rates for high-wage earners should be resisted and policymakers should consider eliminating the state’s marriage penalty.
• The state should pursue reforms to make the UI tax system fairer and resist increasing its already generous benefit levels.
URI Top Economist Lardaro: Economy Slowing
Leonard Lardaro, the top economist at the University of Rhode Island, said that his November Current Conditions Index report shows that "the November value [the measure of the RI economy], 67, shows a further weakening from the highs of August and September. There is mounting evidence that Rhode Island's economic growth might be in the process of slowing, as all but one of the leading indicators contained in the CCI weakened this month, and several other key indicators of our state's economy are also beginning to slow."
"November’s data, and to some extent that for October, appear to be signaling weakness in the coming months. In November, New Claims for Unemployment Insurance, a leading indicator of layoffs and the best measure we have of layoffs in this state, rose sharply for the first time since the height of the pandemic, even with a very easy comp. Retail Sales, the star performer of the twelve CCI indicators, has been slowing noticeably since August, posting very slow growth in November. Single-Unit Permits, which reflect new home construction, have dramatically weakened, resuming the downtrend that began in December of last year. Employment Service Jobs, a leading indicator of employment, has also fallen now for two consecutive months while US Consumer Sentiment also remained weak this month," said Lardaro.
He adds, "So, it remains too premature to make any calls that Rhode Island is witnessing the first stage of LO (Last Out). Our saving grace might prove to be the large unspent federal funds our state received. When spent, these should boost our rate of growth through much of 2023."
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