Chafee’s Budget: $176 Million in Tax Increases
Wednesday, March 09, 2011
Governor Lincoln Chafee’s proposed budget both lowers and broadens the sales tax as well as reforms business taxes—producing a total of at least $176 million in new tax revenue for the state, covering roughly half of the estimated $331 million deficit.
■ Lowers the state sales tax from 7 percent—the highest in New England—to 6 percent, lower than Massachusetts and the new proposed rate for Connecticut.
■ The new rate would cover medical marijuana and services, such as dry cleaning, beauty salons, and recreational activities.
■ Creates a new one percent special sales tax to cover some currently exempt items. The total net gain in revenue due to the “modernization” of the sales tax is $164,880,400.
■ Calls for Congress to pass a new law which allows states to apply sales taxes to Internet sales—netting about $70 million in new revenue for Rhode Island and allowing the state to repeal the new one percent sales.
■ Reduces the Business Corporation Tax from 9 percent to 7 percent over three years and cuts the minimum business tax from $500 to $250. Chafee touted the reform as a key piece of his economic development agenda, saying it would help create a climate where businesses are “encouraged to grow and prosper.”
■ Eliminates a corporate tax loophole that allows major corporations to report their income in other states. The move is expected to raise an additional $11,760,808 for the state.
Chafee acknowledged that his new sales tax might be unpopular with some Rhode Islanders—but he said they would accept it if the state is responsible in how it spends the money. “My barber Ernie will now have to charge a sales tax that will cut into his tips,” Chafee said. “But he is willing to bear his part of the burden if we live up to our responsibilities in this chamber. If we spend taxpayer funds with discipline, so that our economy recovers and our people are well served, then these sacrifices will have met their purpose.”
