4/4/11

Chafee's Tax Plan the Worst Prescription for Rhode Islanders

The verdict is in on Governor’s Chafee’s tax revenue plan and the near universal rejection of it should come as no surprise. As has been noted elsewhere, no one but his barber is willing to swallow it. Each day brings out more denunciations and horror stories about whom and what will be taxed – one day it’s newly purchased manufacturing and research and development machinery, the next day it’s a taxi ride to the airport and the purchase of this newspaper.

No one seems to understand the rationale behind why some goods and services were included in his broadened six percent sales tax plan in the first place, as opposed to other common goods and services that won’t be taxed. It all appears arbitrary. Nor does there seem to have been much consideration given beforehand on the effects of such a tax hike on the people and economy of the state.

The plan’s rightfully been called a “disaster.” When the mild-mannered Gary Sasse, a man who knows a thing or two about tax policy after longtime service with the RI Public Expenditure Council and then with government, calls it a “disservice to Rhode Island and its citizens,” then you know it’s dead-on-arrival in the General Assembly. Chafee’s own low first poll numbers certainly reflect public dissatisfaction with the plan. There’s even talk rising about a recall effort.

The Governor’s approach to making our state solvent – tax and tax some more! – is what has many people so upset, me included. Opting to tax more is such a knee-jerk response. Most folks don’t have much heartburn with the new one percent tax because the increase on affected purchases will be miniscule (although one percent on a $300,000 piece of new equipment for a manufacturer is a lot more eye-raising). It’s the broadening of the six percent bite to so many things that galls folks. Here we are, the smallest state in the country with one of the highest overall tax burdens, and we have a new governor whose first substantive proposal out of the gate is to tax us even more.

In his campaign Chafee spoke about a new one percent tax. After his election word leaked that he and his team were now thinking of lowering the sales tax but broadening it, along with retaining the new one percent tax. Then in the aftermath of his budget address on March 8th, out came the gory details. It’s taken a few weeks, especially considering all the other distractions happening these days , for the true import of what his proposal will do to all of us to sink in. Sink in it has and the negative reaction is loud and clear.

Worse still, raising taxes won’t cure the structural side of the state’s deficit, which is growing like a cancer each year. Chafee hasn’t come out yet with a plan to curb state spending, which is at the heart of the problem. Pension reform is on hold right now as State General Treasurer Raimondo crunches the numbers, which as I’ve pointed out doesn’t alter the pressing need to forge ahead on reforms. With Chafee silent, other than proposing that state employees and teachers kick in more to a fund that may not be able to pay them back 100 cents on every dollar they’ve contributed, union leaders are calling for nothing to be done about the pension problem for a year!

That may be what actually happens, considering the General Assembly’s unwillingness to tackle substantive and sweeping pension reform because of the unions’ stranglehold on their reelections. Unlike in other states where real battles are under way over pension reform, here in Rhode Island not much may happen between now and the close of the legislative session in June, and another year will be lost. It’s maddening when the problem is so obvious but no one is willing to do much about it.

Representative Joe Trillo, one of the rare bird Republicans in the legislature, has filed a bill that would reform the pension system by putting all new workers into a 401(k) style plan. Chafee himself has talked about going to a hybrid system. These are ideas that should be actively debated now, not next year when things are even worse.

7 comments:

  1. I am not going to pay anymore taxes They can all go to hell and our Government to --Dear Congress, Last year I mismanaged my funds and this year I cannot decide on a budget. Until I have come to a unified decision that fits all of our needs and interests, I will have to shut down my checkbook and will no longer be able to pay my taxes. I'm sure you'll understand. Thank you very much for setting an example we can all follow. --

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  2. Kudos to you, John Hazel White, Jr. for telling it like it is. This is a man out of touch with reality and without the spine to tackle the real issues facing this state in its rapidly increasing economic decline.

    A brief understanding of behavioral economics, know as common sense on Main Steet makes it obvious to most that this eye sore of a sales tax on services will pushing people away from buying such services. At the same time it will increase underreporting of income, i.e. under the table transactions to avoid this tax while still others will simply jump over our local borders to avoid such non-sense. Ultimately would lower income tax revenue to the state. In summary, a new tax on services sticks out and slaps Rhode Islanders in the face, while a paltry decrease in the sales tax does next to nothing to encourage greater economic commerce.

    Reducing expenditures and immediately reforming the state pension system (at least the General Treasurer is intent on addressing) while changing the tune to becoming a business friendly state is how we will gradually stop the decline.

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  3. These taxes are not a good answer but the only one we have at this time. I haven't seen the legislature come up with any good answers. In fact, they are the problem. They just love to spend and waste money. Yes we the government must spend money but the waste in RI is amazing. Let's see some real answers. There is some room for changes to taxes. Lets look at boats, why are we not taxing them? Unless you are running a shipping business, they are a luxury that you are not taxed on. We have out of state residents hiding their boats in RI.

    Overall, the biggest problem is waste and wiser spending, not just cut everything. Too bad we do not have enough common sense in the state house to figure this out and so far the citizens of RI just keep re-electiing the same people to continue the waste. Citizens of RI, can you figure it out yet? We will not get businesses and jobs and lowered taxes until you do figure it out. We'll only get companies that we pay insane amounts to to come here and they'll stick us with the bill and then leave.

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  4. your commenter do realize that the Assembly has consistently cut taxes, especially for the wealthy, right?

    Right?

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  5. My prediction is that the legislature will dawdle and posture on this until the 11th hour, then pass new taxes in their usual midnight-flurry-of-bills-no-one-has-time-to-read-gee-we-want-to-adjourn fashion. Special interests are literally killing this state.

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  6. I say tax the wealthy until they have all turned tail and run to Florida then start taxing business and make them pay for our state pensions and benefits until they all move to those regressive states with low business taxes and btw, we will not miss them. We can then just the tax property of all those rich homeowners or those homeowners and property owners in our cities and towns who since they own property can clearly pay more taxes. And what these complainers about taxes don't understand is that they need to pay more taxes to support our state workers who deserve to get great compensation and benefits. And I don't want to hear all the complaining about their deals being better than people who work in the private sector - if you don't like it then get a a state job - if you can't get a state job maybe its because you don't work hard enough for your state rep who could help you get a job. Why are people so clueless? Wake up Rhode Island and don't believe the rich and the business owners who say taxes are high because the state spends too much because that is what they want you to think. We need to increase their taxes! I dare them to move and hope that they do! George Nee is right - power to the state worker and time to get business to pay for it. George should run for governor; he would get all those rich people and business to pay up and shut up.

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  7. The people of RI elected this beast so WHAT is the problem? JOEY Z

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