3/23/11

Chafee's Tax Plan Will Hurt Rhode Islanders

Lincoln Chafee staked his gubernatorial candidacy on the premise that enough Rhode Islanders would vote for him despite the fact that he was the only candidate willing to speak about new taxes. In contrast, the other candidates wouldn’t divulge what their plans were to deal with the deficit, if they had firm plans in mind at all, except to affirm that the one thing they wouldn’t do is impose new taxes. If you saw fit to “Trust Chafee,” then it follows that you accepted his sales tax scheme as one means of drawing down the deficit in the face of the state’s massive debt level, despite the pain it would cause. As things turned out, Chafee got enough votes to squeak into office, and now, with his budget proposal unveiled, he has been true to his words on the campaign trial – he’s going to raise your taxes.

His honesty aside, I don’t see why anyone would think raising taxes at this time is a good thing to do to Rhode Islanders. To make things appear more palatable, Chafee’s plan calls for lowering the sales tax rate from 7 percent to 6 percent, but taxing a lot more goods and services than before at 6 percent, while adding a whole new set of goods and services to be taxed at 1 percent. Taken together, the plan calls for raking in almost $160 million in new taxes in the next year, which represents a tax raise of historic proportions.

Chafee decided on the idea of a sales tax raise a while ago. In fact, he announced it in conjunction with launching his run for governor. Lowering the state’s sales tax rate is, in fact, a good idea, since at 7 percent it’s the second highest in the nation (after California’s), and it helps Little Rhody to have a lower rate than our neighbors. But the positive of lowering the rate gets offset in Chafee’s plan by the negative of broadening the tax across many more goods and services, and then that negative is compounded by the new 1 percent hit.

Paying sales tax on movies, dry cleaning, over-the-counter drugs and auto repairs – to name just four new tax categories in a long list - is deeply regressive and is going to lower the spending power of many of our fellow citizens. Should the General Assembly go along with Chafee’s proposal, you can imagine the griping and grumbling that’s going to be heard all around the state after it goes into effect. The net result is that many more things we trade in every day – or seasonally like heating fuel - are going to cost more, draining more dollars from our wallets at a time when gas and food are costing more.

The question, of course, is what the legislature will do in the end. General Assembly leaders have been tight-lipped in reaction to the Governor’s proposal, although there have been mutterings heard about not liking the idea of raising taxes at a time like this. They may not like raising taxes in principle, but they’ve had little problem with raising them in practice. Besides, on this issue specifically, they can always shift the blame to Chafee, who owns the idea. And raising new revenue is always a welcome idea to a state that loves to spend its taxpayers’ money. On the special interest side, which should never be underestimated in this state, more revenue means less pressure needs to be exerted on the true culprit in the state’s budget woes – the unsustainable costs of entitlements.

Lack of specificity on entitlements by Chafee, particularly with regard to reforming pension and healthcare commitments, remains especially troubling. The Governor has stated that he awaits the General Treasurer’s final report on the full extent of the pension problem before tackling the issue. This is procrastination at its worst because we all know that the situation screams for reform and the longer we wait – and in Rhode Island we wait and wait – the worse the hole we’re in becomes. Whether the liability is $5 billion or possibly as high as $10 billion, as has been suggested, is immaterial. If the ship is sinking it doesn’t really matter how much water it’s taken on – it’s still going down. Unless Chafee secretly plans a state bankruptcy action as the way out, he owes us a detailed plan on this critical issue without further delay.