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.