5/4/11

Here's One Big Example of Sales Tax Fallout

Governor Chaffee had been out on the road of late explaining (and defending) his sales tax increase proposal before business groups. He’s not making much headway in converting the near universal opposition of the business community because his proposal is just dead wrong for the state’s economy. It may have looked right to his advisers in terms of raising revenue to fill in the budget gap, but at the end of the day what’s more important: feeding state government’s wasteful spending appetite or allowing our economy to grow? Most people away from the State House understand the answer to that: Don’t raise taxes. Cut state spending!

To his credit, Chafee is asking for alternate solutions and he’s getting plenty of input. But one has to wonder whether he and his policy team are really serious about listening. For example, Ken Block’s offer (for free no less) to look into ways and means to save the state money has apparently fallen on deaf ears, probably because he’s a political rival. The obvious need to reform the state pension system, which many are advocating, including me, appears off the table this year, undoubtedly because of labor opposition. During the spring recess there were some indications of administration officials meeting with legislative leaders in quiet, but it’s anyone’s guess if anything approaching an actual plan of action on the pension situation will emerge as a result. It’s May already and the legislative season is two-thirds over.

The sales tax proposal may be “unacceptable in its present form,” to quote Gordon Fox, the House Majority Leader, but that doesn’t mean it’s dead. In fact, chances remain strong that some form of sales tax expansion will become law and go into effect on July first. Business taxes and the home heating oil tax have been identified as two items that may be dropped or modified. But if they’re taken off the table the state will lose a significant chunk of the new revenue it hoped to gain in the first place, so something else will have to replace them. What those possible new items might be could be just as bad.

That’s why the planned expansion of my factory building in Cranston remains on hold until the budget gets resolved. When we looked into Chafee’s proposed business sales taxes and grasped their potential impact, the price tag came in at over a million dollars a year. And that was just an estimate because the proposal the governor submitted with his budget address was either purposely vague or hadn’t been thoroughly evaluated in terms of its impact. Either way, the devil is in the details, and for us it remains scary.

The worst situation for any business to be in is to not have a sound grasp on things that can impact it. I thought long and hard before committing to the building project because of its cost during a time of economic uncertainty. Seeing strong indications that the economy is in fact improving, and knowing that the project was in the best interest for Taco’s future here in Rhode Island where we’ve been manufacturing since the 1940’s, I made the decision at the end of last year to move ahead. In doing so, I did not anticipate that the state would attempt to impose a whole range of new sales taxes on my business at the same time as I was engaged in expanding it. This project is the most extensive capital expenditure project in Taco’s entire 91-year history. In addition to an architectural firm and a construction management company, it will employ the full spectrum of building trades, sustaining jobs and pumping money into the local economy. The project is good for Taco and good for Rhode Island.

Stopping the project is proving costly. Big building projects require meticulous scheduling and rigorous oversight to keep on track, involving the efforts of many people. Stop the project for any period of time and all kinds of things begin to unravel. That’s why I am hoping for clarity on the sales tax issue as soon as possible, but that is being held hostage to the plodding of the legislature and its penchant for delaying action until the last hours of the legislative session, when it rubber stamps a flurry of bills the leadership has secretly agreed upon and rams through quickly and often in the wee hours of the morning.

For now, the important thing is to keep the sales tax issue out in the open with a clear message that it is the wrong solution, and that the Governor and the General Assembly need to focus elsewhere in closing the state’s year-to-year budget shortfalls by looking into better alternatives like curbing state spending, wringing out inefficiencies and enacting government consolidation, and reforming the pension system – especially the latter – instead of reaching into our wallets and pocketbooks and making Rhode Island an even more expensive state to live and work in than it already is.