March 27, 2008
Fairness in Analysis
The essential argument behind that dreadful tax legislation (whose name we dare not speak) is, as Tom Sgouros put it in testimony last night: The state takes "too much money from people who can't afford to give it, and not much money from those who can." Or, as those who are less worried about the appearance of truth might say:
Our Tax System is Out of Balance!
- Lowest income pay 13% of their income in state and local taxes,
- Highest income pay just 6%!
That claim derives from the following table, from a report (PDF) in which Sgouros apparently had a heavy hand:
| Percentage of Income Paid in State and Local Taxes for a Rhode Island Family of Four | |||||||
|---|---|---|---|---|---|---|---|
| Income quintile | Lowest 20% | Second 20% | Middle 20% | Fourth 20% | Next 15% | Next 4% | Top 1% |
| Average income | <$8,400 | $21,500 | $36,000 | $57,900 | $96,100 | $189,000 | $787,000 |
| Personal income tax | 0.5% | 1.5% | 2.2% | 2.6% | 3.4% | 4.2% | 5.8% |
| Corporate income tax | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.1% | 0.1% |
| Property taxes | 4.4% | 3.5% | 4.1% | 4.4% | 4.3% | 3.2% | 2.0% |
| Sales tax | 3.2% | 2.6% | 2.1% | 1.7% | 1.4% | 0.9% | 0.4% |
| Excise taxes | 4.9% | 3.2% | 2.4% | 1.7% | 1.2% | 0.8% | 0.3% |
| Total taxes | 13.0% | 10.8% | 10.7% | 10.4% | 10.2% | 9.0% | 8.6% |
| Federal deduction offset | – | -0.1% | -0.4% | -1.0% | -1.6% | -1.8% | -2.6% |
| Total after offset | 13.0% | 10.7% | 10.3% | 9.5% | 8.7% | 7.3% | 6.0% |
Putting aside questions of whether it's legitimate to treat every tax as if it were an income tax, a few corrections and tweaks to the data paint quite a different picture. First must be corrections to a couple of outright errors: A subsequent table on property taxes shows both housing taxes and "other property taxes" but failed to combine the two in the "total property taxes" row all quintiles except the lowest, and the total row was transported to the summary table. For the top 1%, that means the 6% grand total is fully 0.7% too low. To be fair, we have to adjust the other way (much less significantly) because the summary table double-counts corporate taxes.
The larger change that ought to be made is to remove the "federal deduction offset" line. Inasmuch as the table is billed as incorporating "state and local taxes," the fact that the federal government discounts its own take is an arbitrary snatch of data from another set. It would be relevant to an investigation of total tax burden in Rhode Island but is misleading if federal taxes are excluded. Alternately, we could calculate the percentage of household income that returns to Rhode Island via the feds, which (as Sgouros himself has pointed out) is a substantial component of our budget, including those aspects that are already redistributive.
Alas, I lack the time for such research and analysis, so I'll leave the federal government out of the equation, which leaves us here:
| Percentage of Income Paid in State and Local Taxes for a Rhode Island Family of Four (adjusted) | |||||||
|---|---|---|---|---|---|---|---|
| Income quintile | Lowest 20% | Second 20% | Middle 20% | Fourth 20% | Next 15% | Next 4% | Top 1% |
| Average income | <$8,400 | $21,500 | $36,000 | $57,900 | $96,100 | $189,000 | $787,000 |
| Personal income tax | 0.5% | 1.5% | 2.2% | 2.6% | 3.4% | 4.2% | 5.8% |
| Property taxes | 4.4% | 3.7% | 4.2% | 4.6% | 4.6% | 3.6% | 2.7% |
| Sales tax | 3.2% | 2.6% | 2.1% | 1.7% | 1.4% | 0.9% | 0.4% |
| Excise taxes | 4.9% | 3.2% | 2.4% | 1.7% | 1.2% | 0.8% | 0.3% |
| Total taxes | 13.0% | 11.0% | 10.9% | 10.6% | 10.6% | 9.5% | 9.2% |
Clearly, if an imbalance exists, we could more than rectify it by eliminating excise taxes (cigarettes, alcohol, gas, etc.). What Sgouros et alia intend by "correcting" our tax whack (in the "out of" sense) is an increase in taxes overall. As we see upon converting the percentages in the table to dollar amounts, it's a very tricky thing to mask redistribution with "fairness."
| Percentage of Income Paid in State and Local Taxes for a Rhode Island Family of Four (dollar amount) | |||||||
|---|---|---|---|---|---|---|---|
| Income quintile | Lowest 20% | Second 20% | Middle 20% | Fourth 20% | Next 15% | Next 4% | Top 1% |
| Average income | <$8,400 | $21,500 | $36,000 | $57,900 | $96,100 | $189,000 | $787,000 |
| Personal income tax | $42.00 | $322.50 | $792.00 | $1,505.40 | $3,267.40 | $7,938.00 | $45,646 |
| Property taxes | $369.60 | $795.50 | $1,512.00 | $2,663.40 | $4,420.60 | $6,804.00 | $21,249.00 |
| Sales tax | $268.80 | $559.00 | $756.00 | $984.30 | $1,345.40 | $1,701.00 | $3,148.00 |
| Excise taxes | $411.60 | $688.00 | $864.00 | $984.30 | $1,153.20 | $1,512.00 | $2,361.00 |
| Total taxes | $1,092.00 | $2,365.00 | $3,924.00 | $6,137.40 | $10,186.60 | $17,955.00 | $72,404.00 |
Apparently, even though the excise tax category is "the most regressive," removing it would benefit the average wealthy family by an order of three. All of these measures of regression are, in reality, on the negative side of the ledger. In other words, excise taxes aren't the "most regressive"; they're the least non-regressive (or, the least progressive) component of a tax burden that is sixty-six times as heavy for a family of four in the top 1% than a similar family in the bottom 20%.
Perhaps progressive meddlers would do better to market smoking and drinking to the rich... or, you know, just encourage business and wealth growth by rethinking their erroneous worldviews and agitating for different tax policies altogether.
Three questions.
1. Does the income measure include money from all sources as well as the value of free (or subsidized) services (day care, RIte Care, etc.) received from the state or through the earned income tax credit?
2. Can we also get the measure of portion of earnings spent on VLTs and lottery tickets? It will probably track the same as the excise taxes.
Wonder what that data would do to the ratios?
Posted by: John at March 27, 2008 3:02 PMThe lowest quintile’s household income is $8,400. Families of four are being supported by the equivalent of one minimum wage worker working 22 hours per week. No wonder they all have time to show up at the State House to lobby for the giveaways. These people should forget welfare and try getting a job. It would be a win-win, helping to address our structural deficit and maybe even giving themselves higher self esteem at the same time.
Posted by: Frank at March 27, 2008 6:03 PMJohn,
According to the Tax Foundation Rhode Islanders in 2007 ranked #1 in the nation with outlaying per household $4,256.73 to the lottery and VTLs
Source: Lottery data from North American Association of State and Provincial Lotteries; population data from Census Bureau.
http://www.taxfoundation.org/taxdata/show/283.html
Posted by: Ken at March 27, 2008 6:34 PMADDENDUM:
Lottery and VTL spending data above was for 2006 and published in 2007
Posted by: Ken at March 27, 2008 6:41 PMExactly how does some with less than $8400 income pay "property tax"?
Posted by: Mike at March 27, 2008 8:19 PM'Exactly how does some with less than $8400 income pay "property tax"?'
Well, if they are my college age son and daughter, they don't. Nor are they suffering from being in the lowest quintile from their part-time earnings. And that also provides some insight into how some, not all, of the lowest quintile support themselves - they don't. Also, this lowest quintile would have included me my first year working as I only worked a part year. I suspect that the lowest quintile numbers are by far the most suspect and most difficult to draw a conclusion from, for these reasons and the aid received and the EITC and the etc, etc. I am not saying its an easy life, but this sort of statistic needs some careful adjustments and normalization so that we can get a truer picture.
Posted by: chuckR at March 27, 2008 8:50 PMChuck makes a good point that Tom Sgouros naturally seeks to avoid. If you added in the value of benefits received by "taxpayers" in the bottom 20% -- from EITC, subsidized health care, child care, FIP payments, school lunches, food stamps, subsidized home heating and other utilities, free legal services, etc. -- the numbers would start to look very different.
Overall, however, I'm with John Hazen White Jr. As he testified the other night, to paraphrase him, of course -- "go ahead. Make my day." I say let the Handy bill pass, raise the taxes to the moon, don't run any candidates for GA in November, and let the Don resign and send his own version of jingle mail to Liz Roberts. Maybe they could defray the deficit a bit by selling the movie rights (after all, the Farrelly brothers are Rhode Islanders).
The fact based argument has been clear for years, but with so many people dependent on the state in one way or another, or fearful of rocking the boat and jeopardizing the deal family members, if not they themselves have had, the great majority of Rhode Island voters preferred to close their eyes and mouths, and hope that another miracle would occur that would make it all go away.
As the May revenenue and caseload estimating conferences will show, that ain't going to happen this year. The whole system is crashing down, with the feds on one side, fiscal disaster on another, and on the third side a potentially devastating split in the public sector union/poverty advocate alliance that has underpinned the Dems' power on Smith Hill since the manufacturing employment and private sector union power began to decline in RI.
And in the face of this, the "leadership" is paralyzed, by fear, by ignorance, and by the growing amount of time spent trying to figure out how to get theirs and get to Florida -- even if they have to take a hit on the house equity in the process.
So I say, let's all support that genius Tom Sgouros, and that paragon of legislative virtue Paul Moura and accelerate the end of this train wreck.
Just how much worse could a quick bankruptcy be than the painful charade that is now taking place on Smith Hill?
Posted by: John at March 27, 2008 10:36 PMJohn,
Correct me if I am wrong but all this talk about moving to Florida because there is no state income tax seems to be misinformation because a number of other warm states also have no income tax provisions.
Under RI 1040 Non Resident Income Tax form, if you derive your retirement funds from Rhode Island (private or government) and are a full time nonresident of Rhode Island you still must pay State of Rhode Island income tax on those received funds.
So moving out of Rhode Island to save state income tax becomes a moot subject! The only thing you might be saving is property, sales tax and any other related tax depending upon state moved to.
According to just released US Dept of Commerce Bureau of Economic Analysis US personal income nationally grew 6.2% 2006 to 2007 however; inflation was 2.6% for 2007.
Rhode Island per capita personal income dollars changed 5.2% from 37,523 to 39,463 while personal income (millions of dollars) changed 4.8% 39,835 to 41,745.Rhode Island population lost outpaced Michigan by -.01. Rhode Island population (Thousands of people) changed -.04% from 1,062 to 1,058.
Average Gross Domestic Product for the nation 2006 was 3% while Rhode Island registered a 1.8% ranking state in lowest national 10 states for GDP. Michigan was the only state to register a -0.5 GDP in 2006
Source: http://www.bea.gov/
The ability of the Rhode Island population and business to continue paying high taxes and supporting lottery and VTL gambling operations is shirking. The income is not available to sustain basic expenditures.
Posted by: Ken at March 28, 2008 3:30 AMThere's a very good possibility the revenue estimates in May will show an even bigger budgetary mess than what's being projected now. In reading the tea leaves think we're going to see some tax hikes a revenue bond and the executive order pen in use once again to force a shutdown of state government.
Anyone with two eyes can see the flight taking place around here. Never seen so many for sale/for rent signs and those were seen long before the foreclosure crisis. We're in deep trouble! Even as numerical propagandists like Tom Sgouras attempt to put lipstick on the budgetary pig it still remains a pig and one that's been 60 years in the making.
I'm with you John. The governor should say to the people he is giving them one more chance "Give me 25 House Republicans or I will quit and let the lunactics run the asylum".
If we don't get 25 Republican/dissident Democrats in November he should quit. Let the state reap the whirlwind of full fledged Communist economics unmitigated by a near powerless figurehead.
Where will we find 25 Republicans NOT cut from the same cloth as RI RINO Team Leader Bob Watson? 25 that won't roll over for the unions in the name of 'getting along'?
Posted by: Greg at March 28, 2008 9:23 AMWatson is not perfect but he has voted against every Democrat budget. That's all we need.
Posted by: Mike at March 28, 2008 7:37 PM