March 30, 2011

Don Botts: The Decline of Rhode Island On a Personal Level

Engaged Citizen

I'm not sure if everyone is feeling the same way I am about the budget Governor Chafee introduced to the General Assembly a few weeks go. Besides talk radio, the reaction has been muted. And even more maddening are the people that don’t mind the new taxes (like Ernie the Barber) or say “eh, what else can we do?”

Since the recession hit RI in 2007, more and more costs have fallen on us, the middle class. From my personal experience, one example I can give is the Cranston East Band. When I attended Warwick Vets back in 1988, where I made a cameo in band and sang in the chorus, there was zero cost to join. Today, that isn’t the case. Many of you have seen me rail against the Cranston School Committee for the poor choices they have made over the years. As a result of their ineptitude of the past and present, it costs about $300 for my son to participate in the band. Besides that, in order to keep the band operating, the parents and alumni also work concessions at Gillette Stadium. The band keeps cut of the sales and all of the tips. But keep in mind, this is for operating costs that in the past were part of the school budget and not extras such as traveling to perform at Disney or new uniforms. There was also an additional cost for my son to play in the Cranston East Winter Percussion group.

Furthermore, one of my daughters takes violin lessons after school. But last year, elementary music was cut from the school curriculum. Kerri Kelleher and the BASICS group stepped up to the plate and created an after school music program. But in order to participate, the cost was $70.

Taxes go up, services go down, and we are left with more costs and fees.

What led me to write this piece is both of these groups tried to fundraise recently. Both had similar ideas. BASICS and the CHSE Alumni were going to have dinners, one at $25 per ticket; the other at $50 per ticket. But generally, the people that attend these functions are the same people already involved with the programs. Therefore, the fundraisers actually take more money out of our own pockets ($50/couple for one, $100/couple for another). Both of these functions were canceled. I believe the reason is we cannot afford it any longer.

There is only a finite amount of disposable income for every family. Some examples of where my disposable income is spent: $125 for baseball for my son, $120 on softball for my two daughters, $130 on soccer for my two daughters. By the way, that was all in March. My oil bill for the last delivery was $700. I owe on the car excise tax, which was raised last year. Tickets for the father/daughter dance was $48, plus dresses. Gasoline has gone up $.50 per gallon since last year. And while I received refunds on my Federal and Massachusetts income tax returns, in Rhode Island, I have to pay.

Now Governor Chafee wants to further erode whatever disposable income we have left. Taxes on services, taxing heating oil, doubling beach fees (which was very affordable, but if passed, not so much). But can't you see that not only will this hurt us economically, but also on a civic/social level? Between his $165 million in new taxes and the pension systems taking a bigger piece of the budget pie on a yearly basis (which eventually falls on us due to budget constraints), there will be nothing left to donate to activities like the band, BASICS, Boy or Girl Scouts, sports organizations, etc.

The scary part of Governor Chafee’s budget proposal is the fact that I consider it DOA (in deficit on arrival). There are no true cuts in the budget to go along with one of the largest tax increases in state history. And the Governor himself has admitted that his budget actually grows what was a $290 million deficit to $330 million. And looking out over five years, each subsequent budget is in a larger deficit, ending with year five at $450 million. Given his philosophy to tax and ask questions later, the new one percent tax will surely have to grow to four or five percent. His one percent tax is a Trojan horse to take even more of your money down the road.

Anyone that reads this needs to rise up and fight the Governor's plan. Why should the conversation always be about raising revenue through taxes and never about cutting our bloated state budget? We can no longer afford generous Health and Human Service programs that cause annual structural deficits. These structural deficits existed long before the recession hit, but were hidden by one time fixes (i.e. bonding out the tobacco money settlement) and, as former Speaker Murphy put it, pulling rabbits out of hats.

Write your state representative and state senator. Write the representatives on the House Finance Committee. Tell them to gut the Governors budget proposal and start from scratch.

Everyone is fighting for that finite amount of disposable money that is out there. But if Governor Chafee's plan is passed, the fight is over because government wins. And our civic organizations, our economy, and we, the middle class, will lose.

Don Botts is a former candidate for Cranston's 16th House District who works in Massachusetts, volunteers for his community and is a husband, father and average Rhode Island tax-payer.

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"Taxes go up, services go down, and we are left with more costs and fees."

I assume the budget also goes up. It might be informative to question the growth areas. Busing has become a major factor in most school budgets. I have wondered if this was necessary. I suppose it is choice. If you are unable/unwilling to drive your kids to school, it has to be paid for somewhere.

I suppose there is also the "fear factor". When I drive around at school bus time, I notice two things. The "bus stop" has disappeared and the bus goes house to house. I also notice parents are afraid to leave the kids in the front yard and stand with them until the bus arrives.

Posted by: Warrington Faust at March 30, 2011 5:40 PM

"Taxes go up, services go down, and we are left with more costs and fees."

I assume the budget also goes up. It might be informative to question the growth areas. Busing has become a major factor in most school budgets. I have wondered if this was necessary. I suppose it is choice. If you are unable/unwilling to drive your kids to school, it has to be paid for somewhere.

I suppose there is also the "fear factor". When I drive around at school bus time, I notice two things. The "bus stop" has disappeared and the bus goes house to house. I also notice parents are afraid to leave the kids in the front yard and stand with them until the bus arrives.

Posted by: Warrington Faust at March 30, 2011 5:41 PM

Don

This article in the New York Times may have some relevance about the taxes paid by GE.:

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.

In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.

Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.


"from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009". Dont you think this may be a reason we are facing tough choices locally and shrinking services?

Posted by: Phil at March 30, 2011 6:36 PM

I'm sorry Phil, maybe I missed something, but does G.E. have a large presence here in RI?

Posted by: Don Botts at March 30, 2011 7:08 PM

You sure did miss something Mr. Botts - like the fact that Rhode Island is part of the United States. Don't you know the country you live in? Don't you think that G.E.'s national tax dodge affects all of us?
OldTimeLefty

Posted by: OldTimeLefty at March 30, 2011 10:04 PM

While eliminating the tax loopholes for large corporations would help the Federal government with their deficit, it would do nothing to remedy our state's current $330 million deficit.

Posted by: Don Botts at March 30, 2011 10:30 PM

Great post, Don. Your itemized list of new and expanded expenses wrought by gov't is enlightening.

"As a result of their ineptitude of the past and present, it costs about $300 for my son to participate in the band."

Because that money, and lots more, got diverted to adult contracts. All together now:

It's for the chhhhiiilllldren.

Posted by: Monique at March 30, 2011 10:56 PM

Re: G.E.

I am amazed that even here on AR we hear nothign of the fact that corporate taxes are disguised taxes on the employees and shreholders. As disguised taxes they aid in cincealing the true cost of government.

Posted by: Warrington Faust at March 31, 2011 8:16 AM

Because we have one of the highest corporate taxes, larger firms have the incentive to spend resources on ways to legally or creatively reduce their taxes. If the corporate tax rate was slashed and the government stopped using the tax code to reward or (poorly) manipulate behaviors, you might see more revenues. Also, if you want to "get at" corporate profits, allow dividend payments to be written off as the government gets it cut from taxing the individual.

No, this is not a supply side argument. It's the same thinking you read here and elsewhere (for example Gary Sasse's excellent piece in the Projo) or all the anecdotal stories of what people will do if the sales tax is expanded.

And for Mr. Botts -- The question for the Governor and GA members is the following: Why can a basket case state like NY find a way to close a $10B shortfall without raising taxes and only minimal fee increases by bringing in a budget that is 2% smaller (and restored the education cuts that were part of the initial budget) but RI can't?

Posted by: COLRJ at March 31, 2011 10:08 AM

Because we have one of the highest corporate taxes, larger firms have the incentive to spend resources on ways to legally or creatively reduce their taxes. If the corporate tax rate was slashed and the government stopped using the tax code to reward or (poorly) manipulate behaviors, you might see more revenues. Also, if you want to "get at" corporate profits, allow dividend payments to be written off as the government gets it cut from taxing the individual.

No, this is not a supply side argument. It's the same thinking you read here and elsewhere (for example Gary Sasse's excellent piece in the Projo) or all the anecdotal stories of what people will do if the sales tax is expanded.

And for Mr. Botts -- The question for the Governor and GA members is the following: Why can a basket case state like NY find a way to close a $10B shortfall without raising taxes and only minimal fee increases by bringing in a budget that is 2% smaller (and restored the education cuts that were part of the initial budget) but RI can't?

Posted by: COLRJ at March 31, 2011 10:08 AM

Mr. Botts,
By collecting more federal revenues, the federal government can assure that states will receive more income, especially if we cut our grossly bloated military budget. Do you think that there is a wall between the United States and the states which comprise it?

Phil has pointed out a grossly unjust tax law, a national disgrace, and you look insularly at a systemic problem. Close the federal tax loopholes and we all benefit.

OldTimeLefty

Posted by: OldTimeLefty at March 31, 2011 5:25 PM

Mr. Lefty,

If you haven't noticed, the Federal Government seems to have the same expertise at managing their budget as Rhode Island does. Even if the loopholes were closed, do you really think Rhode Island would see any kind of windfall? Any increase in tax revenue would go towards the Fed's continued overspending. Thankfully, Rhode Island cannot mimic their deficit spending (well, on paper anyway).

I also don't believe that the states should be constantly relying on the Federal government for more and more aid. And how did the Tarp and stimulus money do in pulling RI out of the recession? I still see 11.5% unemployment and a great potential for a double dip, especially of the G.A. passes Chafee's proposed tax plan.

Mr. Lefty, take off your liberal blinders, and realize that the RI Democrats and independent progressives have brought our state to the brink by passing budgets that are balanced on paper, but not in reality. And the Feds can no longer "bail us out".

Cheers!

Posted by: Donald Botts at March 31, 2011 9:17 PM

Mr. Botts,
Say what you will, but Phil's point has not been addressed. You may deflect or dodge, but the inequitable tax structure is strangling us. If you haven't noticed,Reagan, and the Bushistas were pro-business Republicans who presided for 20 of the 28 years preceding Obama. If you haven't noticed, they were all very much pro business chief executives, and if you haven't noticed George W. Bush turned a surplus into the largest deficit ever handed to a people in the history of the world. Need I remind you that those men led the charge to reduce taxes, that they did so, and now we have a f(l)ailing system.

So if the Federal Government hasn't been very good at handling revenue and expenditures you might want to look at who has been running the show. You might also want to ponder why G.E. isn't hiring and creating jobs. It certainly is not a tax burden that is in the way (0 taxes assessed -0 taxes paid=0 taxes for the treasury. What benefit does the public get from those numbers?

Business have had reduced tax rates for years and the economy is in the toilet. Warren Buffett who knows a bit about money says that it is a disgrace that he pays less taxes than his secretary. "Go ahead, and tax me, please", he says.

If you don't like Buffett, here's Karl Marx:
Known as the Marxian Laws of Capitalism, Marx mentioned the following issues:
1. a reserve army of the unemployed - This army simply allows the corporation to hold down wages "because there are a large number of people willing to do the job at this wage." Today, not only does America have a sizable army of unemployed, but many of the jobs have been sent beyond our national borders or workers have been brought to America from low-wage areas of the world.
2. a falling rate of profit - Corporations are changing health insurance plans to lower their costs. Corporations have stopped making contributions to a retirement plan (if they have one at all) or have reduced or stopped their 401K match.
Why don’t employees just pack up and go somewhere else? See Reserve Army of the Unemployed above.
3. business crises - The Global Economy is the buzzword for business crisis. Corporations "must" layoff employees in order to compete. Corporations "must" send jobs overseas in order to compete. Corporations must hire low-wage workers from other countries in order to compete. Corporations "must" scale back employee pay and benefits in order to compete. Maintain a Reserve Army of Unemployed and protecting the Rate of Profit are seen as business crises.
4. increasing concentration of industry into fewer firms, and increasing misery among the people - Now consider the American Tea Party Movement. The signs they carry and the talks they give seek to cast light over the darkness of misery they perceive. But they’re not the truly miserable. Look to the millions of Americans without health insurance. Look to the millions of Americans who are unemployed or underemployed.

I'm no pollster, but I don't think the Tea Party has a majority, or even a significant minority of unemployed, and underemployed in their ranks.
OldTimeLefty

Posted by: OldTimeLefty at March 31, 2011 11:25 PM

Defense spending today is a smaller percentage of the Federal budget & of GDP than it was in the 1960s yet Cranston managed to afford many of the programs Don refers to back then, because the programs he refers to do not and should not depend on Federal handouts.

Posted by: Andrew at March 31, 2011 11:51 PM

So then show us the Marxist societies that have become great and produced a high standard of living for their people through the exercise of Marxist "economics".

Posted by: BobN at April 1, 2011 5:52 AM

Mr. Lefty,

Actually, Phils post was a dodge. I talked about local and state budgets, and he posts a NYT article about GE using Federal tax loopholes. Maybe you are not feeling the pain of ever increasing local and state taxes. Maybe you enjoy handing over an ever increasing amount of money to our local government entities. Just last night, Mayor Fung proposed a 3.99% property tax hike, which is getting to be an annual event. Couple that with Chafee's ridiculous proposal, and the taxation vise grows tighter around the middle class.

At this point, any tax reform at the Federal level will do nothing to help us in the near term, so the conversation, to use a popular term in the GA, is not germaine to the conversation.

Posted by: Donald Botts at April 1, 2011 7:07 AM

Andrew

What are the costs to a city like Cranston for having to follow largely unfunded federal mandates such as special education? Would you describe federal funding of expensive requirements imposed on local communities as handouts? Remember that as you stick you head in the sand and only think that is local then you are definitely in position to be screwed.


Posted by: Phil at April 1, 2011 7:22 AM

Phil, why don't you do some of your own homework instead of imperiously demanding that the AR team do it for you? Unless you are funding their blog they owe you nothing.

Posted by: BobN at April 1, 2011 9:12 AM

Non-special education have been climbing faster than inflation for a sustained period of time (though you are right that special education has been climbing even faster, but special education mandates aren't tied to GE revenue, and I'm not convinced that state mandates don't play a role as large as Federal mandate in special education costs). The larger is issue is that faster-than-inflation government spending growth by any program cannot be covered indefinitely into the future by raising taxes or by cutting other programs.

Posted by: Andrew at April 1, 2011 10:28 PM

Andrew

I don't get your statement.

"but special education mandates aren't tied to GE revenue"

Again from the Times:

"Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009."

Ge is not the only large corporation that is paying much less of all federal revenue. I'm suggesting that if the Feds funded their costly mandates local school districts could still provide all the services to which students and parents have grown accustomed.

Posted by: Phil at April 2, 2011 7:16 AM

Phil,

I don't think the paragraph that you quote says what you think it says, namely that the corporate share of taxes decreased because many corporations began filing through the income taxes of their owners and operators. The tax shifted categories, it didn't disappear.

As for tax loopholes, mark my words: you will never eliminate them. That is a core problem with big government and socialism that liberals will never acknowledge. You want billions of dollars from GE? Well, GE has billions of dollars of incentive to back friendly candidates, laws, and bureaucrats and to pay its army of lawyers to comb through the law. Campaign finance laws won't matter. Government transparency laws won't matter. The incentive structure has to change, as does the amount of power and authority held by government.

Posted by: Justin Katz at April 2, 2011 7:45 AM

Phil,

To follow-up on Justin's point, Federal tax revenues have at least tripled since the mid-1960s (inflation adjusted dollars). Raising taxes forever into the future to pay for unending increases in government spending (presuming that you wouldn't want to cut anyone else's taxes as the result of getting more revenue from GE; you'd want to spend it all right away) is not a viable fiscal strategy, and that is the strategy that is hitting the wall right now.

Once upon a time, we had government that was competent enough to fund school bands and school sports, at the same time they were able to keep the streetlights turned on and to not charge extra "fees" for trash-pickup, all without relying on Federal handouts. We haven't had that kind of government in a long while.

Posted by: Andrew at April 2, 2011 9:58 AM

Justin, you are missing the point. Corporations and individuals have no right to do anything economic without the prior consent of government. If they try, they will be punished. Government needs total power and authority to prevent bad people from trampling the rights of good people.

And the definition of "good people" depends on how much they contribute to our party's candidates and how many "revolving door" jobs they give our retiring or interregnum politicians.

Posted by: BobN at April 3, 2011 7:52 PM
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