April 26, 2011

Time to Stop Being an Ostrich

Marc Comtois

When Ernst & Young, one of the Big 4 professional services firms, releases a study (PDF) that says Rhode Island is one of the worst in the nation for tax competitiveness when it comes to attracting new business, you'd better listen.

This study provides a state-by-state comparison of the tax liabilities that new investments in selected industries or types of economic activities would incur in each state, taking into consideration state and local statutory tax provisions and the financial and economic characteristics of the new investments. The analysis focuses on capital investments in industries that have location choices, such as factories or headquarters, rather than those that are tied to a specific geography, such as retailers or hotels. The estimated tax burdens on selected investments are combined to provide an overall measure of the business tax competitiveness of each state.
Rhode Island is #49, to be specific (only Washington, D.C. and New Mexico are worse. Maine--yes, Maine--is #1). What particularly seems to hurt Rhode Island are property taxes, especially the effective 5.36% tax on commercial equipment. (Massachusetts and Connecticut are at 2.71%).

The usual advocates can debate and reframe and reshape the debate all you want in an effort to raise taxes on the rich and "big business". No matter how persuasive you may be, businesses don't care. They aren't coming here: E & Y have provided a first filter for them. And the businesses that are here may take a second look. They'll leave. Because business people listen to someone like Ernst & Young. Will Rhode Island?

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.

"And the businesses that are here may take a second look. They'll leave."

Or as in the example of Taco, at least not expand.

Posted by: Patrick at April 26, 2011 11:24 AM

The only Taco expanding here is Taco Bell!

Posted by: Bobbbb at April 26, 2011 11:36 AM

Only after every last Truffula business is cut down in the state through taxes, regulation, and corruption will the Once-lers in the General Assembly and their progressive enablers realize the damage they have caused. And in Rhode Island's case, the Lorax isn't ever coming back.

Posted by: Dan at April 26, 2011 12:59 PM

Of course what you ignore is this part, content to pretend that tax structure is the be all, end all for corporations:

While non-tax cost factors are usually more significant in determining the overall cost of operating a facility in each state, tax factors can be a determining factor between states with otherwise similar non-tax costs.

It begs the question why we should care about business taxes in the first place versus focusing on other issues such as economic development, infrastructure, education, etc?

"Providence 'Affordable' City for HQs"

Posted by: Russ at April 26, 2011 1:27 PM

"Time to Stop Being an Ostrich"

I thought this was going to be a post about House Minority Leader Watson.

Posted by: michael at April 26, 2011 1:45 PM

Russ, There you go again....I didn't ignore anything (as with most studies, there are a slew of qualifiers, including the one you cite), I didn't say this was the end all be all and the study you linked to by PBN is an apples/oranges comparison (and even then RI is "middle of the pack" gee, yay). The actual point of the post, is that a nationally (ie; not the local business news) respected organization has added their voice to the chorus singing "Rhode Island Sucks for Business". Unfortunately, perception equals reality, no matter how much you and others want to believe it's different. And you just proved my point.

Posted by: Marc at April 26, 2011 2:09 PM

I perceive that we have a Minority leader who lives in a g(r)lass house and likes to throw stone(d)s.

What's your perception??

Posted by: OldTimeLefty at April 26, 2011 4:23 PM

I'd just like to point out that I wasn't the first one to attempt a threadjack (kinda proud) -- but since I don't have posting privileges, and it's already been hinted at, I'll ask:

Why no concern here at Anchor Rising over the Minority Leader's DUI and drug possession charges?

I have been led to believe that this blog, in part, responds to current events. It HAS been a few days, and yes, before anyone asks, I've already mentioned the possible dual hypocrisy over at the other blog. You can go look.

Posted by: jparis at April 26, 2011 5:07 PM

That's nonsense. You are ignoring the qualifiers when you make statements like this...

No matter how persuasive you may be, businesses don't care. They aren't coming here... And the businesses that are here may take a second look. They'll leave."

The report you cite says that "non-tax cost factors" are more significant, but that doesn't stop you from making hyperbolic claims about the impact of tax policy. Absent those claims, a discussion of how property (or other) taxes impact the ranking and why that is significant to RI business would be interesting, but you just gloss over it.

As for "perception equals reality," one would think that would give Chicken Little types pause before running around clucking that the sky is falling.

Posted by: Russ at April 26, 2011 5:09 PM

I agree with our progressive posters that the lack of coverage of the Minority Leader's arrest is troubling. A hypocritical statist imbecile is a hypocritical statist imbecile, regardless of whether he has an R or a D next to his name.

Posted by: Dan at April 26, 2011 6:17 PM

Ummm... somebody may find a post that represents an exception, but I think Anchor Rising has been pretty consistent in leaving such things as DUIs of politicians untouched.

It's not hypocrisy; it's disinterest. The ramifications of Mr. Watson's case for the state of Rhode Island are exceedingly minor.

Posted by: Justin Katz at April 26, 2011 6:25 PM

If you're truly not interested in the future of the leadership of the RI Republican Party, then so be it -- I just don't expect a lot of posts about who will be chosen as the next minority leader, should Mr. Watson leave the position.

I agree that the ramifications of most personal political issues (rather than public policy issues) aren't of great importance to Rhode Island -- but Mr. Watson does some influence there, and had recently made comments suggesting the GA was being too liberal, in part with regards to marijuana policy:

"I guess that if you are a Guatemalan gay man who likes to gamble and smokes marijuana, you probably think we're onto some good ideas here," Watson said, referring to the Legislature's agenda.

But if you guys don't want to talk drug policy either, I understand. I just think you're underplaying it a bit Justin.

Posted by: jparis at April 26, 2011 6:41 PM

"had recently made comments suggesting the GA was being too liberal, in part with regards to marijuana policy:"

He wasn't referring to any policy other than being incredulous to the fact that our state's finances are in the crapper, yet there is time being spent on other non-budget issues. It wasn't a statement on the Assembly's marijuana policies.

Posted by: Patrick at April 26, 2011 7:58 PM

Russ, you're right and Marc is wrong...business is just f'n rocking here in RI as they trip over themselves to come in. WTF!?

Posted by: Mike Cappelli at April 26, 2011 8:17 PM


Interesting. So we were remiss, you think, in leaving alone liberal Democrats in similar circumstances?

Look, politicians are human, and I'm more concerned with the wisdom of the policies that they support than with their ability to resist human temptations. I don't think Watson's political career should be ended by this incident, so it would be a bit premature for me to speculate about who should replace him.

Posted by: Justin Katz at April 26, 2011 8:19 PM

As far as Watson goes, Justin is correct, we basically leave these kinds of things alone. There have been any number of instances where we could have commented but didn't. That doesn't mean we don't have a "right" to then talk about the ramifications if/when they come about.

OK, enough of the "threadjack". I'd suggest further discussion on this topic go under Andrew's post, above.

Oh and Russ, you're still an ostrich.

Signed, Jackbooted rightist brownshirt.

Posted by: Marc at April 26, 2011 8:23 PM

If you own a business, this study landed in your in box, and business owners take notice. We are making decisions, whether we employ 1 employee, 10, 50 employees, etc. For those who don't care, I wonder what income sources you have that you can be so cavalier about it.

Posted by: riborn at April 26, 2011 8:45 PM

The little Leftist terrorist wannabes at RIF have been complaining about AR's lack of Watson coverage. So now they brought their whining here - with an off-topic threadjack on a thread to which they have nothing of value to contribute.

No surprises here.

Could you parasites do something useful for somebody, for a change?

Posted by: BobN at April 26, 2011 9:22 PM

You libs chose to ignore the forest beyond the trees. The mere fact that the ever influential Ernst and Young published this study is detrimental to Rhode Island. I'm sure people in business, unlike you liberals, are not picking apart the study looking for the silver lining. If they get beyond the ranking, it would be a shock.

Posted by: Max Diesel at April 26, 2011 9:40 PM

Further to Bob and Max's comments, I took a look, out of curiosity, at RIFuture's post of complaint, and the single example they offer of my having mentioned a Democrat's DUI is this post, in which Raymond Sullivan's arrest acted as a one-clause current-events hook to a long post in which I describe the horrible legislation that Sullivan had been backing.

The contrast between RIFuture and AR couldn't be clearer... even before a Google search for "sullivan dui" on the other site.

Posted by: Justin Katz at April 26, 2011 10:38 PM

Yes, Marc. It's easier to name call than to respond to my critique of the myopic worldview of the right that taxes are the only issue that business care about or at least the most important. You've yet to explain why taxes should be given such focus when E&Y say they are only of marginal importance in comparison to other considerations. It's frankly comical for you to suggest that businesses don't understand their own balance sheets.

I wanted to address your other mistatement from above about "even then RI is 'middle of the pack' gee, yay." You neglect to mention that middle of the pack means more affordable than Boston, New York City, Stamford and more affordable than any city in New England. I'd argue the regional data is much more significant when relative cost competitiveness.

Post all the snarky comments you like, but it doesn't change the fact that focusing on tax issues is not the most effective way to lure business to the state.

Here's another example:

RI Among Top "Biotech Hubs"

Rhode Island has been named one of six “Biotech Hubs” in North America in the 2009 BioWorld Relocation and Expansion Guide. The Guide is a showcase of leading Bioscience-friendly locations for business relocation and expansion. Locations are ranked on criteria including site selection, tax credits, location and incubator, funding and research opportunities.

Taxes being one but by no means the only consideration and certainly not the primary consideration (location and relatively lower cost-of-living are cited).

Posted by: Russ at April 27, 2011 11:04 AM

To Russ's point (and he isn't completely wrong on this), RI is near the bottom in all measures of business attractiveness.

1. Government corruption: the North Providence Stop & Shop is the tip of the iceberg. There are legions of stories of companies being shaken down or intimidated by the political machine in this state.

2. Taxes: it isn't only the income tax, the myriad taxes on inventory, assets, unemployment, etc. add up to a heavy load.

3. Union closed-shop regime: As Lamar Alexander pointed out in his editorial in yesterdays Wall St. Journal, Tennessee won the Nissan plant over Kentucky specifically because of its right-to-work labor policy.

4. Infrastructure: What we should have invested in our roads, bridges and Quonset has been wasted on welfare for able-bodied shirkers, baby-mamas and illegal aliens.

5. Education: RI can't produce a competent workforce due to Leftist perversion of the public schools into a psychobabble, political indoctrination system.

Every one of these problems comes from the policies of the Leftists who have controlled this state for over seventy years. And the problems will not be solved until the Left is removed from all positions of power.

Posted by: BobN at April 27, 2011 11:47 AM

Me, I'd put access to venture capital up there for luring companies. But that's unfortunately one of the items that goes by the wayside when the fringe-right convinces the GA that spending cuts are the only option.


Saul Kaplan (former EDC executive director): "House Finance whacked 40 percent off Rhode Island’s economic development budget. Talk about cutting off your nose...”

Angus Davis (founder of the Providence start-up Swipely):
"Since all Mass. VCs passed on [the 38 Studios] deal, I guess it's a great idea for RI taxpayer, right? Meanwhile, state cut Slater VC fund. Dumb."

Posted by: Russ at April 27, 2011 12:34 PM

Wrong, Russ. A venture capitalist (who is smart by definition) is not eager to fund a business in a hostile territory. Access to venture capital for entrepreneurs with RI educations and resumes isn't the problem, as long as those new businesses aren't located here.

The Slater Fund was never a real VC because it was an arm of the state - and not one that is a legitimate function of government.

If RI were business-friendly, VCs from all over the country would be happy to invest in startups and growth companies here and there would be no need for a Slater Fund.

Silicon Valley is a special case (and as we have seen with Google, successful companies headquartered there use international tax management strategies aggressively) and not representative, so don't try to use that to rebut.

Posted by: BobN at April 27, 2011 2:17 PM

I disagree having run a start-up. VCs won't even consider you (assuming you're not already in with them) until you're significantly up and running. You can go the angel route assuming you can find one, or you can turn to places like the Slater Technology Fund.

Slater typically invests at the inception stage in the development of a new venture, often based upon ideas and technologies originating in academic institutions, government research laboratories or commercial enterprises located within the region.

In most cases, investments are premised upon the possibility of raising substantial follow-on financing, be it from venture capital investors or from strategic partners, the rationale being that such external funding will accelerate the creation of a significant number of high value, high wage jobs over the intermediate to longer-term.

My startup was based in NYC despite the higher tax burden (btw office space costs were a much bigger consideration than the tax) because the city offered significant other benefits.

Posted by: Russ at April 27, 2011 4:14 PM
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