RE: Phony Incentives and Real Disincentives

Justin correctly questions the actual effectiveness of the hoop-jumping job creation incentives recently laid out by the Governor. (As commenter Roland writes under Justin's post, apparently it is a way to use stimulus money for short term gain). This morning, I heard Helen Glover reading from this American Thinker piece about the problem with this whole approach of trying to micro-manage small business from the top down.

Suppose you are a business that has held on to valuable employees for the last year at a great financial cost. You are now supposed to compete with a startup that has preferential tax treatment because he is hiring new employees. Or perhaps you must now compete with an existing competitor that was less financially sound and thus had to lay off workers. He may now get a tax break to hire them back. You must then compete with more expensive workers than your competition. Instead of creating an incentive to hire you may have created an incentive to lay off workers.

Because the president decided to float this idea in his supposed "State of the Union" with an audience of 48 million viewers, employers who may be considering hiring back workers may elect to delay this as long as possible in order to get the tax credit mentioned, which may be far from being enacted. This would likely delay any employment rebound.

And why should such a benefit only be allowed for ‘small' business? With such high unemployment don't we want to encourage hiring from large businesses as well? If a small business gets preferential treatment for a new hire is he not discouraged from growing beyond the magical and arbitrary tipping point and losing that tax break? Will the job ‘created' by the small business come at the expense of another job in a larger company, negating any benefit?

A Phony Incentive for Hiring

Does anybody believe this will work?

The deal would give employers a $2,000 tax credit for each new full-time worker hired between July 1, 2010, and Dec. 31, 2011. The tax credit would apply for the year the hiring takes place. ...

There are controls on the tax credit. The newly hired workers must have collected unemployment, received welfare benefits, or graduated from college in the previous 24 months.

The employee must work 30 hours a week or more and earn at least 250 percent of the state’s minimum wage. Doing the math, that’s about $18.50 an hour, or close to $40,000 a year for a 40-hour-a-week worker. He or she must also be granted access to group health-insurance benefits, if interested.

A small one-time tax credit in exchange for a median-cost permanent employee? About the only businesses that are apt to take advantage of the credit are those that already planned to hire, it seems to me. In other words, they'll hire when the numbers make sense, and the numbers are well beyond the reach of such a credit.

Companies aren't going to take on additional burdens or additional risks for $2,000. What they need is a reason to believe the state to be worthy of investment and the local economy to be primed for explosion. Under those circumstances, the extra two grand might spur them to get ahead of the hiring curve (although not likely). As it is, this is like offering a free after-dinner mint to get passengers to make dinner reservations on a sinking ship.

Obama's Inaction = Tax Increases for Middle Class

UPDATE: Reuters has pulled the original story that this post was based on. MMM.....egg. Alan Viard of the American Enterprise Institute explains.

Senate Dems to Pres Obama: No Freeze on Spending

The applause had barely ended on the President's State of the Union Address before the Senate had put the kibosh on one of the initiatives therein. From the AP yesterday:

Just days after President Barack Obama endorsed a partial freeze on domestic spending, his Democratic allies in the Senate have rejected a plan attempting to do pretty much the same thing.

Old-school Democrats were the driving force in killing the bipartisan legislation, sponsored by Alabama Republican Jeff Sessions and Missouri Democrat Claire McCaskill. Their plan was slightly modified version of Obama's that would have permitted domestic agencies an increase of just about 1 percent, with slightly higher boosts for the Pentagon.

I'm not sure what's more astonishing: the incomprehensible level of spending that this Congress and this administration have achieved (let us anticipate a popular criticism that often crops up at this point by noting that it was no better when George Bush was over-spending) or that there are actually people who couldn't limit themselves to incomprehensible plus 1%.

The AP also noted that

A 56-strong majority of senators supported the plan but it failed because 60 votes were required. The vote came the morning after Obama threatened to veto spending bills that would exceed a domestic spending freeze.

Roll call here. H/T the Fred Thompson Show.

Spreading Your Wealth Around

Marc already offered the only commentary necessary on the idea of taxing workers during a recession to pay the unemployed, but there's a tangential point to be teased from this:

Under one scenario, the maximum amount of the new tax on a worker could be about $58 a year.

Doesn't look like much, does it? We all chip in and help those who are down on their luck, just now. How could one object?

Well, $58 per year is a small amount. But so is an increase in the municipal water bill. So is another $100 or so for a local pay-as-you-throw garbage program. So is the incremental increase in taxes to pay teachers' step increases. So is the annual increase in RIte Care. So is the per capita cost of the stimulus program. This list could go on and on.

Before you know it, that little bit of money to help out struggling families is creating disincentive to spend cash and thereby finance businesses. It's raising the cost of hiring new employees. In short, it's generating more struggling families.

Tax Workers? Yeah, That's Brilliant

Really, guys?

A state advisory board is considering a new tax on workers to help bail out the beleaguered state trust fund that pays benefits to the unemployed....[It] could take the form of an addition to the tax that employees already pay into the state’s Temporary Disability Insurance (TDI) program. Revenue so raised would be diverted to the state unemployment insurance trust fund.

The TDI tax rate for 2010 is 1.2 percent of the first $57,900 of a worker’s wages. Raising the TDI tax rate to 1.3 percent for 2011 would yield an extra $13 million or so, according to state labor agency calculations. (The increase could amount to a tax of $57.90 a year for higher-income workers, less for lower-income workers.)

Flight of the Golden Geese

For those disinclined to understand, here's a video parable about a goose that lays golden eggs (via TaxProf):

As we're learning, in Rhode Island, the video doesn't tell the whole story. The same mentality that plagues the fictional farm affects not only the golden-egg-laying geese, but also the industrious animals that find ways to produce new things (or old things more efficiently). And not only does the farmer take more of the fruits of their labor, but he also places restrictions on their operations, while expanding the burden that must be "shared."

RIPEC's Analysis of Firefighter Pay/Contracts

My post concerning the Warwick Beacon's look into Warwick firefighter pay/contracts has generated some commentary regarding the RIPEC report (mentioned in Russell Moore's story) that found:

On average, [a RIPEC] report showed that Rhode Islanders spend about $6.24 on fire services for every $1,000 of personal income, or just under double the national average of $3.21 per $1,000 of income.

1) EMS services are included for Rhode Island but not the other states. By including EMS, you couldn't even compare Providence to Worcester- two very similar sized cities, but Worcester's EMS is provided by UMass Hospital, and Providence's by the Fire Department.

2) The cost represents the total cost of fire protection in RI, meaning sprinkler systems, alarms and other additions, not just the actual fire department budgets.

3) Belief that pension costs are included in the RI costs but not in those for other states.

All the RIPEC report says about it's methodology is:

Fire Protection comprises expenditures for the prevention, avoidance and suppression of fires and for the provision of ambulance, medical, rescue or auxiliary services when provided by fire protection agencies.

1) Whether cities and towns pay for EMS or not is not as relevant as some think. Having tax dollars pay for EMS is still a governmental (taxpayer/resident) choice. Just because some don't cover EMS via taxes doesn't mean it should be excluded from a comparison of tax dollars spent on fire/safety services. Those are real dollars no matter what column on the spreadsheet you want to put them in. Don't let the inconsistent accounting methodology obscure the fact that other cities and towns in other states appear able to provide EMS services through private companies or hospitals and not through taxpayer supported fire departments.

2) It is probably true, given the brief explanation by RIPEC, that they include expenditures for fire suppression (sprinkler systems, etc.) the state paid to have installed in government buildings (for instance). There can't really be any doubt that much of that expenditure is a direct result of government over-reaction to the Station Night Club fire. We all know that small businesses have screamed that they can't afford to pay for the new requirements. Unsurprisingly, local governments didn't because, well, they had the money, right? (Ours....)

3) There is no way of knowing whether pension costs were included or not without the raw data.

I'm sure this won't satisfy RIPEC's critics, though I wonder if they have similar reservations about the rest of RIPEC's analysis regarding other areas of government expenditures?

Banks as Tax Collectors

Here's the ruse (emphasis added):

President Obama expressed confidence Saturday that lawmakers would approve his proposed tax on banks to recover bailout money, despite opposition from Republicans and the financial industry.

And here's the reality (emphasis added):

The proposed 0.15 percent tax would last at least 10 years and generate about $90 billion over the decade, according to administration estimates. It would apply to about 50 of the biggest banks, those with more than $50 billion in assets, and include many institutions that accepted no money from the $700 financial industry bailout.

And here's the president's faulty premise:

Obama challenged those who say banks can't afford the tax without passing the costs on to shareholders and customers.

"That's hard to believe when there are reports that Wall Street is going to hand out more money in bonuses and compensation just this year than the cost of this fee over the next 10 years," he said. "If the big financial firms can afford massive bonuses, they can afford to pay back the American people."

The financial firms could afford to do lots of things with their profits, but what they do typically rewards those in charge, especially those responsible for the strategies that generated their revenue in the first place. Taxing all banks in order to pay for handouts to a few of them doesn't change the industry dynamics around competition for top talent. That is to say that the banks will look for other areas to make up for losses from taxation rather than the pay scales of those whom they credit for their success, largely by passing them on to customers.

The bigger point, though, is that this plan will suck $90 billion directly out of the global economy, with the focal point of the United States. For example, consider some number crunching from the Providence Business News:

Citizens Financial Group Inc.'s parent company, Royal Bank of Scotland Group Plc, may owe $625 million a year if Congress passes a new tax on financial institutions proposed by President Barack Obama.

From where does Mr. Obama believe that money is going to come? Out of the bonuses of executives? If one believes the narrative of the left, bank executives are immorally greedy connivers. From a rightward perspective, the bonuses are the price that the market has placed on their talent (hugely distorted upward through the meddling of government, to be sure). In neither case are financial leaders likely to simply accept an indirect tax on their income.

As I've said before, if one wishes to curb outrageous pay and bonuses, the best method would focus on increasing competition, making excess unsustainable. Taxation favors incumbency, exacerbating the underlying problem.

If We're Going to Be Setting Tax Rates Based on Your Membership in a Group, Why Stop With a Health Insurance Tax?

What could possibly say Saturday in Rhode Island more than a blog post written in a form of an homage to a Bill Reynolds "For What It's Worth" column...

There's no truth to the rumor that independent RI Gubernatorial Candidate Lincoln Chafee will be combining his revenue raising ideas with the the recently proposed Democratic health insurance tax structure to develop a new plan for a two-tier sales tax, where union members pay one rate and non-union members pay a higher rate.

Or that non-membership in a union will now translate into a lower standard deduction on your Federal income tax form.

Bait & Switch? Shovel Ready Stimulus Dollars Not Evident in "Shovel" Related Employment Figures

Rush pointed out today that while the hype was about stimulus dollars going to shovel ready jobs, much of the money went instead to budget deficits of states and municipalities, as evidenced in part by an unemployment rate in the construction industry of 22.7%.

Never to be outdone in Rhode Island, we went them one better: we used the money to plug some budget holes AND we jacked overall spending by 12%, very little of which went to "shovel" projects.

There would be little justification, stimulus or fiscal, for most of the stimulus spending anyway. That it was advertised as targeted to one thing and ended up elsewhere adds an unnecessary level of dishonesty and mistrust.

A Mainstreet Scam

A commenter to yesterday's post on unemployment insurance appears to believe that I misunderstand the way the system works. He or she is wrong.

The point is that the system is not able to address times of economic hardship. Since the federal government won't allow the state to hold off repayment of the relevant loans when it meanders into a good economy at some undefinable point in the future, the missing resources can come from one of only three places: 1) cutting the benefits to the unemployed, 2) increasing the tax on businesses, or 3) looking elsewhere in state government for the money.

Something similar to number three is done as a matter of course across government. Consider the telephone tax/fee in Rhode Island:

The money raised by the phone surcharge is used to provide and upgrade Internet access at 460 public schools and libraries across the state, but revenues have dropped by 35 percent since 2004, forcing the state to contribute out of the general fund, said Carolyn Dias, chief of operations at the state Department of Education.

So here's a program in which a tax was sold to the people of Rhode Island as a relatively painless way to finance school technology (rather than using the money that we've already provided for such things by way of our regular taxes). The model turns out not to work, so the government takes the money from something else.

Of course the phone surcharge is in the news because Governor Carcieri has a plan to decrease it as a trade-off for creating a similar surcharge on cell phones:

The cell phone proposal would add a 16-cent monthly surcharge to all cellular phones (or numbers), while reducing the existing surcharge on landlines to 16 cents from 26 cents.

With the number of cell phones rising and landline accounts dropping, the measure could boost revenues by $300,000 in the current budget year and $600,000 during fiscal 2011, according to the governor’s budget office.

Given the ubiquity of cell phones, one is tempted to argue that this is merely another broad-based tax disguised as a user fee, but it's actually worse than that. It's a tax on the productive and fruitful, benefiting those who are neither. The only people who would actually benefit by the shift toward cell phones are people who don't have them, probably the elderly, most prominently. Young families and businesses often have more than two. And:

... speakers from Verizon and T-Mobile opposed the new surcharge, saying Rhode Island already has among the highest cell-phone fees in the country.

The sentence before that, in the report, points toward another indication of the scam that is big government: "The state receives two federal dollars for every dollar it contributes to the program." In other words, the federal government uses taxpayer dollars to create incentive for states to take taxpayer dollars in order to fund some preferred program.

If a program is worth funding, officials should be honest and straightforward and pay for it from the general tax base. Carcieri should be ashamed to perpetuate this government card trick, which disproportionately harms the demographics that the state should favor... if it wants to survive.

RE: Budget Misery - Moderate Solutions

Over at the FrumForum (a moderate Republican blog run by David Frum) Eli Lehrer explains:

Many of the biggest budget items for states—Medicaid, bond payments, pension obligations to retirees—are virtually impossible to reduce. Big , broad-based tax increases, although difficult to avoid under many states’ balanced budget laws, will simply discourage investment and growth. Without indulging into liberal (“tax the evil corporations”), moderate (“run government like a business”), and conservative (“cut taxes to increase revenue”/”privatize all education”) fantasies, states looking to balance their budgets aren’t totally out of luck.

In efforts to attract new enterprises, revitalize decrepit areas, boost politically favored types of business, nearly all states run massive corporate welfare programs including “enterprise zones,” “TIF (tax increment financing) districts,” “job retention tax credits,” state “HUB (historically underutilized business) zones.” Although a few states simply give grants to private businesses, most of these programs involve issuing bonds, building infrastructure, or granting tax credits that benefit only a particular business or development. The practice produces headlines for politicians but largely serves to let political leaders decide on the location of development that would happen anyway. These business subsidies tend to feed on themselves: cities like Chicago and Syracuse, New York have made such widespread use of them that almost all new development requires some sort of tax abatement or other assistance since unabated tax rates are so high as a result. Although it appears almost certain to cause some short-term pain, many states would almost certainly increase revenue while cutting base tax rates if they simply quit the abatement drug cold turkey. Certain areas, many of them in need of help, probably would lose out. But, in the end, the free market would make better decisions about business locations than central government planners ever could.

Budget Misery and the Government Payroll Economy

Rhode Island is not alone in facing budget deficits as many other states (if not most) are in the same predicament. As a recent study by the Cato Institute shows, a lot of the deficit problems stem from generous public employee compensation packages.

State and local governments face large budget deficits as revenues have stagnated and spending has remained at high levels. To reduce deficits, large savings can be found in the generous compensation packages of the nation’s 20 million state and local workers. In 2008, wages and benefits of $1.1 trillion accounted for half of total state and local government spending.

We've gone from providing jobs in profit-making private industry to providing jobs in profit-eating government work. Toward the end of 2007, the total number of government jobs exceeded the total number of goods producing jobs. Welcome to the government payroll economy.

What State Aid Does

It's difficult to care — in the midst of a major recession, with unemployment at its current level and the state government in perpetual deficit — about political sniping about who told whom what when, but a statement in such an article begs for correction (emphasis added):

RHODE ISLAND GOVERNMENT funnels one-third of its $3-billion "general revenue" budget to municipalities and school districts.

The vast majority goes to schools.

The state budget Carcieri signed in June designates $187 million for municipal governments, a figure that includes "restricted accounts," such as money that must go to local library construction. And local school districts were set to receive $890 million, including funding for charter schools and the state-managed Central Falls school system.

The funding stream helps keep local taxes at bay.

No. What the funding stream does is to help keep local spending — especially on labor — up. The evidence is in the items that Governor Carcieri is suggesting as compensation for cuts to aid, most of which entail lightening the contractual burden on municipalities. In the long term, less aid from the state would not mean commensurately higher property taxes; it would mean commensurately lower giveaways to unions.

Leadership and Rhetoric

Monique and Matt covered budgets and leadership on Wednesday night's Matt Allen Show. Stream by clicking here, or download it.

And Then the Other Side

From AP writer Ray Henry's ">report, it looks like RI Senate Majority Leader Daniel Connors drew the short straw:

"I think we need to look at all of our taxes and determine, you know, those that could be changed to provide sufficient revenue for the state to provide its services," Connors said during a Statehouse interview.

You know, we'll just find a way to take "sufficient revenue" from the people of the state. That's all. Easy.

Of course, Senate President Teresa Paiva-Weed stands right with Connors and is apparently in need of a civics lesson from the people's perspective:

"Essentially, the proposal the governor is making is we're going to cut taxes with the left hand ..., income taxes, and we're going to increase property taxes," Paiva-Weed said.

Note that Paiva-Weed makes no distinction between the scope of her tier of government and more local tiers. The Democrats are trying to protect their public-sector union pals at the municipal level by shifting the narrative to insist that municipal leaders have no choice. They do, and so do their local constituencies.

When Taxes Aren't an Issue

Mark Perry observes (with charts) a progressive trend in American taxation:

The Tax Foundation reported last week that more than 143 million individual income tax returns were filed in 2007, and 46.6 million of those returns had a zero or negative tax liability, setting a new record for the number of "non-payers." This group represented almost one out of every three tax returns filed in 2007 (32.6 percent, see chart above), and reflects tax filers whose exemptions, deductions, and credits wiped out any federal income taxes that would have been due. According to the Tax Foundation, every dollar withheld from the paychecks of the "non-payers" during the year was refunded, and in about half of the cases, substantial additional money was refunded to the tax filer. There were an additional 15 million people in 2007 who did not earn enough income to file a tax return, bringing the total number of Americans who paid no federal income taxes to more than 61 million, or 39 percent of the tax-eligible population (158 million including filers plus non-filers).

As Perry notes in the words of American Enterprise Institute Economist Alan Viard, increases in government spending likely mean less to people who don't think they pay for it. This one item is not a complete explanation, but we appear to be witnessing the realization of a risk that has been foreseen with democracy all along: the majority can simply vote itself money from the minority, disregarding or ignorant of the self-destructive nature of that practice.

Don't Scheme on Taxes, Simplify

URI Economic Professor Edward Mazze's tax-cutting suggestions sound reasonable enough, but one can't help but be suspicious of the urge to control:

Murphy said of Mazze's plan, "I want to be open to it." Murphy said he was particularly interested in Mazze's proposal geared toward revitalizing local downtown business districts.

Murphy said he remembers a vibrant Main Street in West Warwick when he was a boy. "I know in the last 40 years, our Main Street in West Warwick has not come back to where it was," he said.

An article in the latest Sakonnet Times (not online) describes the Tiverton Town Council's approval of a suite of zoning changes for commercial districts, and the accompanying pictures present a similar longing for the downtown-style main street. But there are reasons other than zoning and the lack of targeted tax breaks that Main Streets have been disappearing. Some of them are cultural; some of them are economic; the point is that attempting to counteract these forces will come at an economic cost and may fail to produce viable businesses, anyway.

In other words, if pulling the Rhode Island economy back up the cliff is the objective, we shouldn't be layering all sorts of aesthetic preferences on pro-growth policies. We also should focus on simplicity. All of Mazze's proposals will benefit people savvy enough to know about the breaks, to take the proper steps, and fill out the proper forms, but big-government corruption and waste illustrate very well that the skill set for jumping through hoops is not necessarily an indicator of a successful business. "Targeted" tax cuts, in that sense, become targets for which people looking for breaks will shoot. We need to encourage people who are interested in running businesses.

As Roland Benjamin says:

"If [Rhode Island's] tax structure was reasonable in the first place, you wouldn't need [targeted tax breaks]."

And if Rhode Island's political and academic leaders were competent to manipulate an economic recovery, we wouldn't be in the mess that we're in.

A Corporate Tax by Any Other Name

So, Governor Carcieri and his Director of the Department of Revenue, Gary Sasse, have switched from a "gross receipts tax," which would essentially be an expanded and hidden sales tax, to a "net receipts tax," which Providence Journal reporter Neil Downing describes as follows:

Under a net receipts tax, a corporation generally would pay tax on its revenue after claiming only a limited number of deductions (the number and nature of which have not been set). Thus, more of a business's income would be subject to Rhode Island tax. But a lower tax rate would apply, Sasse said. ...

Sasse also said that any such plan would not harm the many small businesses that are organized as "pass-through" entities, such as limited liability companies and subchapter S corporations.

Sounds a bit like an expanded corporate income tax, no? Downing reports that the plan would be to "eliminat[e] at least one other tax, such as the state's corporate income tax, the sales tax or the personal income tax"; if it's not the first that goes, then Rhode Island would be killing its economy, not helping it. If it is the first that goes, it would essentially be a name change with the promise of future increases. Once the deductions are eliminated through the trick of changing what we call the tax, the General Assembly will find it a relatively simple matter to ratchet the rate up.

Suppose that the income tax is what's eliminated. Corporate entities will have an irresistible incentive to organize as pass-through entities, which will limit their ability to expand and ultimately undermine estimates of the revenue that the state receives from the "net receipts tax," because more income will flow to the untaxed channel. (Except for the restraint on expansion, that's not an unattractive outcome, but it will ensure the continuation of continual budgetary shortfalls.)

And if it's the sales tax, we're left with a gimmick that increases prices and shifts the tax burden to businesses from out-of-state consumers.

The faster Rhode Island's leaders come to the realization that there is no easy way out of this mess, the better off we'll all be. Taxes have to be cut, not reconfigured. Regulations have to be relaxed. And mandates have to be rescinded. Start selling that message now, because it's going to be a long, hard fight. Tossing out a new taxation buzz-phrase every few months merely delays decisiveness and confuses the public.

Preemptive Rebuttal on Property Taxes

Yes, the common advice is simply to ignore NEA-RI Assistant Executive Director Pat Crowley, and for psychological purposes, that is certainly an attractive approach. Its problem is that it's in Crowley's nature to rush to expose more broadly forming strategies and flaws in thinking of the local left. So, when he devotes so much of his time as a professional agitator to proving that Rhode Island's property taxes really aren't that bad — here and here — we can be assured that we'll see such nonsense begin to spread as a self-justifying common knowledge among the segment of Rhode Island society whose selfish or vain interests are dragging the state down.

There's a bit of irony to this tack. After all, when progressives have brought up property taxes, it's typically been to decry the fact that they're regressive, as Tom Sgouros explains:

Property tax is regressive because the value of the house or apartment you live in doesn't scale with your income. If you earn $50k, you probably live in a house or unit worth $300k (give or take). If you earn $500k, you probably don't live in a house worth $3 million. Instead, your house is likely worth $800k or a million. So ten times the income goes to three times the taxes.

With reference to Sgouros, there's also some conflict with Crowley's latest spin in that the former has tended to ignore property taxes as a percentage of home value in order to stress the fact that the rates are lower where the values are higher, while the latter wishes to use high property values in order to explain why the government ought to be able take more money. The two leftists illustrate nicely why regular citizens are wise to be suspicious of statistics, because they can be twisted in multiple directions per the rhetorical needs of the propagandist.

So, take a moment to absorb all of the multiple rankings provided in Crowley's Tax Foundation source, limited to Rhode Island and the abutting counties of Massachusetts and Connecticut (Bristol County, RI, not included because of small population, not low rank). Rhode Island counties are shaded red, Massachusetts, blue, and Connecticut, green.

And for good measure, here's a similar chart for median incomes:

For the state-by-state comparison, Crowley likes the measurement by percentage of value for obvious reasons, even though progressives typically prefer to measure all taxes against income (to show that the rich don't pay enough). In fairness, my usual argument with respect to different taxes is that, if it's justified for the government to tax a particular transaction (sales or income) or property, then it should set rates according to the value of the thing being taxed, without adjusting for some external consideration. If we've decided that a town should receive its revenue from property taxes, then it ought to set a rate for all property, and those who possess a greater portion rightly pay proportionally more. That's fair. Otherwise every tax becomes a form of income tax.

For the purpose of deciding whether a particular state's property taxes are comparatively high, though, the percentage of home value isn't but so useful. For one thing, there's dollar value and there's the value to the user; taxes for a two-bedroom hovel might cost $4,000 per year in Rhode Island, but $1,000 in some other state. For another thing, the cost of government doesn't go up but so much based on residential property values. That is, it doesn't cost much more to send firefighters to a $200,000 hovel than a $75,000 hovel or to educate the children living in them.

If the question is whether the state of Rhode Island and its municipalities extract a large tax burden from their residents, the income comparison is more appropriate. As the above figures illustrate, even though Rhode Islanders have higher income than the median for the country, we pay an even larger percentage of that income in property taxes, and even though our counties' median incomes are dispersed among those of abutting counties, they cluster at the top for percentage of income absorbed in property taxes.

A Sales Tax by Another Name

Senators Frank Maher and Leonidas Raptakis were on Matt Allen's Violent Roundtable last Friday night, and the trio spent a bit of time discussing the potential gross receipts tax. As I wrote a few weeks ago, at bottom, this scheme merely shifts the tax burden to businesses, probably to the benefit of the wealthy. Be the gimmicks what they may — even if the state eliminates the sales tax or income tax — I just don't see how shifting the tax burden thus can be a positive development for the state's business environment.

Perhaps I'm looking at it too plainly.

The senators mentioned that the plan that they've heard would exempt businesses up to $600,000, but inasmuch as "gross receipts" means total revenue before expenses, it really doesn't take much to reach that total. They also suggested that the tax would apply more broadly than the sales tax does — including to service providers of all kinds — which makes me wonder whether that isn't the underlying purpose, for some.

The truth is that I simply don't trust the General Assembly to talk about a tax increase, even with a promise of a decrease elsewhere, because I don't believe that the powers who be won't work it out in such a way as to simply take more.

Binding Arbitration & Tuesday's Special Election Candidates

I have tended to avoid the written-questionnaire format for interviews of political candidates and officeholders, because the ratio of informative-answers-from-the-candidate-himself-or-herself to canned-answers-written-by-committee can often be less than optimal. Or it could be that I'm just bad at writing questionnaires, as RIFuture's Brian Hull has been able to get substantive answers to some very good questions that he put via questionnaire to the candidates in the General Assembly District 10 (Providence) special election to be held this Tuesday.

In particular, Republican candidate Maurice Green gave as unambiguous an answer as you'll ever hear -- in a political context or elsewhere -- on the subject of binding arbitration…

Question: With persistent negotiations between cities and towns and teachers unions often failing to reach agreements, do you support or oppose binding arbitration legislation?

Maurice Green: I have been employed with the Providence Police Department for over 20 years, which makes me an active union member with the Fraternal Order of Police. And as such, I have personally benefited from binding arbitration on many occasions. However, I vehemently disagree with binding arbitration, because of the adverse effects it has on our citizens. Property taxes increase when cities lose binding arbitration decisions. Clearly, my personal gain is short lived if the state is in the tank, and the community's property taxes are driven out of control.

Scott Slater: I acknowledge that the current system we have in place is dysfunctional and I believe that a binding arbitration model is needed. I think that binding arbitration could provide an effective solution to labor and management contract disputes. As of now, progress has been made on a legislative proposal to provide resolution to failed negotiations. As a state representative, I will work to have a fair piece of legislation to protect our children’s education,

Wilbur Jennings: I am not in favor of binding arbitration, because you cannot make the teachers sign a contract they deem unfair. If you force a contract on these professional, you will have an unhappy workforce and that will not be good for the teachers, students, or taxpayers.

And who will be able to meet the Green standard, in terms of making their position on this matter clear?

The rest of the RI Future questionnaire is available here.

Drowning in Desire for Other People's Money

The state of Rhode Island's revenue take is like a chest of treasure sinking to the bottom of the ocean, and some folks are intent on having us all chase it to the bottom:

"We've already been cutting, cutting, cutting," said one of the few people watching Wednesday's discussion, Russell Dannecker, fiscal policy analyst for the Poverty Institute at Rhode Island College. He cited a study by State Policy Reports that reports 29 states have proposed tax increases for the coming fiscal year.

Frankly, Rhode Island has to stop "cutting, cutting, cutting" around the edges and give some serious thought to wholesale excisions of programs. Information from the first link above illustrates why that is the necessary direction:

Among the highlights of Wednesday's presentation:

• Collections from the state's business-corporation tax plunged to $4.5 million from $14.8 million in the same period a year earlier, a $10.3-million drop.
• Sales-tax collections fell by $19.77 million, or 6.6 percent, to about $278.6 million.
• Net receipts from the personal-income tax (after refunds and other adjustments) fell by $14.3 million, or 4.5 percent, to $307.8 million.

The number 1 job of the state government must be to do whatever it can to help Rhode Islanders make money. The quick first step should be to cut taxes, and the larger step, still expedited, must be to slash regulations and mandates. We cannot afford to govern ourselves as we've been doing.

Consolidation as Another Means of Redistribution

If you should attempt to discuss state-to-state migration trends related to taxation, Tom Sgouros will proclaim the whole thing far too complicated, with insufficient data available, to make broad statements. When it comes to people moving from town to town within the state related to taxes and services, well, he's not so reserved:

When a family moves from Cranston to Exeter, Cranston loses a little of its tax money, and Exeter sees an increase in the demand for its services. For most services, Cranston can't cut expenses as fast as they lose dollars. This isn't because of unions, but simply because of arithmetic. A hundred fourth-graders in a school make four classrooms. But ninety-nine students also make four classrooms. Just because you've cut the students doesn't mean you can cut the payroll, and the same effect is apparent with police, fire protection, sewers and more.

On the flip side, many studies have shown that the new residents of a town like Exeter seldom pay enough in taxes to cover the services they demand. This is especially true since most services cost more to provide way out in the burbs, where people are far apart from each other. It's why towns invented developer impact fees.

But what this means is that when people move from one town to another, the town they move from feels pressure on their tax collections and the town they move to feels pressure on their services. The result is that taxes can go up in both towns.

At best, you can say that this assessment is true under a certain, extremely limited, range of household types, and even then, the scenario by which taxes always go up everywhere whenever anybody moves requires a slew of assumptions. For example, if the property left behind in Cranston is reoccupied by somebody else, there is no loss of taxes. The same is true in the opposite direction in Exeter, unless the house was newly built. If the family has no children, there is no change in the schooling requirements for either town. And in the same way that removing a child from a class doesn't necessarily reduce the need for teachers, adding a child to a class doesn't necessarily increase that need.

In order for cities and towns even to come close to functioning, they must have somewhat of a balance between taxes and services, which means it simply can't be the case that every resident uses more in services than he or she provides in public revenue. And were that the case, to the extent that some other source of municipal income supplements the budget, loss of a taxpaying resident must represent a net gain.

Sgouros wants you to believe that towns aren't able to raise taxes quickly enough to cover new residents and that cities aren't able to cut services quickly enough to make up for lost revenue, but what he's claiming to be true doesn't make any sense:

The paradox of Rhode Island town finance is that today, the places with low taxes are the suburbs where the services are most expensive to provide, while the places with the highest taxes are the cities, where services are cheapest. It's the movement of people, and what it does to the tax rolls in towns, that bring us to this peculiar, and probably not stable, spot.

The problem is that the paradox only exists if one blacks out half of the relevant information. Consider some various data for the two towns that Sgouros uses as a hypothetical resident movement — from Cranston to Exeter:

Even though the tax rate is lower in Exeter, and even though it receives less per person in state aid, the actual amount of money that it collects per person is higher. Services may cost more to provide in the suburbs, but there's no paradox, because the towns are paying more for those services. And it isn't just that families are larger in Cranston, because Exeter pays even more on a per-household basis.

When one digs through all of the rhetoric and odd mathematical assertions, the disparity between urban and suburban areas derives from the fact that property is worth more outside of the city while city dwellers tend toward the end of the spectrum that uses more public services. (We're leaving political waste and corruption out of the picture, to allow clearer thinking.) What Sgouros actually sees in consolidation, therefore, is another means of redistributing money.

Like me, he's skeptical that consolidation will save appreciable money through economies of scale, but at the end of the article, and the end of the day, he's not concerned with saving money, but "reduc[ing] pressure." He wants to "insulate" town finances "from the effects of people moving." That is, to the greatest extent possible, he wants to trap Rhode Islanders into paying for expensive government programs that urbanites demand and government functionaries are only too happy to provide.

As some of us have begun to suspect, "consolidation" and "regionalization" are merely newly en vogue terms for big government and a decrease in citizen influence.

Michael Morse: Mutual Aid: A Simple Start to Regionalization

We are taught at an early age to call 911 in case of an emergency. People’s perception of what an emergency is may differ, but one fact does not; we expect our calls to be answered expediently. Fire departments handle most 911 calls in our area. Those departments pride themselves on a speedy response to calls from the community. When the bell tips at a fire station, everything stops, personnel drop whatever they are doing and hit the apparatus floor. Meals go cold, showers stopped half taken, cleaning and maintenance jobs are not finished. Those things can wait. Nothing matters but the call. Within thirty seconds, the trucks hit the street. People know that help is on the way. They assume the closest units are answering their calls, and they are correct in that assumption. What they may not be aware of is how far the closest unit actually is.

Providence Mayor David Cicilline recently proposed legislation aimed at clearing potential hurdles in the way toward regionalization of city departments. In a carefully worded statement, he cites the need to maintain services and cut costs in difficult economic conditions. Planning for regionalization would not begin in earnest until legislation is passed, the Mayor stated.

North Providence’s Mayor Lombardi notes that the closest responders are not always the ones that are sent, due to jurisdictional complications. Our elected leaders have begun the process of considering consolidation of our emergency response departments. Consider how many years the consideration will take before any progress is made.

A good place to begin consolidating emergency service organizations in and around the Capitol City is to expand existing mutual aid agreements. An automatic dispatch of the closest unit makes sense. The logistics of doing so will be a difficult, but far from impossible task. All considering could be done quickly, and a plan could be put in place within months, not years.
On any given day the cities of Providence, Pawtucket, Cranston, East Providence, North Providence, Johnston and Central Falls provide mutual aid to each other, mostly in the emergency medical services departments. As the system currently works, a municipality must drain all of it’s resources before another town can be called for help. People who live on or near town lines are particularly at risk. If a life threatening emergency occurs, they could, and often do wait for an advanced life support vehicle to arrive from the other end of the town or city while a rescue from the next town sits in the bay, in service, a few blocks away waiting for a call from inside the borders of their own city.

Because of the population’s increased use of 911 for routine medical problems, urban municipalities cannot keep up with the demand for emergency services. It is an ebb and flow system, one on the brink of collapse on a daily basis. Meeting the needs of every caller would bankrupt most municipal budgets.

Presently, each city or town is responsible for providing coverage inside it’s own border. Some stations were built “close to the line,” prior to the construction of major highways. It was a different world when these places were built, the planners of those long gone days had different problems to consider, different political alliances to placate and a completely different landscape.

Without scrapping the current system and implementing better policy regarding the dispatch of emergency resources, cities and town departments must rely on each other. An ultimate goal of consolidating these departments is desirable, but in reality is decades away. Consolidation based on need already happens on the street level, and with few exceptions runs smoothly.

An automatic mutual aid system and agreement will greatly increase the effectiveness of our public safety departments. Mayors and town managers will be forced to work together to make a system badly in need of repair more efficient. The opportunity for grandstanding will be taken away, political gain would be nil, and simple, good governance shown to be an effective tool in bettering the lives of the citizens by providing quicker emergency response to whatever needs may arise. It is the response times that need improvement, and automatic mutual aid will help save lives.

Michael Morse is a Providence EMT and firefighter and writes a blog, "Rescuing Providence".

The Method Is the Message, in RI Recovery

Reviewing a recent RIPEC study (PDF), Brian Hull pulls back from the most relevant question:

When we look at the 2007 Per Capita Personal Income for RI, MA and CT we find the following: Rhode Island is $39,829, far less than Massachusetts ($48,995) and Connecticut ($54,981). The per capita personal income of MA is a little more than 23% than that of RI. Likewise, the PCPI of CT is 38% more than RI. With these numbers, it's easy to see why general expenditures per $1,000 of PI is higher in RI than in MA and CT. There are fewer "$1,000s of personal income" here to support the government's expenditures.

Does this make the expenditures more expensive, or even less necessary? No. It just means that, as a society, we earn less money than our neighbors to fund these services. All things being equal, if we raised the per capita personal income in the state, then the spending per $1,000 of personal income would decrease. We should aim for that!

An interesting tidbit of information that I learned from Tom Sgouros, in his book "Ten Things You Don't Know about Rhode Island," is that blue-collar, working-class jobs in the state pay much less than comparable jobs in MA and CT. This is in contrast to the relative equivalent salaries earned by professional, white-collar jobs (even though RI still earns a little less). And this helps explain why RI earns less, but that's a discussion for another day.

His heavy reliance on Tom Sgouros notwithstanding, Hull presumably does not buy into the idea that our problems require the reduction of spending through consolidation and the like. After all, consolidation, of itself, will not prime the job-creation machine, and it will not bring Rhode Island salaries up to the levels of our neighboring state. It is not, in other words, the reason that Rhode Island fares so much more poorly than the states by which we're engulfed. Since the problem is too few $1,000s — not who holds them — the answer cannot be that our tax structure doesn't take enough from the rich (which is nonsense, anyway).

If he asks the right questions, Hull may be dangerously close to agreement with we who believe that Rhode Island's government must get out of the way of its economy. Schemes that allow for continued regulations and mandates and wealth redistribution will fail. Have failed. We cannot mandate that people have more money. We have to allow them to make it.

Taxes Aren't Mysterious; the Question Is Merely Who Pays

Could be I'm missing something:

Governor Carcieri's administration director, Gary Sasse, gave a roomful of state senators a list of "two to three things" to do over the next few months as the state tries to climb out of its financial abyss. ...

The third was a variation on a key piece of an ambitious proposal to solve deficit-wracked California's budget crisis: lower the tax burden on the wealthy, repeal sales taxes and replace the corporate profits tax with a new levy pegged to business revenues. ...

According to information compiled by the Rhode Island Public Expenditure Council, a business-backed research group, most states, including Rhode Island, have corporate income taxes that are levied against profits, defined as gross receipts minus expenses. Gross receipts taxes apply to all business revenues with few or no deductions. All transactions are taxed, including business-to-business purchases of supplies, raw materials and equipment.

Rhode Island has already taken a very small step by taxing public utilities (telecommunications, electric, gas) on their gross earnings; insurance companies on their gross premiums; and certain health-care providers on their gross revenues.

We all know that Rhode Island's business environment is the state's core problem (to which other central problems contribute, of course). Even if we assume that the untrustworthy state government of Rhode Island follows through with step 2 and eliminates other taxes, rather than just keeping the additional revenue, the gross receipts tax would essentially shift the tax burden to businesses.

Perhaps there would be a modest bump in perceptions of the state, but it would be founded on a gimmicky trick: Two of the ways in which businesses would adjust to the new tax would be to pass it on to consumers and decrease the salaries that it pays. With the principle that state government revenue must remain flat, all these changes can do is to transfer the burden, and in this case, it appears likely to take less from wealthy families and more from everybody else — especially the working and middle class families who are already hollowing out our society by emigrating.

Why waste waning political equity on this? As I said, I may be missing something, but as it stands there's a taint of benefiting upper class Rhode Islanders as an a priori consideration in the name of economic development.

Binding Arbitration as Viewed by One of RI's Public Labor Unions

The following e-mail was distributed today to members of NEARI.

A message from NEARI President Larry Purtill:

URGENT!!!! The RI House Labor Committee will hear legislation on binding arbitration for teachers Wednesday, October 21, 2 PM at the State House, and the full General Assembly is scheduled to reconvene October 28-29.

After over two decades of lobbying for binding arbitration, our time has come. It is imperative that NEARI members call, email, or write their representatives and senators urging their support for binding arbitration. Our opponents have been contacting members of the legislature – now it is time they hear from us. Binding arbitration will provide a closure mechanism to the collective bargaining process that we have needed for a long time. We cannot allow another East Providence situation to occur in Rhode Island !

You can find contact information for your legislators here. Below are talking points to help you craft your message.

Continue reading "Binding Arbitration as Viewed by One of RI's Public Labor Unions"

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It Depends at What Period of Capital Flow One Looks

What an improvement is the reemergence of sincere argumentation on RI Future. I may find its new owner, Brian Hull, to be wrong about the implications of taxation, but I trust that he's attempting to express his opinion to persuade rather than to mislead. Thus, not only may exchanges be fruitful, but the actual assumptions of each side may be addressed:

... any reduction in an individual's state tax liability does not necessarily lead to investment. The tax savings could be saved, or spent on luxury items (which may or may not be purchased in the state). Lastly, and most importantly, if an investment does actually occur, that investment can occur anywhere in the country or in the world. Wealth flows after opportunities to make money off that wealth, regardless of where the opportunities arise. A potential investor will seek the highest return on his investment, and not necessarily care about investing in his community or state. This shouldn't come as any surprise to you, so I'm wondering why you're so glib in correlating tax cuts to economic growth. ...

Do you honestly think that a $6,000 tax cut going to an individual making over $419,000 a year will generate job growth in Rhode Island? Do you think all those wealthy Rhode Islanders who got their $6,000 tax cut will join together and invest their tax savings in creating new businesses in the state? I suppose it's possible, just like it's possible that I’ll be struck by lightning, or win the lottery (you can't win if you don’t play), but we both know your claim is specious and the cost to the state necessitated its elimination.

That Brian is addressing capital gains taxes, specifically, is helpful, because it clarifies that the activity being taxed is in one way or another an investment in the state. If one treats a tax cut as no different than a direct handout from the government, like those rebate checks most of us received under misguided Bush policy, as Brian apparently does, then, no, $6,000 to each person in the limited group of really rich people won't generate much economic activity. But especially in the case of capital gains, that $6,000 is not the investment that the state is seeking with its low-tax policies — the investment that generated the revenue that was taxed at a savings of $6,000 is.

Brian's mistake is to treat revenue to the state as if it is the only, or at least most important, measure for the Rhode Island community. As a 2008 Poverty Institute fact sheet arguing for the elimination of the capital gains tax cut illustrates (PDF), the tax "savings" to the wealthy investor (in this case claimed to be $4,974) comes from an actual capital gain of $193,113, which itself is only a portion of the investment.

Although Brian is correct that the tax savings may be spent on anything, anywhere, for the tax to be levied in the first place, the investment must have been associated with Rhode Island in some way, whether by benefiting an actual Rhode Islander or by representing an investment in our state by a resident of some other state or nation. A low capital gains tax gives a state's businesses an advantage in their ability to offer stock options as remuneration as well as to attract investment from elsewhere. It also creates incentive to make money by investing, which one is often begin doing close to home — as with local real estate or nearby companies.

Of course, such cuts and business ventures are operating in a hostile tax and regulatory environment, but in isolation, the effects of a given policy are relative, meaning that it's better to have a lower tax even if it won't be a trump card.

ADDENDUM:

Brian also presents a table purporting to illustrate that Rhode Island's tax burden isn't particularly heavy. His direct source isn't obvious, and I don't have the time, right now, to dig into the numbers for myself, but it appears to measure the actual dollar amount of different taxes — income, sales, property, corporate — as a percentage of actual personal income. The problem with this is that it lumps all Rhode Islanders together and doesn't really provide much useful information about tax policies effect on taxpayers.

The fact that Rhode Island's corporate income tax claims 0.4% of personal income (ranking us 26th highest in the country) could mean only that not a lot of Rhode Islanders operate businesses that make money. This possible interpretation is emphasized by the fact that New Hampshire ranks fourth, at 1.1%. Similarly, the fact that Rhode Island ranks 32nd in percent of personal income going to sales and gross receipts taxes could indicate that folks don't do as much shopping in our state.

Tax-friendly Places to Retire: You'll Never Guess Which State is Not So Friendly

Mary Beth Franklin of Kiplinger's Personal Finance has an article in today's Washington Post entitled "Tax-Friendly Places for Retirement".

Because tax treatment of different retirement income sources, as well as real property, varies widely by state, the fifty states were not ranked best to worst. For those contemplating a move upon retirement, Kiplingers has this handy-dandy map of the US, which not only enumerates the positives and negatives of each state in various retirement-related tax categories - pension taxes, taxes on Social Security benefits, sales tax, property tax, income tax - but includes lists of the best and worst five states in these categories.

If you'd like to start your search for a retirement destination by at least determining which states to steer away from, look for the ones that are bad in several such categories. This is where we find Little Rhody.

Three states are particularly tough on retirees. Not only do they fully tax most pensions and other retirement income, they also have high top tax brackets: California (9.55 percent on income less than $1 million), Rhode Island (9.9 percent) and Vermont (9.5 percent). Connecticut and Nebraska also fully tax retirement income.

Additionally, we are one of the top five worst states for property taxes and we are one of around fifteen states which assess an estate tax.

But we're all working stiffs. Why should we care how the state treats retirees tax-wise?

First and most selfishly, a couple of those taxes - property and income - apply to us as well.

Secondly ... okay, this one is pretty selfish, too - for the same reason we need to care about our corporate taxes and, more generally, the business climate: more taxpayers in the state means a broader tax base so that everyone pays less in taxes.

Finally, a note with regard to Kiplinger's citation of Rhode Island's top income tax bracket as 9.9%: their data may be slightly outdated as the Gov and the General Assembly have been slowly ratcheting back that rate. This only highlights the urgency, however, of undertaking the difficult but necessary task of making all of our tax rates at least middle of the road - so that Rhode Island no longer actively repulses taxpayers of all varieties by cropping up on the wrong end of lists such as this.

How Regressive is Rhode Island's Current Property Tax Structure, Revisitied

Pawtucket Mayor James Doyle's op-ed from Tuesday's Projo provides a good occasion for revisiting the topic of the supposed regressiveness of Rhode Island's property tax structure. Mayor Doyle would like to see more state aid and less "reliance" on the property tax for funding education in Rhode Island…

The state has also shunned its responsibility to properly fund education. Rhode Island is the only state without a fair and predictable education formula, and ranks among the nation’s highest for relying on local property taxes to pay for education.

The table displayed below is an updated version of the table presented originally in July, where the amount of property tax that Rhode Island cities and towns collect from their residents as a percentage of income was estimated. In response to the original result, commenter "John" pointed out that Rhode Island' classifies apartment buildings as "commercial" properties, meaning they are not included in the "residential" levy figures and therefore that official "residential" levy figures do not include the total amount of property tax collected from a municipality's residents. For some communities, the additional amount can be significant.

To correct for this concern, I used 2007 municipality-by-municipality valuation data provided by the Rhode Island Office of Municipal Affairs, which includes the total valuation in each property classification category used by the state of Rhode Island; by multiplying the valuations in the "apartment" and "combination" (i.e. mixed residential and commercial) categories by a municipality's commercial tax rate, and adding the result to the official residential levies, better estimates of the total amount of property tax levied on residents by municipal governments can be obtained.

The inclusion of the "apartment" and "combination" categories in a "residential" levy does pull a number of communities near the bottom of the original list towards the middle...

So, unless Mayor Doyle would, for example, advocate cutting his own city's already low-as-a-percentage-of-community-income property tax in response to receiving additional state aid, i.e. use the additional aid to replace revenue instead of to improve education, how can his call to "reduce reliance" on the property tax lead to anything other than a system where state taxes are raised without local property taxes being cut?

The date for the calculation of the apartment/combined use levy is below the fold.

A Burning Ring of Revenue Fire

One thing to remember: Every time you read about state tax revenue lagging expectations, the expectations have likely already been downgraded since the last time analysts were disappointed:

Two reports issued Tuesday afternoon by the state Revenue Analysis Office showed total state revenue in July and August was down 4.2 percent from the same two months last year, after adjusting for money collected in one year that is accounted for in the previous year.

Besides trailing last year, the revenues for July and August also trailed what state budgeters projected would come in. The shortfall is $12.8 million or 3.3 percent.

I don't know if we can afford to wait until the next election to replace the legislators who've brought us to this impasse. Here's a fantastic, small-scale example of the incompetence at work:

The cigarette tax collection is trickier to figure out.

The amount of money taken in during July and August is ahead of last year, $23.5 million compared with $20.5 million. But that is far less than what lawmakers budgeted: $26.3 million.

They looked for the increase because the state raised the cigarette tax by a dollar — to $3.46 a pack — in April, toward the end of the last budget year.

Simmons said that budget makers may have underestimated how much the tax hike would decrease consumption of cigarettes that are taxed in Rhode Island.

So, the legislators increased this tax 40% in the hopes of increasing revenue 28%, and thus far they've realized 15%. During the summer, when smoking tourists are trapped and aren't likely to waste their valuable vacation time searching for deals across the border (or quit altogether).

The governor's staff proposed this particular tax hike, and one hopes they're duly embarrassed. Ultimately, however, the budget was reconfigured in the General Assembly's name.

Whoever's to blame, anybody looking for an economic turnaround in Rhode Island shouldn't put their chips on the table until well after just about every other state in America has already been humming along for quite some time.

Ocean State Policy Research Institute Hosts Grover Norquist

Ocean State Policy Research Institue was good enough to invite me to its fundraising event at the Providence Marriott featuring famed tax hawk Grover Norquist. Some of Norquist's speech was familiar from his last appearance in Rhode Island, but considering all that has happened — with the election, tea parties, legislative assaults, healthcare — there were many new topics to address. And Grover gives an entertaining, informative speech.

Video in the extended entry.

Setting Up Continuing Deficits

Don't let this tidbit slip past our awareness:

Emerging from a tough competition, four Rhode Island police forces have won money from the federal economic stimulus program to hire police officers, the White House has announced.

The largest single sum, $3,529,812, goes to Providence, to hire 13 officers. The other beneficiaries are Pawtucket, to hire or retain 8 officers; Woonsocket, 4; Central Falls, 2; and the Narragansett Indian Tribe, 1. ...

The award covers the cost of hiring officers at entry-level pay and benefits for three years. But there is a "catch," as some critics of the stimulus program call it. When the aid dries up at the end of the period, the employer is required to keep the new personnel on the payroll at local expense for at least another year.

We can expect that the "stimulus" regime is full of such ramps into an uncertain future — with the government borrowing money from the future in order to obligate itself to maintain expenditures that it may or may not be able to afford a few years down the road. It's government by economic fantasy, with elected representatives and bureaucrats proving that college students aren't alone in unwise reliance on debt.

The Thing About Taxation

Oswald Krell is at it, again — proving, this time, that beating a strawman for long enough begins to resemble a pillow fight against one's self:

Low tax states are more violent, have higher rates of teen pregnancy, somewhat higher poverty rates, and lower median incomes.

Do low taxes cause these problems? No. Correlation is not causation.

Rather, to me, what is emerging is the description of an attitude. Low-tax proponents favor "Stand on your own" rhetoric, which is really a coded term for letting the rich shirk their civic obligations. The result is that the bulk of the population is noticibly worse off in low-tax states: more violence, more teen pregnancy, more poverty, lower incomes.

Now, explain to me: why this is an attractive paradigm?

I repeat: The argument for taxes in Rhode Island isn't that low rates are the decisive factor in a given region's economy, and adding social data doesn't change the fact that people and businesses do take the cost of government into consideration.when they plot their financial lives. The question that Rhode Island's progressives are so studiously striving to ignore is that taxation must be judged based on a given state's circumstances, and Rhode Island is overburdened with them, as with other manifestations of big government like mandates and regulations. "We will let you operate your business as you see fit and to keep more of what you earn" need not be innuendo for gun violence and teen pregnancy.

Lower taxes and lightened regulations would encourage economic activity and improve the earning potential of all residents, which I'm reasonably certain would correlate positively with improved social markers in the state, as well. (Krell doesn't provide his sources, so I'll simply offer the hypothesis that Rhode Island fares poorly, by such measures, compared with similar states.)

That's a suggestion that RIFuture-owner Brian Hull should consider, as well:

The recession effect is having a profound impact on the state's economy, but the long-term financing of the state would be better served if the General Assembly would make the "tough choices" and restructure the tax code, shifting the burden away from the vast majority of Rhode Islanders who have seen their incomes shrink and are struggling to make ends meet.

For perspective, don't lose sight of the fact that, in the name of improving the economy, Hull wants both to raise taxes and to shift them toward a particular group. Apart from being manifestly unjust, such a strategy would be economically devastating. What, pray tell, would Hull like to change about this picture:

Me, I'd like to see less red across the board.

A Warm Anchor Rising Critique Welcome to Brian Hull

We'd like to welcome, of course, Brian Hull to the RI blogscene in his new role as proprietor of RIFuture. I, for one, am hopeful for a return to the collegiality of the Matt Jerzyk years and am determined not to be the cause should that prove unworkable.

That said, what better method of offering a cyber handshake and slap on the back could there be than highlighting our fundamental differences? And they must be fundamental, because this argument seems flatly erroneous to me:

There is a real big problem with the [state government] shutdown days, over and above the forced pay cut of 4.6% that the employees will have to absorb. We already have a weak economy, and to essentially take another $17.3 million out of it won't make things any better. Consumer spending makes up the bulk of GDP, nationally and in the state. Add the multiplier effect and every dollar spent generates a dollar plus in economic activity. By stripping out $17.3 million from the local economy of Rhode Island, we're going to depress the economy by much more than $17.3 million. This is not a good thing.

Yet:

We're in a recession, and while the recession might be getting better, there is no indication that employment will bounce back anytime soon. This will mean a suppressed economic situation in RI potentially for years to come. The unfortunate reality is that we need to raise revenues. And that means higher taxes.

We could certainly dip into the argument over whether state workers or taxpayers would use money in a more economically productive fashion. Even if we ignore the fact that it costs the government money to collect taxes, but nothing not to collect them, and even if we accept that new taxes would skew toward the higher end of the economic spectrum (which I assume would be Brian's preference), I'd argue that the business owners and wealthy residents thus implicated would be apt to spend additional money in a way that maximizes the multiplier effect.

The more direct point, though, is that Brian's appeal to the need to leave money in the economy ought to suggest a different form of government cut than to the labor force. Instead, he merely argues for redistribution.

He doesn't even advocate for easing restrictions, regulations, and mandates on businesses and productive individuals as a way of increasing economic activity and, thus, government revenue. One gets the impression, from his post, that "taxpayer dollars" exist in some sort of pool outside of the economy that folks won't "be happy about paying" to the government, but that they otherwise won't use.

Stimulus Jobs: Finagling the Definition of "Retained"

In a scene presumably also unfolding in other municipalities, the Woonsocket Education Department has applied for $2.4m of federal stimulus dollars so as to retain forty positions in the school system; more specifically, to prevent the closing of the [correction provided by MikeinRI] Davies technical school Woonsocket Area Career and Technical Center.

The goal of stimulus spending was stretched from the get-go with the clever addition of the qualifier "saved", as in "3.5 million jobs created or saved". I understand and sympathize that Woonsocket has serious budget problems. At the same time, isn't it now stretching the goal of stimulus dollars beyond recognition to utilize them to address budget issues on the local level, especially in view of the state's upside down teacher pay to student achievement ratio?

Woonsocket school officials would contend - in fact, do so in the application - that they are applying for these funds in part to address academic shortcomings identified in the district. But is this not a matter that would have been more appropriately and effectively addressed during the course of contract negotiations over the course of the last fifteen years?

Now, if we multiply Woonsocket's request to spend stimulus dollars for this reason by school districts around Rhode Island and the United States, we are faced with the questions of utility, efficacy and possibly even honesty. Does the expenditure of stimulus funds - which are, we should remind ourselves, not free money but tax dollars - on public sector contracts of questionable feasibility truly benefit the economy?

The Toll Plan Continues Apace

This progression was in plain view when Rhode Island began sidling toward transponder-based tolls:

The authority has also begun planning what could lead to reinstituting tolls on the Mount Hope Bridge, which is now free, and eventually impose tolls on the new Sakonnet River Bridge, which is under construction. The authority has commissioned a study that Chairman David A. Darlington said will look at tolls on all three bridges and various combinations of the three.

The board said it expects to raise tolls regularly, perhaps every three years, depending on its repair and maintenance expenses. The increases would be based on the Consumer Price Index, on an index of construction costs, or other inflation indicators.

With each new toll booth, more Rhode Islanders will bite the bullet and include a toll-paying device as another cost of daily life. With each new transponder, and with each Rhode Islander thus moved one step further from actually handing a piece of currency over for the ability to use a particular piece of public infrastructure, each new toll will be easier to implement and each increase politically easier to accomplish. (And let's not forget that residents' movement will become that much easier to track.)

In my view, this is nothing other than an incremental duplication of taxes that we already pay.

The State's Spending Practices

Former state representative Carol Mumford deserves a hear, hear for her op-ed in yesterday's Providence Journal:

Those who believe that Rhode Island is a poor state would be surprised to know that during most of my 10 years in office, the state's revenue increased at the approximate rate of 3.5 percent a year. While our revenue increased at this modest but steady rate, our expenditures increased approximately 7 percent to 11 percent a year. That says it all, doesn't it? No matter what the income, those people or entities that live beyond their means find themselves in the situation Rhode Island faces today. ...

On another note, those who believe our state population figures are static at about one million should look closely at the composition change. The Rhode Island Economic Development Corporation testified before House Finance that in the last decade those who are considered affluent in Massachusetts have doubled in number. The number of people who are considered affluent in Rhode Island has decreased by 50 percent. The affluent did not lose their assets; they fled. An examination of the latest "Kids Count" figures shows that the number of poor children in Rhode Island has mushroomed. The population numbers remain static, but many who used to pay the bills are elsewhere.

But how can that be? An opposition analyst assures us rich taxpayer interests have won battle after battle at the State House, and welfare benefits are difficult to procure.

Taxes, Wealth, and Recovery

With the reminder that Rhode Island is at the top of the list when it comes to stimulus spending per capita, I thought of a table that I'd seen predicting the years during which each state's economy would recover to pre-recession employment levels. Curious what it would look like, I added the recovery information to the table that I used while assessing whether there might be a correlation between tax burden and the proportion of wealthy residents.

The result is below. The colors still correspond with tax burden (red being the highest), and the middle column still ranks states according to the number of IRS tax returns showing income over $200,000 (highest at the top). The patterns in the new column are meant to group the states by the year in which they'll recover, with those at the top matching previous employment levels by 2011 and those at the bottom doing the same some time after 2015.

Nothing decisive, but interesting.

Self-Reflective Disproof on the Left

As fun as it may be to roll rhetorical balls down the lane and topple simple propaganda and otherwise erroneous talking points on the Rhode Island left, the state would profit from a more credulous and balanced discourse. Plainly put, Oswald Krell's supposed proof that "there is no negative correlation" between "high taxes and percentage of high-end earners" is incorrect on every level of analysis.

On the first level, Krell is wrong about the argument that he's professing to disprove. Inasmuch as he cites me specifically, I can attest his error without qualification. The argument is not that taxes are the end-all-be-all of people's decisions about where to live. Krell and friends wish to attack a simplistic strawman because the actual observations of the other side (our side) are unarguable. The argument is that taxes are a factor, and changing them amidst the other factors that people are already considering will have a predictable outcome. If all else remains constant, raising taxes within a state will decrease the population that pays those taxes. Consider an automobile: increasing or decreasing the amount of gas that flows through the engine will affect its speed, even though the results will vary based on other factors, such as the vehicle's prior speed, the size and type of the engine, the weight of the car, and the terrain that it's currently traversing.

On the second level, Krell is wrong about the necessary disproof even of his strawman. He ranks the states according to their tax burden and then according to the percentage of tax returns showing income above $200,000. He takes as the hypothesis for disproof that the lowest taxes would instantly equate to the highest percentage of rich residents, but failure to obtain those results hardly disproves correlation. To even get close to so dramatic a demand, he'd have to be much more specific in his rankings. The question wouldn't be tax burden, but tax burden on those making over $200,000 per year; if a state taxes those households less, but the majority of its citizens, whose income is much lower, more, then its tax burden could be high while its wealthy remain in place. (I've long been arguing that this has been happening in Rhode Island, although the tragic solution of the General Assembly and, even more, the state's progressives is to increase taxes on the wealthy rather than lower taxes on the majority.)

Even more egregious, though, is that Krell takes the extremes of tax burden (the ten highest and the ten lowest), ranks them with respect to rich folks in isolation from the other thirty states, and then raises his arms with a giant "See!" that there's no correlation. To the contrary, by this foolish methodology, if there's any intermixing of the states at all, there is correlation. It appears that the only outcome that Krell would accept as evidence of his opposition's position is if the tax burden ranking and the rich percentage ranking were perfectly inverted. But there are degrees; it's only a question of the strength of the correlation.

Which brings us to the third level, on which Krell's assessment of his own data is just wrong. At least in his first attempt at this analysis, he made some attempt to keep all categories limited to quintiles. Simply putting the top and bottom quintiles of states from one ranking in their relative order for another ranking is useless. Consider the table at left, for which I ranked all 50 states using Krell's sources. (Although, I had different results with three states; given that all the rest are the same and my double-checking of the data for those states, I suspect he miskeyed a couple of numbers on his spreadsheet.) The left column is the ranking by tax burden, with highest at the top; the right column is the ranking by percentage of $200,000 tax returns, again with the highest at the top.

Clearly — and as nobody is denying — wealthy people find the states between Washington, DC, and Boston to be desirable places to live. It makes sense that the state governments whose territory is desirable for reasons that don't relate directly to taxation (geography, resources, proximity to industrial and financial centers, etc.) can get away with higher taxes. The tax burden becomes a premium that residents are willing to pay. The question that the people of each state must answer for themselves is whether their level of taxation exceeds the theoretical premium that productive people are willing to bear given other attractions of the locality. In Rhode Island's case, high taxes, combined with poor public services and crumbling infrastructure, constitute a severe restraint on the economy and, therefore, our well-being.

Returning to the table, though, a few interesting observations work very well with the broad theory that I've been proposing. The Northeast and California (which amounts, essentially, to our entire region on the West Coast) hold up pretty well in the wealthy column, but high-tax states outside of our region drop precipitously. It fits the general hypothesis to suggest that taxation matters more in the mass of states that have less to distinguish themselves from each other, which describes (e.g.) Ohio and Wisconsin.

The states with no shading, which make up the middle quintile on the tax burden side, distribute with remarkable evenness across the the rich ranking. The orange states appear to have tax burdens well out of proportion to their attractiveness, and they fall away into the bottom three quintiles.. The green states, by contrast, appear to benefit significantly from their low tax burdens, and the light-blue states more or less stand in place while the green states surpass them in percentage of wealthy residents, with three rocketing up the chart.

As I always disclaim, making grand assertions from this data would require much more extensive research and analysis. But for the purposes of online discussion of local policies, it makes for another interesting consideration among the mound of evidence concerning the direction in which Rhode Island should head. And for the purposes of disproving Oswald Krell's disproof, I'd say that it's decisive.

The Other Side's Frightening Arbitration Numbers and Blindspot on Taxing the Rich

Oh happy day! Patrick Crowley has endeavored to bend numbers to his purpose, once again, and as usual, he seems incognizant of the degree to which his data actually illustrates the problem that he hopes to dismiss as a paranoid fantasy. The fact that he doesn't provide his source simplifies matters, because we needn't be distracted by the complexities that municipal negotiations can entail.

So we note, from his Figure 3, that the ratio of arbitrated contracts to negotiated contracts during the decade beginning in 1995 is typically somewhere around 6 arbitrated to 50 negotiated. Clearly, in Connecticut (which appears to be the data pool), arbitration is the final resort for the hardest cases, where the town and the union each put up the greatest fight.

In that light, turning to Figure 1, it's stunning how well unions do in arbitration. On average, arbitrators awarded 95% of the salary increases that negotiations procured during a given year. That includes two years during which the raises granted in arbitrated contracts were 33% and 10% higher than those in negotiated contracts. If we leave those two years out, we find only a 13% penalty in arbitration (e.g., a 3.06% raise instead of a 3.48% raise); again, that percentage describes the raises that the contracts granted, and none of the cited contracts called for flat or negative salary growth (and probably doesn't account for step increases and longevity). It's also worth considering the possibility that the perks, compensation, and rights that the arbitrators gave to the unions with the other hand far exceeded the salary "compromise" in value.

On a different topic (while I'm absorbing the appearance of actual numbers on RIFuture), one of my biggest fans, Oswald Krell, declares that "the level of taxation is completely irrelevant to where rich people live." Huh. (Clarification, here.)

The necessary disclaimer is that my argument about taxpayer flight has focused on the working and middle classes. That said, here's the list that strikes Krell as nakedly random; the states are listed according to the percentage of population with income over $200,000 (highest percentage on top), and the number following the state's name is the Tax Foundation's ranking for tax burden (#1 being the heaviest burden and #50 being the lightest):

1. Connecticut: #8
2. New Jersey: #10
3. Massachusetts: #28
4. New York: #3
5. Texas: #43
6. Wyoming: #42
7. Delaware: #47
8. Rhode Island: #4
9. Alaska: #50
10. New Hampshire: #49

Personally, I'd be reluctant to make grand claims based on such rankings, because the factors that come into play are endlessly complex — especially when one is generalizing about the intersection of multiple criteria. But is there really nothing observable about these top 10 rich-folk states? Nothing that distinguishes those with high tax burdens from those with low tax burdens?

The high-tax-burden states are all coastal abutters of New York City. Massachusetts is right there, as well, and has the added benefit of a lower tax burden (or had that benefit). They're also pretty small, so the geographic variation isn't as pronounced as in, say, California. The five low-tax-burden states are literally scattered across the country.

If the project is to see whether there are observations to be gleaned from the combination of these two rankings, it would be eminently reasonable to hypothesize that rich people like to live near New York City and in states with low tax burdens. Obviously, a multitude of factors come into play, but it takes a nigh upon willful blindness to proclaim the complete irrelevance of taxation.

Pushing It as Only Rhode Island Can

The latest news on the business sales tax front — which isn't online, because Projo.com is still down — is that Liberty Elm diner has come up with the $5,000 needed to prevent closure, while the Carcieri administration will begin notifying local police about which businesses to keep closed sometime next week. As I suggested yesterday, discussion of this matter must begin with the acknowledgment that businesses collected the sales tax money and then, apparently, spent it. That said, this is more than a bit heavy-handed:

For the Liberty Elm, the reprieve will be short. The diner must pay another $5,000 by the end of August before the state will allow it to establish a monthly payment plan.

Granted that the state has a right to that money, but the impression begins to be of an extortionist with his thumb on a "client," especially in light of anecdotes such as the following email that I received this morning:

One of your points need a little clarification: "businesses find it necessary to help themselves to free loans from the state." Its worth pointing out that the state charges a hefty 18 percent interest rate and late fee on delinquent payments. Hardly giving them an advantage over other businesses that pay on time. In fact the debt that piles up on late payments is in many ways more holes in a leaky boat. I was in the same situation with my business in November. (You have to be paid in full by December for license renewal and again by July for your sales tax permit.) Business started to fall off. I went through my savings and then maxed out my credit cards to try and keep things going. I managed to come up with the tax money that was owed but was short on the interest and penalty. The business was employing people, making money, and I would have been able to have everything paid in about 3 months. The state refused a payment plan. I was looking at being unemployed, broke, and seeing a business that I gave 11 years to go away. I had to bring them to court and get a court order for a payment plan. Got that news 3 days before the deadline. So I one-hundred-percent agree with you that the state should make payment plans with these businesses. In an ideal world maybe even lower the interest rates.

The way the system works now, a business that employs people, pays vendors, and does not leech off the welfare system could be closed for hitting a rough patch. But I can't complain; after all, the state pays all their bills exactly when they are due.

It certainly fits the image of this state to squeeze those who are trying to be productive while coddling those who demand handouts.

RI Government Not Alone (for what it's worth...)

From Reason:

Unlike the federal government, states can't simply run deficits indefinitely. For that reason, they have a powerful duty to pile up surpluses during fat years, which would allow them to make up the revenue that goes missing during lean years. But for many lawmakers, the future extends only to the next election. So any money they have, they feel an insatiable need to lavish on someone.

Politicians are happy to blame the recession for depriving citizens of programs they have come to expect. The recession didn't create the gap between state government commitments and state government resources. It only exposed it.

In state after state, the government's take has ballooned. Overall, the average person's state tax burden has risen by 42 percent since 1999—nearly 50 percent beyond what the state would have needed just to keep spending constant, with allowances for inflation.

Even low-tax states like Texas and Nevada have followed the same course. No one has been inclined to say, "Taxpayers don't need to send us more money. We've got plenty."

All that growth should have been enough to pay for essential programs and furnish ample reserves, allowing state governments to weather a downturn without major adjustments. But the states put a priority on burning through all the cash they could get. Last year, they spent about 77 percent more than they did 10 years before.

There's an Obvious Solution to the Sales Tax Problem, You Know

Today, we get the advocacy profile — a standard newspaper fare by which readers are made unequivocally aware of the "objective" reporter's opinion:

Inside the Liberty Elm Diner Thursday, the lemonade was cold and the bacon was hot.

But the mood hung heavy with a sense of foreboding.

Customers who devoured BLTs and pancakes wondered if that would be their last meal at the diner car that’s become a local favorite.

A day earlier, the Elmwood restaurant was one of 1,200 businesses statewide that received notice that it must close up shop unless it pays its overdue sales taxes immediately.

The timing was especially painful, coming just hours after television crews from The Food Network had visited the cozy diner for a segment on its hit show Diners, Drive-Ins and Dives, which promises to give the eatery national exposure.

Owner Carol DeFeciani is forthright about her predicament. She owes thousands — $25,000 to be exact — and that the police could shut her down at any moment. But like so many small business owners, she’s not sure how her debts mounted.

Gary Sasse again makes a surprise appearance as The Villain:

Department of Revenue Director Gary Sasse said it is important to distinguish sales tax payments from other kinds of taxes. If a business is up and running, it is presumably collecting sales taxes on behalf of the state, which should be set aside and passed along to the Division of Taxation. So long as that process is carefully followed, businesses shouldn’t fall behind as they might in other areas.

In an era of hundreds of billions of dollars of stimulus giveaways, it seems to me that the state could come up with some way to give these small businesses a chance to keep running despite tax lapses. At the very least, the bureaucrats could give the owners a reprieve until a few weeks after the General Assembly reconvenes.

The reason for that schedule is the operative datum from the article to which Marc linked yesterday:

[Tax Administrator David] Sullivan said the number of business owners in this category is up this year, though not significantly despite the recession.

In other words, this isn't a special circumstance due to the economy. (Although a disclaimer ought to be made that Rhode Island was already into the recession last year, so it would be helpful to know the data going back a few years.) Every year, this number of businesses finds it necessary to help themselves to free loans from the state by using money that they have collected in the state's name for something else. We can argue adjustments and exceptions, but that's the bottom line.

And as such it points us right back to the drumbeat epiphany that Rhode Island is not an easy place to do business. Cynthia Needham might have added to her advocacy article about the little diner that couldn't, for example, that the General Assembly added another 1% to the sales tax for businesses that sell meals and beverages back in 2003. As I recall, that was yet another gimmick whereby the state made it appear to be keeping up its promises (in this case, to municipalities) while actually taking the pound of flesh from somebody else.

It's illogical to push for constant growth of government and the consequent increases in taxation and then to treat the difficulties of hardworking entrepreneurs as another circumstance in which parties need a helping hand from the government (e.g., flexible payment plans for back taxes). These are the fruits of your political philosophy, Rhode Island. Live with them, or change your policies.

Rhody Going After "the Little Guy"

This ProJo story about RI government going after small businesses for uncollected sales tax caught the attention of the Drudge Report. Great. Li'l Rhody comes shining thru again.....

State tax officials have put more than 1,200 businesses across the state on notice this week that they are out of business unless they pay their overdue sales taxes immediately.

For most, that action came in the form of a personal visit from the state Division of Taxation, ordering business owners to lock their doors at once.

By Wednesday, a line of people had queued up inside the Department of Administration building on Smith Hill, waiting their turn to plead their case to a state revenue agent. Some were angry. Others frustrated.

“I understand the state needs money, but to put pressure on the small guy or the moderate guy that’s struggling, it’s not going to do any good,” said Mike Suriani, who owns an electrical supply company in South Providence.

In Suriani’s case, it may have been a bookkeeping error that landed him in the three-hour line. Suriani says he paid his taxes in full — albeit a little late –– and had copies of the cancelled checks from the state showing he had indeed turned over the sales taxes he collected.

But that didn’t keep taxation officials from appearing at his door Tuesday demanding that he close up shop.

“Yes, the rules state that we have a responsibility to pay our bills every quarter. But when your customers come in and they don’t pay you for a month, and then another month, and another month, businesses have no choice [in] the eyes of the state but to close up and get out,” Suriani said.

However, you have to think that some of these small businesses collected sales tax on behalf of the state and they actually haven't passed that back as required. Like it or not--and I don't--government dictates that business has to do the tax collecting (sales and income) for them. Easy enough to think it stinks and make comments about how RI stinks (presumably along with the other states who collect sales tax?). But it'll take major political change to alter the current tax system (like making people pay income taxes on their own).

So maybe this can be an opportunity to make a change. A tax revolt? Perhaps. More likely, it could be a key issue for electing reform-minded politicians in 2010. We'll see. But if nothing is done, then all we'll have is a little righteous indignation and the status quo.

Funding Formula Fallacies, or How Regressive is Rhode Island's Current Property Tax Structure?

Providence City Councilman Terrence Hassett, quoted in a Philip Marcelo Projo article from a week ago Sunday, explained the purpose of an education "funding formula" more directly than most…

“There is an ocean of money available for some communities that is not there for poorer urban communities,” says Providence City Councilman Terrence M. Hassett, a Smith Hill Democrat.

Of course, it’s not just about Providence. The Projo’s almost-always excellent Julia Steiny, who alas has gone over to the darkside on the issue of the “funding formula”, was a little more precise this past Sunday, explaining its purpose as transferring money away from "property-rich" districts…

One big problem with [current funding formula proposals] is that they commit the state to pay 25 percent of every district’s funding, at a minimum. Whoa. This effectively means shifting money from the low-income districts, which get more state help, to the property-rich ones, that currently get as little as 3, 4, 6 percent from the state. This is certainly not in the spirit of equity for the low-income kids. So strip out this and any other provision blocking the way to an equitable target formula.

For every Rhode Island school district of 20,000 residents or more, a 2007 estimate of community income is available from the United States Census Bureau's American Community Survey. The Rhode Island Department of Administration’s Municipal Affairs Office compiles data on residential tax-levies collected by each city and town in the state (presented in an earlier post here). Combining these sources, residential tax-levies as a percentage of community income for the year 2007 can be calculated, for RI school districts with 20,000 or more people…

The supposed "regressiveness" of the property tax doesn't appear in the community-level data. Rhode Island's lower-income communities, the communities that are taxed-to-the-max according to the conventional wisdom, actually pay some of the smallest percentages of income in residential property taxes. (And these figures don't include the separate fire-district levies that are present in some communities).

Woonsocket and Pawtucket, in particular, combine large per-pupil state education aid totals with small residential tax levies into the smallest amount of per-pupil spending in Rhode Island, suggesting that they have been using state education aid money not as a supplements to local revenue sources for building stronger education systems, but as replacements for local revenue. For example, if Woonsocket’s residential tax-levy per dollar of community income was at the level of Pawtucket's, i.e. second lowest on the list above, instead of the lowest, about $5.5 million additional dollars each year would be available to the Woonsocket school system.

Now, communities have every right to make decisions about the taxing and spending levels they would like to set. What they don’t have is a right to raise taxes on the rest of the state to pay for the choices they've made, when their fiscal policies hit a wall.

To truly make education work, Rhode Island needs a "funding formula" that guarantees that money intended for education actually goes to improving education and not to clutching and grabbing politicians who may be more interested in replacing revenue over improving the quality of services. Instead of shifting money between district-level bureaucracies, where it likely to vanish into Rhode Island's arcane budgeting processes, a “funding formula” should be based on the idea of money following the student to the school chosen by the student and his or her family, through open districting, charters, and/or vouchers, so there's a greater likelihood of it being applied towards its intended purpose of improving education.

And Rhode Island cannot afford – in a very literal sense -- to give its elected leaders any excuse through a "funding formula" to say: sorry, high-taxes are written into law whether the revenue is used to improve student performance or not, and there's nothing we can do about it.

Commenter "John" raises an important point regarding Rhode Island's tax classification system…

Urban communities have a significantly higher number of apartment developments (both rent subsidized and not) that are privately owned, yet classified and taxed as "commercial" property. The folks who live in these apartments are having their income counted in your analysis, but the levy on their "residence" isn't being counted.

The disproportionate amount of such residential high density living creates an appearance of low taxation where it may not truly exist.

Adding to the problem in doing such an analysis, the various special laws regarding classification may have the break for classification as residential or commercial at different points. Generally, state law forces classification of every building with six or more apartments as commercial property. In Woonsocket, that threshold is for ten units or more…

John raises a second important point…

Please let's continue the discussion.

A More Direct Route to Welfare

Here's an eye-popper:

Josefina Lorenzi, 47, who has been imprisoned since her Dec. 11 arrest last year, was sentenced by Judge William E. Smith in U.S. District Court, according to acting U.S. Attorney Luis M. Matos.

Lorenzi pleaded guilty in connection with the scheme that used other names but her home address [to file false tax returns]. Lorenzi must surrender for deportation while on supervised release. She is an illegal immigrant, according to Thomas Connell, spokesman for the U.S. Attorney’s office in Rhode Island. ...

Using a search warrant, agents said they found eight more refund checks totaling $22,526, payable to other people at Lorenzi’s Indiana Avenue home. Agents later found 27 more false returns.

The additional refund requests and prepared checks found in her home and the total money fraudulently sought came to $150,360.

The article doesn't explain whose names Lorenzi used (and a quick online search reveals no further information), but one thing that's obvious is that her scheme wouldn't even have been a possibility were the income tax a simple flat rate without the intricacies of prior withholding. Or, in this case, if the government expended a little bit of effort ensuring that the people with whom it deals are actually citizens.

An Objection to the Notion of "Lost Revenue"

An endorsement of the "Amazon tax" by the left-wing Center on Budget and Policy Priorities has brought the topic back into the news, and while it's predictable that such a group prioritizes expansion of revenue uber alles, it's disappointing to see the same principle so thoroughly permeating our government:

[Rep. Steven] Costantino [D-Providence] has said that the law is intended to help level the playing field for local retailers who collect the tax and are at a competitive disadvantage with online retailers who do not.

Gary S. Sasse, director of the state Department of Revenue, said that how state sales tax applies to online purchases has "become an issue that all of the states need to face."

It could be resolved by Congress, but "unfortunately, Congress has punted" on the issue, he said.

"Short of Congress exercising the necessary leadership on this issue, you'll have states responding to this issue . . . [by passing] this type of legislation," Sasse said in an interview at his office on Friday.

Frankly, I find the "competitive disadvantage" argument to be a ruse. Anecdotal evidence suggests that the lack of sales tax essentially adjusts for shipping costs in consumers' minds or, in the event of free shipping, for the delayed gratification. Given their differing model, some online retailers do have lower prices for particular items, but those differences are independent of taxes and shipping.

The larger point is the distasteful practice of government's chasing revenue wherever it may exist. A market has developed for untaxed online goods, and reformulating the law in order to siphon some money to state governments that have driven their polities into the ground becomes a matter of Congressional "leadership"?

Congress should leave the law as it is. If other states follow Rhode Island's lead and attempt to tax all online sales based on the existence of affiliate programs (that offer fees for referrals and the like), I suspect online retailers will continue to end the programs, rather than give up their counterbalance to shipping costs. In the meantime, state-level officials should concentrate on proving their competence at doing something other than grabbing dollars from the private sector.

Rhode Island Diverting 911 Fees into the Operating Budget

The Associated Press is reporting that Rhode Island is one of several states that's been using money from fees on cell-phones, nominally intended to support 911 service, to plug holes in its yearly operating budget...

Oregon, Arizona, Delaware, Hawaii, Wisconsin and Tennessee are among the states that have dipped into their 911 money recently. New York and Rhode Island have been diverting their funds for at least five years. States started collecting the funds in the 1990s.

In the fiscal year that ended in June 2008, Rhode Island collected $19.4 million in 911 fees and used $5.8 million for 911. The rest went to the state's general fund.

Who Woulda Thought It: Defined-Benefit Pensions Don't Do Well in a Market Crash!

Given the numbers reported in this Los Angeles Times story from today…

California's two huge government pension funds reported whopping annual losses today of about one-quarter of their portfolios.

The California Public Employees' Retirement System, the largest in the nation, today posted a preliminary drop of $56.2 billion for the fiscal year ended June 30. The second-ranked fund, the State Teachers' Retirement System, reported a preliminary loss of $43.4 billion.

Question for Our Congressional Delegation: What is the Revenue Source for All of this Spending?

On Thursday, our delegation unanimously applauded the legislative progress being made on the nationalization ...er, the reform of our healthcare system.

In the last eight months, two Congresses and two Presidents have spent the following sums.

TARP (bank bailout): $700 billion pledged; $200 billion distributed of which $66 billion has been repaid.

Bailout of AIG: $182 billion

Bailout of Fannie and Freddie: $290 billion

The mortgage bailouts: billions spent or pledged

Bailout of auto companies: $83 billion & rising

The 2010 budget: $3.6 t-trillion

The general stimulus package: $789 billion

(Quick question on this one: as most of the money has not been spent, can we just return it to the Treasury? I'm reluctant to suggest returning it to the taxpayers as someone might injure himself laughing. Back in the Treasury to fund more legitimate programs would be fine. Thanks.)

To a greater or lesser degree, all of these spending programs have been of questionable value and/or questionable as to the efficacy of their ostensible purpose. Each is either indefensibly riddled with pork or conceptually comprised of pure pork.

Honorable Solons representing Rhode Island. To this already incomprehensible level of spending, you propose to add one hundred billion dollars annually for health care "reform" that fails to reduce health care costs as originally advertised as well as an unknown amount on a carbon cap and trade program whose sole effects will be the further depletion of American wallets and the driving away of ever more manufacturing companies. (Sidebar: can we perhaps learn from the experience of others and decline to implement this highly questionable scheme?)

It is only natural that we would ask not only the proposed funding source for all of this spending but whether it is wise. As for the former, the senior senator gets one point for honesty.

Reed was non-committal on the question of how to raise money for the health-care overhaul. “Let’s see what develops in the Finance Committee,” he said, referring to the Senate panel still embroiled in drafting its portion of the health care plan — the provisions dealing with taxes, Medicare and Medicaid.

But does it not demonstrate serious irresponsibility to contemplate, much less advance, gargantuan spending programs without identifying the means to pay for them and, more importantly, demonstrating that they will do less harm, short or long term, to our country than simply doing nothing? We respectfully request answers, Messrs. Reed, Kennedy, Langevin and Whitehouse, or we request that you cease and desist your efforts in these matters.

Knowing What They Want to Do on Energy

The letter that Walter Schmidt, of North Scituate, sent in to the Providence Journal deserves a hear hear:

A July 2 letter ("Bill's passage a fine day for the environment") thanked U.S. Reps. Patrick Kennedy and James Langevin for voting for the "cap and trade" bill.

The author, however failed to mention the cost of this bill. While not a direct tax on the public, it is a stealth tax. The bill would tax energy producers by forcing them to purchase carbon credits. This tax will be passed on to consumers and will raise the cost of electricity, heating oil, natural gas and gasoline. Estimated increases range from $1,400 to $3,000 per household per year depending on usage.

Manufacturers and farmers will also pass their increased energy and transportation costs on to the consumer, raising the price of virtually everything.

Raising taxes on companies that produce and deliver energy will also cost jobs as they downsize to reduce expenses. With unemployment approaching 10 percent nationally, this should be unthinkable. The "green" jobs this bill would create would compensate for some of these losses but we need more jobs, not a transfer of jobs.

This bill has other negatives. New homes would be required to conform to the energy standards of California, the state that's issuing IOUs to state workers. Before you could sell an existing home it might have to pass an energy audit and be brought up to code at your expense. This will not help the housing market.

We are in the grip of the worst recession since the Great Depression. Passing any legislation that increases taxes, the cost of living and unemployment is insanity.

On the bright side, the letter gave me an excuse to watch the cap-and-trade song again:

Warwick Payrolls

Over the weekend I was at a neighborhood July 4th get-together. The group was a mixed one. If I had to guess, most were either a-political or run-of-the-mill Rhode Island Democrats. The topic turned to the recent closing of a local Warwick elementary school and how property taxes just got a big bump (believe me, they did). There was anger over the tax hikes and the school closure. One parent questioned why a school would close when money could have been saved elsewhere, mentioning the fact that the teachers make a lot of money and that you could find it all out at the "Ocean State Policy" website.

The parent then listed off some of the salaries of teachers from the local elementary school. There were a few surprised faces amongst those who heard the numbers, to which the parent then said, "Yeah, I know...I thought they made like $45-$50,000 or something, not that much!"

In an attempt to shed some more light on the situation, I decided to take a ride on the Transparency Train to analyze the actual school payroll numbers for Warwick. It's more time consuming but also more illustrative of the actual situation than the teacher contract.

I looked at the 2007-08 salaries of full-time teachers in a variety of categories. The below table, based on the 2007-2008 Payroll, summarizes my findings. It shows the number of teachers in each category, the total amount of money dedicated to their salaries and then average salary, average low and high salaries (the average high salary at the Jr. High and High School level reflects the pay received by department heads), and the average median salaries.

If you compare these numbers to the salary schedules in the teacher contract (page 109 in this PDF), you'll find that that, for the most part, the median Elementary and High School teacher salary in Warwick is the equivalent of a Step 10 (or more) with some longevity and probably some advanced education bonuses thrown in. Overall, elementary teacher salaries are the highest, followed by High School and then Junior High.

Given that most people think teachers make about as much as the average Rhode Islander, around $50,000 - $54,000 a year (in 2007), it's understandable their surprise when learning about these numbers. While it is true that new teachers enter the work force at the average income level, that doesn't last for long. It is apparent that the majority of teachers are compensated at a level at the top or above the traditionally negotiated step scheme. While the teacher salaries are arguably commensurate with other professionals of similar background and training, the benefits they earn--in addition to the shorter work-year--are something those in the private sector don't enjoy. In addition to their salaries, teachers also receive $10.5-$12,000 in pension contributions from the district in addition to $15,000 in medical/dental benefits.

But these numbers also help explain some other things, too. In general, teachers at the Junior High level are paid less than their Elementary or High School colleagues. This is unsurprising given the additional challenges faced when teaching this age group. In short, once they get they're time in, a lot of teachers go to Elementary or High School, where the kids are generally more receptive or, in the case of High School, you know what you're dealing with. In Jr. High, every day is a mystery with a cohort that is feeling their oats. Unfortunately, that they are so challenging is the very reason to keep the best, most experienced teachers at the Jr. High level. If only they had incentive.

It can also be inferred that, because Warwick has closed a few elementary schools in the past two years, the job openings are in the secondary education area (Jr. High and High School). This means that the elementary schools are "top heavy", with the result that the median income is higher at the elementary level. It would take some additional analysis of other school districts that haven't experienced so many school closings to determine if this is indeed a factor.

As I was looking at the teacher payroll, I thought a comparison with the payroll of the other big ticket items--Fire and Police--would help add some context. The data available was for 2008-09-- a year later than the teacher info I used-- so the data isn't contemporaneous. (The actual low, high and median salaries for each position are given, not an average as with most of the teacher data).

I don't have much analysis to offer for these last examples. They are what they are. Additionally, a quick survey of the municipal payroll reveals a lot of salaries that fall within the "average Rhode Islander" pay range or below, with a few high-salary, supervisor positions, as well. (For further comparison, this site purports to supply salaries for a range of private sector jobs in Warwick). I'll conclude with this: taxpayers should be aware of these numbers so that they can determine whether they think these are legitimate wages to pay for the jobs being done or not.

Don't Bogart that Revenue Stream, My Friend

The Rhode Island Senate has ordered a study of the legalization of marijuana. Would that the goal was merely to adjust our illicit drug use ranking by reclassifying one of the drugs. Alas, they specifically voted

to explore how much Rhode Island might collect in revenue if it were to make all sales of marijuana legal and impose a “sin tax” of $35 per ounce.

The main problem, of course, is big picture. Rather than looking for extreme sources of revenue, the General Assembly needs to continue focusing on the reduction of expenditures on the state and local levels. Two areas most urgently, though not exclusively, requiring attention are mandates for cities and towns and public pensions. (Pension reform measures included in the 2010 budget were a good step but by no means the end of the journey.)

Secondly, however, think of the proposed revenue source itself. More specifically, consider the health risks associated with it.

Shouldn't it raise a red flag about our budgeting and mandate policies that we are now looking to expand revenue opportunities in the area of behavior that is physically harmful to human beings?

All-Around Revenue-Per-Resident for Rhode Island Cities and Towns

By adding in a few other sources to the figures for residential, commercial and industrial tax levies from the previous post, it's possible to come up with a meaningful estimate of total local revenue-per-resident available to each Rhode Island city and town.

The set of sources included in the table below are...

1. Residential Property Tax Levy
2. Commercial and Industrial Property Tax Levy
3. State Education Aid (with money for regional districts apportioned by population)
4. State "Payments in lieu of taxes" (which are different from General Revenue Sharing)
5. Fire district levies for the towns that have them (derived from Municipal Affairs data available here and here).

One again, the floor is open to those who would like to offer local insight into how well they think their community is or is not doing. Where are the problems with revenue, and where are they with spending...

Commercial Property Tax Revenue By City and Town (And an Inquiry into Providence's Complaints About Tax-Exempt Properties)

Nothing says it's the new fiscal year quite like the presentation of new fiscal data, to help provide context for the major local decisions on taxing and spending being made all across Rhode Island.

This compilation actually began as an analysis of Providence city government's claim that it is handicapped in its ability to raise sufficient revenues by the large amount of tax-exempt property within its borders -- a claim that, at least according to two basic initial indicators, doesn't seem to be particularly strong.

On an annual basis, the Municipal Affairs office within the state government’s Department of Administration compiles data on the property tax levies, broken down by residential versus commercial/industrial classifications, for each Rhode Island municipality. The latest results available from valuations done at the end of 2007 show that, despite its quantity of tax-exempt property, Providence still receives the 5th-highest amount of commercial and industrial property tax revenue per-resident of any city in Rhode Island. Here's the entire list...

And in terms of the ratio of commercial/industrial collections versus residential taxes collected, it's not even close who the biggest beneficiary of commercial property taxes is...

(The population data is from Census Bureau estimates, via the state's department of labor and training).

Taken together, these two rankings make it very difficult to sustain a claim that Providence is somehow being shorted in property taxes -- especially when Providence is doing so much better in commercial and industrial property tax revenue than Rhode Island's other densely populated urban areas like Pawtucket and Woonsocket -- if Providence's problems are rooted in too much property not on the tax rolls, then shouldn't it actually be doing noticably worse in commercial tax collections than Rhode Island's other cities?

Now, the point here is not to pick on the people Providence. It's to pick on their city government. At some point when a city government's major explanations for its financial problems are that 1) people inside the city aren't giving the government enough money and 2) people outside of the city aren't giving the government enough money, it's time to consider that the problem might not be with the people, but with the government. Clutching and grabbing for every dollar that can be taken from everyone associated with a city is not a winning formula for cultivating the balance of activities needed to make an urban area vibrant.

One final point about the overall list: I suspect that the success of Middletown and Warwick at rasing commercial and industrial revenue is going to give the smart-growth folks of Rhode Island fits, as when it's combined with a bit of knowledge of local commercial geography, it sure looks like a strip-mall dominated retail sector is a great way to raise property tax revenue in a municipality.

The floor is now open, for who have insight into the meaning of these figures in different communities...

The Cap and Trade Scam

OK, what's this "cap and trade" thing all about? Well, first its a bid to massively change some fundamentals of our economy all for the sake of reducing global warming (by a few tenths of a degree Celsius in a few decades). Although the powerless House GOP has offered arguments against its passage, Democratic leaders have had more problems with their own rank-and-file (especially blue dog and farm-state Dems) and have been forced to make deals in hopes of pushing the Waxman-Markey bill through today (though no one will have a chance to read it--kinda sounds like RI).

The reason for the resistance is simple: no matter how you slice it, American's are going to pay more for everything for the sake of "feeling better" about "doing our part" to help reduce global warming. Or something. Its a redistributive tax increase, plain and simple, and it affects that 95% of the people President Obama claims to want to leave alone.

The Congressional Budget Office review of the bill explains the basics:

H.R. 2454 would establish two cap-and-trade programs, one for six GHGs
(mostly CO2) {GHG= "green house gas"--ed.} and one for a seventh GHG, hydrofluorocarbons (HFCs). The first program, the focus of this analysis, is generally referred to as the GHG cap-and-trade program. H.R. 2454 would set limits on GHG emissions for each year. Regulated entities could comply with the policy in some combination of three ways:

■ By reducing their emissions,
■ By holding an allowance for each ton of GHGs that they emitted, or
■ By acquiring an “offset credit” for their emissions.

Offset credits would be generated by firms that were not covered by the cap but that reduced their emissions or took actions to store emissions in trees and soil, using methods that would be approved by the Environmental Protection Agency. The bill would allow firms to use a significant quantity of offset credits—generated in the United States and overseas, with a maximum quantity for each specified in the legislation—toward compliance with the cap. Most of those offset credits would be generated by changes in agricultural and forestry practices. To the extent that acquiring offset credits was cheaper than undertaking more emission reductions, allowing firms to comply with offset credits would lower compliance costs overall.

Congressional Budget Office (CBO) estimates that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion—or about $175 per household. That figure includes the cost of restructuring the production and use of energy and of payments made to foreign entities under the program, but it does not include the economic benefits and other benefits of the reduction in GHG emissions and the associated slowing of climate change. CBO could not determine the incidence of certain pieces (including both costs and benefits) that represent, on net, about 8 percent of the total. For the remaining portion of the net cost, households in the lowest income quintile would see an average net benefit of about $40 in 2020, while households in the highest income quintile would see a net cost of $245. Added costs for households in the second lowest quintile would be about $40 that year; in the middle quintile, about $235; and in the fourth quintile, about $340. Overall net costs would average 0.2 percent of households’ after-tax income.

For starters, the CBO estimate is a one-year snapshot of taxes that will extend to infinity. Under a cap-and-trade system, government sets a cap on the total amount of carbon that can be emitted nationally; companies then buy or sell permits to emit CO2. The cap gets cranked down over time to reduce total carbon emissions....

The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

Under this more comprehensive scenario, [Heritage] found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Cap and trade, in other words, is a scheme to redistribute income and wealth -- but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street "green tech" investors who know how to leverage the political class.

Flat Tax Good, but Not Enough

As you may have heard, the gradually decreasing flat tax in Rhode Island has survived attempts to freeze or repeal it (so far). I'd note, though, an excellent point that Matt Allen made during the six o'clock hour: It's foolish to think that the flat tax decrease is sufficient. For two things: Rhode Island's tax advantage for capital gains is evaporating with this budget, and new savings for businesses have been left on the cutting room floor.

The tendency of disputants to break the big questions into their constituent parts goes a long way toward explaining the condition of our state. It's all patchwork policy, with no overarching principle. We trade this tax break for that union concession and that welfare adjustment, with the result being incoherence and inadequate counterbalance to the special interests that have infested the State House and town halls. Any potential reform candidates loitering about the edges of public consciousness should come up with a holistic plan and insist that it only works as an irreducible machine — as I've been suggesting that the governor do by disowning the budget if the General Assembly made any substantial changes.

We need responses to such statements as the following example, from Matt Jerzyk, of why I'm nostalgic for the previous iteration of RI Future:

What should be more important in a recession in Rhode Island? Just think about it.

If you are recently unemployed in Rhode Island or facing tough times at work, can you afford a jump in your property tax bills?

Alternatively, would a Rhode Island millionaire even know if their accountant paid a little more on their tax returns.

Even a few hundred dollars of increase or decrease in a given tax bill is not what unemployed Rhode Islanders need. They need jobs. They need businesses that find their state to be an attractive place to open up shop and expand — without special deals or credits, merely because that's the way the state is structured. They need the sorts of people who have money to burn no matter the overall economy renovating homes, buying goods, dining out... being present and living their lives among us.

As for the millionaires and their accountants, the premise that we can slip tax increases by them is (I'll euphemize) poorly considered. Even so, an accountant will inform his clients if a move — often an on-paper affair, when it comes down to it — to Rhode Island would cost them thousands or millions over a certain period of time or from Rhode Island would save them the same.

Dirigo, Indeed

From the Wall Street Journal

At last, there's a place in America where tax cutting to promote growth and attract jobs is back in fashion. Who would have thought it would be Maine?

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state's graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine's tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets.

(snip)

One question is how Democrats in Augusta were able to withstand the cries by interest groups of "tax cuts for the rich?" Mr. Baldacci's snappy reply: "Without employers, you don't have employees." He adds: "The best social services program is a job." Wise and timely advice for both Democrats and Republicans as the recession rolls on and budgets get squeezed.

A Simplistic Reaction to the Flat Tax Will Hurt the State and Cities and Towns

Everybody wants to nix the flat tax in Rhode Island:

The dispute has drawn the interest of a host of powerful players — labor unions, mayors, and a coalition of elected officials — who hope to repeal the high-profile tax break that benefits 2,267 Rhode Island taxpayers. Supporters want to funnel the savings to the cash-strapped cities and towns, which are slated to lose more than $55 million in state aid for the budget year that begins in seven days.

Municipalities think it's an easy way to get a few million more dollars. Union members think it's a way to ensure that the local and state governments that employ them will be able to make payroll. Elected officials think they'll pick up a good talking point about looking after the majority against the narrow interests of a wealthy minority. I'd suggest that all of these groups would do well to be wary of short-term thinking.

As I've followed long-term trends from both Census and IRS data, the conclusion has emerged that one area in which Rhode Island has seen positive developments is among wealthier residents. Indeed, the state income that taxpayers with incomes over $200,000 per year are claiming on their federal tax returns was up more than 50% from 2002 to 2006 — the period during which our state's tax reforms began to kick into effect. That is why Steve Peoples and Cynthia Needham's characterization is woefully incomplete:

The state will forgo an estimated $34.7 million in tax revenue next year because of the flat-tax option, according to an analysis by the State Budget Office.

In tax year 2009, the rate is scheduled to drop from 7 to 6.5 percent. If frozen at the current rate, the state could recover $12.2 million in tax revenue for the coming fiscal year, according to the governor’s budget office.

One cannot calculate the "cost" of the flat tax by recalculating returns as if it did not exist, because some percentage of returns would not exist if it were not for the flat tax option. With residents with household incomes over $200,000 contributing about $400 million in income and alternative minimum taxes every year, we're talking a huge amount of money.

Unfortunately, the relevant data from the state ranges only from 2005 to 2007, and the presentation of resident and non-resident taxes is not uniform. Nonetheless, looking at the resident returns (which are parallel to federal data addressing Rhode Islanders), one can observe that, over that period, the total income and alternative minimum tax collected by the state was up more than $5.12 million from those earning over $200,000 and up a total of $40.33 million from those earning over $100,000. The actual number of state tax returns filed by those earning between $100,000 and $200,000 increased 20.8%, and those showing income over $200,000 increased 14.2%.

This is where advocates for repealing the flat tax will point out that, while actual taxes paid by the $100,000-199,999 group increased $13.5 million (5.5%) from 2006 to 2007, those earning over $200,000 — who benefit most from the flat tax option — contributed $37.4 million (8.6%) less. Given the close proximity of the dollar amounts, one might presume that the flat tax simply gave that money away (as Rep. Scott J. Guthrie, D-Coventry, would put it). That would be incorrect.

Of that year-to-year loss, the capital gains tax accounted for $30.1 million. In other words, non-capital gains income taxes among the wealthiest group decreased only $6.5 million (1.9%) in 2007 from 2006. More importantly, the average adjusted gross income per return fell 4.3%. (I'm not sure whether that includes capital gains.) Although there were more of them, the rich, that is, earned less money to tax.

All such aggregate analyses are tricky, of course, because so many factors and considerations come into play. Advocates making the journey from their municipalities to the State House to demand those dollars that the flat tax "gives away" should recall that these are residents. They are paying property taxes on homes and vehicles. They are paying fees for everything from dog registrations to construction permits. If they leave, they take not only the income tax dollars that the state may (or may not) filter down to the local level, but also all of the revenue that cities and towns currently procure directly. Moreover, they take the money that they pay to other residents as part of the private-sector economy.

For some general and rough perspective, consider this: The number of tax returns showing income over $200,000 increased 14% from 2005 to 2007. It will only have to decrease by about 7% for repeal of the flat tax to be a revenue wash for state income tax alone. If we broaden the group to those over $100,000, the increase from 2005 to 2007 was 19%, and only a 3% loss of the current number would cancel out the estimated tax revenue gain.

Rhode Island is already turning away from the path toward a vibrant economy in a vain attempt to ease short-term pain — which is to say that it is continuing on its path to collapse. Let's not expedite the process.

It's Almost as if There's Only a Real Interest in the Problems of One Community…

Over at RI Future, Pat Crowley doesn't seem quite up to speed on the public budgeting process occurring in most Rhode Island cities and towns. Mr. Crowley assumes that last week's announcement that there will be no general revenue sharing in FY2009-2010 means that city and town governments will have to "re-raise" taxes.…

If the State does not repeal the flat tax and continues the elimination of general revenue sharing, this is how much towns would have to re-raise their property taxes to make up the difference.

For example...take a look at North Providence....

Mayor David N. Cicilline says his administration will need to resubmit his plan for the fiscal year beginning July 1 if the General Assembly votes to end the $55-million general revenue-sharing program that Providence and other Rhode Island communities have enjoyed for two decades….Providence appears to have taken a gamble that few other communities were willing to make in assuming it would get anything at all from the state from the program.

Actually, the 3.46% for Lincoln is obviously the result of a second layer of faulty analysis, where Mr. Crowley tries to calculate the percentage tax-increase that replacing general revenue sharing would require, but presents inflated figures as the result of considering only the municipal side of the local spending, neglecting the fact that property taxes also are used to pay for schools. (Is this error maybe corrected between the two posts?) That error notwithstanding, however, any "re-raising" of taxes in most municipalities, as a result of the official announcement on general revenue sharing, will amount to 0%, because most city and town governments budgeted responsibly and assumed that no aid was coming.

The major exception, of course, is Providence, where the administration of Mayor David Cicilline assumed that the city would receive 6 million dollars in state aid, and now has to re-budget assuming the loss. The total lesson from all of this, as always, is that progressives and public finance don't mix.

Gauging Effectiveness of Tax Policy

In any kind of system--computers, manufacturing, planned maintenance, what have you--the importance of a "feedback loop" is recognized. Basically, you have a process or method in place and you want input as to how well it is working. "Good" feedback often necessitates a change in operating process or, possibly, system design. In yesterday's ProJo, John Kostrzewa essentially asks that our corporate tax policy--specifically targeted tax credits for certain businesses--be put in a feedback loop. The question: are we getting the benefits we hoped for (more jobs) when we let companies pay the state less in corporate taxes?

This is the way economic development gets done across the country. A corporation has jobs. The government has giveaways or tax breaks. They woo each other, get married and everybody lives happily ever after.

Except nobody checks back to see if the incentives really accomplished what they set out to achieve.

But now, Rhode Island has started to take a peek.

When he ran the Rhode Island Public Expenditure Council, he advocated tax breaks that are accountable, transparent and targeted toward specific types of jobs. As head of the state Department of Revenue, he pushed forward the collection of data. He also headed the tax reform panel created by Governor Carcieri that advocated a study of job-creation tax credit and questioned why they shouldn’t be reserved for higher-paying jobs with benefits.

But now, in his additional role as head of the Department of Administration, he seems less aggressive.

Legislators Making Up Taxes as They Go

One must laugh out loud, if only to keep from crying. Here go Rhode Island legislators toying with making tax code more complicated and less beneficial to taxpaying corporations, with a tinge of state tinkering with the shape of the economy (i.e., what sorts of businesses it rewards):

Current law generally allows the tax break only if a business creates jobs that pay at least $11 an hour or so (about $22,900 or so a year, based on a 40-hour workweek).

The proposed legislation would allow the break only if a business creates jobs that pay at least $18.50 an hour or so (about $38,500 a year).

State Rep. Steven M. Costantino, D-Providence, chairman of the powerful House Finance Committee, and chief sponsor of the bill (H 6164), said, "I think we all want [more] jobs. But in order to get a credit, I think you have to have a higher threshold."

Businesses would continue to be free to create jobs at various pay levels, Costantino stressed.

But in order to claim the tax break, they would have to create jobs that pay more money than the law currently requires — and also carry health insurance and retirement benefits, according to the bill.

And yet:

The state thus far has not studied in detail the benefits that the job-creation or other such tax breaks provide to the state, cities and towns, such as tax payments made by the job holders or other economic benefits.

As far as I can tell, there's not even any sort of governing philosophy behind vague expectations about what the actual results of such legislation will be. That is, legislators don't even appear to consider whether, in broad terms, more companies will benefit, fewer will benefit, more will create jobs, or fewer will create the jobs that apply to their business models (because they don't qualify for incentives).

Of course, the whole issue is colored by the fact that this tax break is largely enjoyed by a single company — CVS. That being the case, the General Assembly should just make things simpler and boost business activity period by lowering the taxes and trimming the fees, regulations, and mandates on people and organizations that contribute to Rhode Island's economy.

Using the Same Story Everywhere to Push for Budgets

There's a familiar sound to status-quo argumentation that Matt Welch's highlights among those who lament that "petulant voters failed to heed the weary wisdom of their betters" in California:

Calfornia lawmakers, and the unions who put them into office, will do everything in their power to cut services first, employees last. That is indeed a crucial reason why we got here in the first place. Any analysis that doesn't explore how a higher-than-inflation-plus-immigration budget has failed to deliver on any increase in services, is not an analysis worth taking more seriously than common propaganda.

When special interests are done soaking up new money, the not-so-paradoxical result seems to be even less money for such basic government functions as infrastructure. And whether the government in question is local or state, the repeated talking points hardly stand up to a moment's display of reality:

California companies would then find it harder to attract high-value employees who might be dubious about moving to a state with sub-par schools. Here is the fundamental point behind every California budget story: The state has increased spending on K-12 education by 40 percent under Schwarzenegger (it has to; by dumb law, 40 cents on every state dollar has to go to education). The main drain on the California economy is that these massive increases in spending are producing ZERO noticeable improvements. Because the union-run school districts are infamous laboratories for inefficiency, job protection, and corruption, the state spends and spends, with nothing to show for it. Teachers unions are literally running out of other people's money, and now they warn us about "sub-par schools"? That par got done subbed a long time ago. If politicians, journalists, and other "experts" want to defend the status quo (of constant spending increases), then they need to explain why Californians need to keep throwing more and more good money after bad on a K-12 system that is showing no results.

(via Instapundut)

Telling Reasons to Object to Tax Cuts

I've got my reservations about Governor Carcieri's tax proposals on the grounds that they don't go far enough, especially in extending their effects to middle and working class residents. But some of the objections from the other side should inadvertently direct Rhode Islanders' attention to the underlying problems of the state:

Karen Malcolm, executive director of Ocean State Action, a coalition of labor unions and advocacy groups, said previous state tax cuts have not worked. "The policies we've been following have not brought the promised jobs," she said.

Instead of phasing out the corporate income tax, for example, Rhode Island should instead seek changes to local property taxes, which represent the single greatest tax burden for business, she said.

Of course, local property taxes are so high in part because the unions — especially the teachers' unions — have been more successful at pumping up their members' remuneration packages from that stream. Witness:

Malcolm goes on:

And to improve Rhode Island’s overall business climate, the state should focus on other areas, such as fixing crumbling roads and bridges, she said.

Of course, infrastructure repairs are more expensive than they would be absent union rule and the related regulations. (It's quite a thing to drive by a roadwork site and witness the two flag-bearing women standing next to each other, flags down, chatting while the mandatory police officer chats on his cell phone, back to the scene.) Moreover, the fact that the state typically allocates 0.0% of its General Revenue to transportation suggests that Malcolm is seeking to raise additional taxes to direct toward labor.

Then there's the other side of the problem:

Rick Harris, executive director of the Rhode Island chapter of the National Association of Social Workers, said Carcieri's proposals would drain away tax revenue at a time when it is most needed for education, health care and other programs. "If you're taking more money out of the system, how are we going to meet this need?" he said.

Directing the wealth of productive, working Rhode Islanders to those who are otherwise — even if the intention is to make them more productive — is part of what created our current hole. If we're to have any hope of turning things around, we must reverse our focus and increase activities that create revenue, rather than expend it.

Turning Up the Heat on Smokers

Laws should be enforced (or stricken or modified if they will not be), but there's something unseemly — extortionate — about this:

The state in April increased the excise tax on cigarettes by $1, to $3.46 a pack, the highest in the country. The move has obvious health benefits, but it also aims to generate millions more dollars for the financially strapped state.

Now, state taxation and law-enforcement officials are poised to do their part. They are cracking down on the illegal sale of out-of-state cigarettes to make sure that the state collects as much money as possible from smokers who now plunk down some $8.35 for a pack. ...

Under state law, Rhode Island residents can have up to a carton of out-of-state cigarettes in their possession. Anything more and they are subject to arrest.

Violators face up to three years in prison and a $5,000 fine.

For reasons unrelated to money, I quit smoking about a decade ago, and it's increasingly difficult to comprehend what drives people to continue with the practice, but reading today's article, I found myself surprised to recall that it's about a legal product. The state government is facing tough financial times, so it has arbitrarily decided to collect more money from a population of residents who have a chemical and psychological dependency on a particular item.

Here's a clue that something isn't right with the current government attitude: Resident smokers' doing the right thing by their health would do more harm to the state revenue than does the illicit behavior on which the state police are so focused. If only for that reason alone, Rhode Island's smokers should kick the habit.

Do what they will, however, I'll still predict that revenue from this tax is going to go down, even if the number of smokers stays exactly the same. Unfortunately, Rhode Island businesses are likely to take a hit, as well, and not only on sales of cigarettes, but also on sales of such goods as smokers will pick up when they're out of state shopping.

Migratory Food for Thought

Tom Golisano puts high local taxation in perspective — the individual's perspective, that is:

Last week I spent 90 minutes doing a couple of simple things -- registering to vote, changing my driver's license, filling out a domicile certificate and signing a homestead certificate -- in Florida. Combined with spending 184 days a year outside New York, these simple procedures will save me over $5 million in New York taxes annually.

By moving to Florida, I can spend that $5 million on worthy causes, like better hospitals, improving education or the Clinton Global Initiative. Or maybe I'll continue to invest it in fighting the status quo in Albany. One thing's certain: That money won't continue to fund Albany's bloated bureaucracy, corrupt politicians and regular special-interest handouts.

Have I mentioned, recently, that the state and local taxes that wealthy folks are paying in Rhode Island has been going up even as their rates go down?

(via Michelle Malkin)

A New Proposed Income Tax Structure for Rhode Island

Here are the details of the new income tax brackets contained in the state budget that Governor Carcieri submitted to the General Assembly (Article 38)...

However, there are also proposed changes in allowed deductions, which a staff report from the Projo summarizes as...

• Treating capital gains as ordinary income. (In general, the state’s maximum capital-gains tax rate now is 1.67 percent, or 0.83 percent in some circumstances.)
• Ending the option to claim a variety of “itemized” deductions, such as those for mortgage interest, local property taxes and charitable contributions. Instead, all taxpayers would claim a standard deduction, the amount of which would be expanded.
• Eliminating most of the state’s tax credits and keeping four: the statewide property-tax relief credit; an expanded earned-income credit (essentially a tax break for the working poor); a credit for lead paint abatement; and a credit for income taxes paid to other states.

I'm Sorry, You Don't Get to Create a Problem

... and then sternly point to it like you're an uninvolved third party.

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

Their Errors, Our Freedoms... and Taxes

So when the president's budget errs in its estimation to the tune $58 billion, why is a more invasive pursuit of taxes the obvious answer?

The Obama administration on Monday proposed $58 billion in additional taxes to offset budgeting errors that overstated revenues in the president's plan to finance health care reform.

The tax measures target a host of activities, including people who for tax purposes aggressively reduce the value of property received as gifts or in estates. To reduce fraud, other provisions would require investors, contractors and taxpayers to provide more information about certain transactions to the Internal Revenue Service.

The largest budgeting error overstated the amount of money that would be raised by limiting charitable and other deductions for high-income taxpayers. The limits would generate $267 billion over the next 10 years — $51 billion less than the administration projected in February.

It seems that, no matter what happens — even an incident of miscalculation on the administration's part — the government gets a little bit more power and control.

The Budget Hole Rhode Island's In

Sympathy is in order for the state's lawmakers, although not of the exculpatory kind. It must seem to them that, no matter what they do, the economic dirt keeps falling in on them in the economic hole that they've dug:

Rhode Island government's budget deficits have grown by $200 million over the last six months, a massive jump that exacerbates an already-staggering budget hole and intensifies pressure on the General Assembly to raise taxes or slash state spending across a host of popular programs.

Elected officials have less than two months to close combined budget holes totaling roughly $661 million, according to projections finalized Monday by the state's top budget officials on the final day of the semiannual Revenue and Caseload Estimating Conference. The shortfall includes an unanticipated current-year gap of $70 million and a $590-million deficit for the fiscal year that begins July 1. ...

Next year's hole amounts to approximately 19 percent of Rhode Island's current state budget, excluding federal dollars.

If you add in what's become a typical mid-year deficit in the hundreds of millions, the shortfall for fiscal 2010 hovers near a billion dollars. Upwards of a fifth of the working budget is money we don't have. But hey, it's not as if nobody's seen this coming. In fact, in considering an interviewer's question about the impetus behind Anchor Rising's founding back in 2004, I recalled that our prognostications for the state made action a civic imperative.

The state is reaping what it's sown, and those who've liked the policies that got us here just fine have but one scapegoat before they must begin battling each other for the trickle of satiating largess for their unhealthy dependency:

"We are paying the price not only for national and international economic factors, but also for years of misguided decisions by our policymakers that have cut taxes for those who need cuts the least, while increasing the pressure on the rest of us," Peter Asen, spokesman for the labor-backed advocacy group Ocean State Action, said in a statement.

As satisfying as some may find the class warfare angle, the reality is that income tax revenue from "those who need cuts the least" has gone up dramatically, with $228 million more paid by those with incomes over $100,000 in 2006 than in 2002, with $156 million more coming from those with incomes over $200,000.

Cut taxes. Trim mandates. Lighten regulations. And quick.

Big Brother Is Only Logical

Does anybody else pick up a willful naivete in Gerald Bastarache's advocacy for a mileage tax?

To measure these miles, the commission calls for "in-vehicle or after market Global Positioning System (GPS) devices" that would track the way we drive. The per-mile charge would depend on whether the driving is on crowded urban freeways during rush hour (higher charge) or lightly traveled rural roads (lower charge).

The goal of the mileage tax is still to collect the funds we need for good highways through user fees, but in a more logical way than we do now.

The report says the amount charged for cars could range from 0.9 cents per mile to match current trust fund revenues, or go up to 2.3 cents per mile to "maintain and improve" the annual investment level.

The levels of taxation require careful calibration to ensure fairness. But compared with the current system, fairness should be relatively easy to achieve. ...

Privacy is sometimes cited as a concern, but privacy is protected when the data is kept within the vehicle. The many tracking devices already in today’s vehicles, such as OnStar, E-ZPass and LoJack, are effective without compromising privacy.

"Careful calibration" in a system of taxation that varies by location and maintenance needs? Chilling.

Moreover, consumers can have some trust in private companies, because if they violate that trust, car owners can cancel their services and even rip the units right out of the cars. If the violation is sufficiently egregious, the entire business model could tank. Taxpayers, by contrast, would not be permitted to "cancel" the service, except via indirect application of the political process, even when bureaucrats and government officials find the excuses to violate trust far too compelling to ignore.

UPDATED: Correction on Property Taxes

Based on conversation here and here, it appears that I was wrong to state that "a new methodology will skew taxes toward waterfront properties." Several people who are typically more specifically knowledgeable about town financial matters made statements that I apparently took too literally.

That said, Tiverton Tax Assessor David Robert has strangely refused to answer, here, direct questions about the process, a decision that I attribute more to my local reputation than to his having anything to hide. (I suspect that, in certain circles, I'm taken to be much more of a conniver than I actually am.)

What I'm trying to determine is whether a decreasing pool of sales from which to determine trends has resulted in differing bases for different neighborhoods. I'd welcome feedback from folks familiar with the controversy in Barrington, especially if it might pertain to the varying results in Tiverton.

ADDENDUM 05/09/09 2:14 p.m.:

After conversation with Tax Assessor David Robert after today's financial town meeting, I'm persuaded that nothing different was done that unfairly skewed the revaluation results... at least any more than is always the case.

In essence, all sales forming the basis for the revaluation were in town. In cases in which a subsection of houses had insufficient sales to make reassessments valid, the assessor calculated based on overall sales and the typical ratio of that neighborhood to the overall. (I'm summarizing the effect, here, and may not be to-the-letter accurate about the procedure as implemented.)

I'd argue that this methodology is inherently unfair, inasmuch as a neighborhood with too few sales can't even be said to have kept up with the values of the rest of the town. If a dozen houses sell in my working class neighborhood at a 10% decrease from previous assessments, but no houses sell down the hill from me, closer to the water, one cannot infer that they would have sold at that 10% decrease. Indeed, they might well have sold only if offered at a 50% decrease, which means that their value is unfairly assessed to have held.

That said, it would be difficult (mathematically or politically) to come up with a number that adjusts for sales that didn't happen. The town could investigate the prices that the houses weren't getting, but that would only give one a maximum and, as a matter of principle, bases taxes on prima facie unrealistic home values.

Whatever the case, I was unequivocally wrong to assert a change in methodology.

Rob Coulter: Property Revaluation and Subjectivity

I had a very helpful conversation with a gentleman from the property revaluation vendor for Tiverton last night, and I learned quite a bit about the process. By the way, he was very patient and cordial, and I was very impressed with him, even if we may arrive a different conclusions. I agree with Justin that this should be an exploratory dialogue, and I do not pretend to have all the answers either.

The truth is somewhat in the middle of what I'm reading from comments here. As far as I can tell, they are using a multivariable regression computer model. It is susceptible to error because the sample sizes are not statistically robust enough for so many variables. When this happens, judgment calls have to necessarily be made. In a sense, the "methodology" has not changed, but there are still many, many variables calling for subjectivity on the appraiser's part.. I don't want to go so far as to call these judgment calls arbitrary, but there is definitely enough play between the joints for the appraiser to "skew" (if that's the right word) a result based on assumptions being made.

Although it sounds fancy and complicated, the idea of using multivariable regression is to let the computer try to find the impact of one variable while holding all others constant. It's like algebra on acid. This can't be done by hand when there are dozens and dozens of variables, as there are, here, so we let a computer do it.

I do not believe that it is incorrect to use this type of modeling, but there are two very important qualifiers:

1. The model only works if there are enough samples for each variable. I'm not sure there are here.
2. More importantly, this model and all models have assumptions built into them. These assumptions are necessary for any model but are at the end of the day subjective and subject to dispute. For example, I learned last night that (roughly speaking) all taxpayers are taxed at nearly one acre of land no matter how much less they have, and owners with additional acres are only taxed at a very low cost per acre. So if you own one-third of an acre or one full acre, you pay about the same tax on land. Do you think that's fair? Maybe yes, maybe no, but these are some of the assumptions that lurk behind the "methodology."

There are myriad assumptions and they have a major impact. They do not involve only objective things such as acreage and square footage, but multiplying factors applied based on the style of the house. These are very subject to debate. For example, I argued that a solar panel on a roof should add value to a house based on fuel costs. The vendor suggested that it might detract because of decreased curb appeal. I replied that a new buyer could simply remove the panel. And so on. You can see how very quickly a lot of error and assumptions can creep into a system that otherwise sounds so impressive.

Again, I want to stress that I don't think anyone is trying any funny business here. I was very impressed with the vendor, and I also very much respect David Robert, Tiverton's tax assessor. But I do have experience with multivariable regression, and if that is the model behind this, I can tell you that we can't trust it wholesale. I don't think the "methodology" has changed, but there are many assumptions under this methodology that can be adjusted and are essentially subjective.

Rob Coulter is a member of the Tiverton Budget Committee as well as Tiverton Citizens for Change.

Taxes and Incentives

Most Rhode Islanders are likely ambivalent about their state's status as background scenery for Hollywood movies. Yeah, it's neat to see familiar places on the big screen, as well as to spot famous people around town, but it remains a novelty, not a matter of economic import or civic identity. Still, this strikes me as a fitting allegory:

A year after lawmakers voted to cap the controversial movie and TV tax-credit program, Rhode Island Film & Television Office Director Steven Feinberg acknowledges it has been "a challenge" to continue to attract movies and other productions to the state.

Forget the historic charm and seaside vistas: without the tax breaks, Rhode Island loses a little of its luster.

One suspects that a similar dynamic exists with that much lauded "quality of life" by which certain players attempt to distract from the fact that scenery is of mere mild comfort when one can't pay the bills.

Property Tax Illusion

Because it works differently than most other taxes with which we're familiar, it surprised me when first I learned how property taxes are calculated, at least in Tiverton. In short, the rate is almost an irrelevant statistic. Confusion over that fact has led local Budget Committee and TCC member Tom Parker to pen the following explanation

2009 property revaluations have been mailed out in Tiverton, and if you listen carefully you can hear a collective sigh of relief across the town: "My property value has gone down, my taxes must be going down. Life is good, and I'm safe, at least for the time being, from the insatiable tax demands of the Tiverton government. For once, I can relax...right?" Actually, no. Unfortunately, things are not what they seem. There are two good reasons why you need to pay careful attention.

First, the letter we taxpayers got in the mail was our property revaluation, and, indeed, for many of us it is significantly lower than the previous assessment (my own decreased about $120,000). The tax RATE is the other key component in the final calculation of YOUR property tax bill. The FY2009 tax rate proposed by the Budget Committee is $14.73/1000. This is a $3.47/1000 increase (31%) over the current tax rate of $11.26/1000. So even if your assessment has gone down, your taxes could substantially increase. In my case, even though my assessment decreased $120,000 (14%), I estimate my tax bill will increase by over $1,100 (12%).

The town doesn't apply the rate to the property values to figure out how much money it has to work with. Rather, it figures out how much money it wants and then divvies the total up among all of the property in town. When property values go down, it doesn't figure out how to function with less revenue; it simply adjusts the rate to ensure the same revenue as a matter of course, with no votes or political risks necessary.

So the key question, when it comes to revaluations and taxes isn't whether your house is worth more or less; it's how it changed compared with all of the other properties in town. If they all decrease by the same percentage, everybody's taxes stay the same.

It's true that, in Tiverton, a new methodology will skew taxes toward waterfront properties, this year, which means that recalculations will hurt those homeowners more. But as Tom describes, the huge leap in the rate likely means increase for anybody whose house's value dropped less than 31%. And that's before tax-revenue beneficiaries have their whack at the budget during the upcoming financial town meeting this Saturday.

ADDENDUM 05/09/09 5:10 p.m.

The deleted sentence is incorrect. See here for explanation. Apologies for the error.

A Tax by Any Other Name

Maintaining infrastructure is one of the basic tasks appropriate to government, but for that very reason — its clear importance — politicians in the state of Rhode Island tend to seek money for it independently, as a sort of deliberate afterthought. Rhode Islanders' ultimately don't want any bridges to collapse, and if they don't get incensed over the fact that the money wasn't already apportioned from taxes, they'll accept toll hikes even though they are, in effect, taxes for programs and giveaways that they wouldn't approve given the option:

The state Turnpike and Bridge Authority needs to raise tolls to pay for $50 million worth of repairs to the Pell and Mount Hope Bridges, Chairman David Darlington told a legislative committee Thursday.

Darlington asked the House Finance Committee to approve borrowing the $50 million through a bond issue for the work, which would include repairing rusted steel and doing painting on both bridges. He said that a toll increase would be needed to cover the bond issue, but that the authority wants to avoid raising tolls for Rhode Island residents.

Darlington said it would be the first toll hike in the history of the Pell Bridge, which opened in 1969. And if tolls are reinstituted on the Mount Hope Bridge, it would be for the first time since they were eliminated in 1998. Maintenance on the Mount Hope Bridge is now paid for with tolls paid by drivers crossing the Pell Bridge.

Of course, even the bond and toll gimmicks are beginning to raise hairs, so the plan is at least to double EZPass charges on the Newport Bridge for out-of-state drivers only. Of course, those paying cash — the majority, at least the last time I went back and forth over the bridge, last Saturday — would not be distinguished by their license plates and would pay the out-of-state fee. (It'd be interesting to see the data related to cash and EZPass payments; it's not inconceivable that doubling the toll will spur more Rhode Islanders to get EZPass, thus decreasing revenue.)

Perhaps the most important point to absorb from the linked article is the ultimate cost of this $50 million bond:

According to the legislation before the committee, the bond issue could actually cost as much as $132 million when the cost of 8-percent interest is added in, assuming a 30-year maturity for the bonds.

I'll reach across the aisle, here, and note that even Tom Sgouros has raised an eyebrow over the fact that Rhode Island currently pays $100 million in interest on Department of Transportation borrowing every year. This game can't go on; our government is going to have to find ways to keep the roads and bridges in good repair with money already in its budgets.

Taxes and a Possible Taxer

Andrew briefed the audience of the Matt Allen show last night on the nature of Rhode Island taxes and fees, along with some notes on the bungling beginning of Lincoln Chafee's gubernatorial run. Stream by clicking here, or download it.

Taxes Plus Fees In Rhode Island

This past Monday, the Projo's Neil Downing concluded his story on the Rhode Island Public Expenditure Council's analysis of the state budget with this note…

RIPEC also urged that the state review the range of fees it charges. The group said that, when compared with other states, Rhode Island ranks near the bottom regarding income from charges and miscellaneous revenues.

The state should review fees and other such charges “to [ensure] the adequacy of charges for services, the need for the charges and whether the state can seek additional non-tax income,” the RIPEC report said.

However, ranking alone doesn't tell the entire story. For example, for a category like "Natural Resources, RI's lower-half ranking doesn't impact total revenue collected very much because no state collects very much in that category relative to its total budget. One way to evaluate the revenue impact from a state's policy in a particular fee area is add fees to the the total taxes collected, for each fee category in each state, then re-rank the totals and see how the results shift.

When only state and local taxes are considered, Rhode Island begins in the 2005-2006 Federal data from a rank of 8th from the top per $1,000 of income. The table below lists how inclusion of each individual fee category would change that rank...

In other words, Rhode Island's 8th place ranking in taxes drops to 24th when the sum of taxes plus hospital fees are considered, to 13th when the sum of taxes plus higher ed fees are considered, etc.

Obviously, whatever it is that makes hospitals in Rhode Island different from hospitals in most of the rest of the country (except maybe Vermont, who holds down the number 50 spot on the "hospitals" list) has to be determined, before anyone can advance a serious claim that our state's fees are too low.

Boats All Around

Or vacations. Or home remodeling. Or a down payment. Whatever a second home mortgage will buy.

Today's Washington Post reports that taxpayers will be picking up part of the cost of these goodies for distressed (second) mortgagors.

The Obama administration unveiled an expansion of its $75 billion foreclosure prevention plan yesterday, providing new subsidies to mortgage lenders and investors.

* * *

The administration's housing plan pays lenders to help borrowers stay in their homes by modifying their mortgages to an affordable level. But, the plan as first announced in February applied only to primary mortgages. Now, lenders will be eligible for payments when they modify the terms of a second mortgage, including a home-equity line.

About 50 percent of at-risk borrowers have a second mortgage, which can make it difficult for them to afford their homes even after payments are cut on their primary mortgages. Second mortgages were popular during the housing boom for buyers who could not afford big down payments.

Under the new plan, lenders would receive $500 for modifying the second mortgage, plus $250 a year for three years if the loan remains current. The borrower would be eligible for $250 a year for five years to lower their principal balance. The borrower could have the interest rate lowered to 1 percent, depending on the type of loan, with the government sharing the cost of the rate reduction.

How will this expansion of an already bad program be funded, you ask? That part's okay.

The program ... will be paid for through bailout funds already allocated to the program, officials said.

See, if the money has already been allocated, it really doesn't count as public spending.

The point of this post is, what about undistressed mortgagors? This Congress, the Obama administration and many of their supporters are big on "fair". But not everyone who owns their home was stupid smart enough to take out a second mortgage and buy that big ticket item. Wouldn't it only be fair if all of those people got to do so now? Then they can jump into this program, too. (Eventually, of course, we have to figure out how to get us apartment rats in on the action. Why should we get left out of "fair" just because we don't own our homes?)

More Kids, Now

David Goldman (aka "Spengler") writes in First Things:

After a $15 trillion reduction in asset values, Americans are now saving as much as they can. Of course, if everyone saves and no one spends, the economy shuts down, which is precisely what is happening. The trouble is not that aging baby boomers need to save. The problem is that the families with children who need to spend never were formed in sufficient numbers to sustain growth.

In emphasizing the demographics, I do not mean to give Wall Street a free pass for prolonging the bubble. Without financial engineering, the crisis would have come sooner and in a milder form. But we would have been just as poor in consequence. The origin of the crisis is demographic, and its solution can only be demographic.

Random Conversation at a Local Business

Conversation at a local gas station/convenience mart. {Sound of multiple police sirens in back ground}

Store Attendant: "Go get 'em, guys. Make some revenue!"
Customer:"They have to get it somehow."
Attendant:"Yup, they do. Wait 'til the road gets repaved. People will be going 90 mph down the road. They'll be stopping them then. They get them for going 1 mph over now. $75."
Customer:"Sheesh."
Attendant:"You read the paper?"
Customer:"Yup."
Attendant:"Did you see how they want to tax businesses because the unemployment fund is outta money?"
Customer:"I think I heard that on the radio."
Attendant:"That's a great move. Tax businesses more and drive 'em out. No wonder we can't grow this economy."
Customer:"No kidding. That's the kind of shortsightedness that's in this state."
Attendant:"Yeah. Never gets better. What are people thinking?"
Customer:"Just keep voting the same people in."
Attendant:"Ha ha ha. Yup. OK, take it easy."
Customer:"Have a good one."

Woonsocket Vote Proves Point of Tea Parties

In case you missed it, a Tea Party broke out in Woonsocket the other day (h/t).

As reported by WPRI:

Woonsocket's City Council has voted against a supplemental tax bill that would have raised property taxes by eight percent.

Councilors took the vote late Monday night, following testimony from dozens of residents. Council members said arguments against the bill changed their minds; it was originally expected to pass.

The bill was meant to close the school department's $3.7 million deficit. Councilors plan to meet Wednesday to decide on their next course of action, which could include a lawsuit against the state for more funding.

After some five hours of discussion, at just about midnight, the council...vot[ed] 4-3 against the measure. In the end, it was Councilwoman Suzanne Vadenais who tipped the balance. Early in the evening, she indicated a reluctant willingness to support supplemental taxes, but by the end of the night she had changed her mind.

“It was a very difficult decision,” she said. “After listening to all the people who spoke tonight, I can't vote for this.”

Vadenais joined Councilors Stella Brien, Christopher Beauchamp and Roger G. Jalette Jr. in opposing the measure. Council President Leo T. Fontaine, William Schneck and John Ward were in favor of it.

Tea Parties and Public Choice Theory

Put your wonk hat on. Economists Brian Wesbury and Robert Stein write:

While the theory of public choice can be broadly applied, it is the ideas of "special interests" and "rational ignorance" that are useful in understanding last week's tea parties.

Here's an example of public choice at work. Let's say teachers could benefit by $2,000 each per year (in higher pay or benefits, smaller classes, etc.) from a piece of legislation currently under debate. But the cost per taxpayer averages just $15 per year.

The "special interests" (teachers and politicians) have substantial personal incentive to see that the bill is passed. Teachers, who benefit directly, will use time and money to lobby for the bill. And lawmakers will expect campaign contributions, votes or both, in exchange for their support.

But the taxpayer will remain "rationally ignorant" of the whole process. Why spend time even thinking about an issue when the cost is only $15 per year?

....This is why government will tend to grow in excess of what a true democracy really wants. At least, it will grow until those $15 hits accumulate to such a level that people have finally had enough, and in a seemingly spontaneous eruption, the average voter finds the energy to fight back.

Apparently, this is what happened last week.

Here is an interesting set of facts. If the government increased the top tax rate from the current rate of 35% to 100% (yes, that's right 100%), it would only collect an extra $400 billion this year. In other words, confiscating all the income that is currently taxed at 35% would not raise enough revenue to cover any of the annual deficits projected in the next 10 years. There is no way that tax hikes on the rich alone can pay for proposed spending in the current budget.

Total Bailouts to Date: Quantifying Why We "Threw Tea Overboard"

Further to Justin's post "Don't Let Them Convince You ..." and in the spirit of non-partisanship, a quick review of the original impetus for the Tea Parties is in order:

Two administrations. Two Congresses. An incomprehensible level of spending.

The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

Bloomberg, March 31, 2009.

Two Tax Day Protests

From the Providence Business News:

From 10 a.m. to 8 p.m., a group of activists plan to greet tax filers at the Corliss Street post office to protest the cost of the war in Iraq and the defense budget. The groups that will be represented include the American Friends Service Committee, Ocean State Action, Declaration of Peace Campaign Rhode Island, and the Rhode Island Mobilization Committee to End War and Occupation.

“Rhode Islanders have spent billions of dollars on the war in Iraq and continue to do so,” Martha Yager of the Friends Service Committee said in a statement. “The military budget, bloated with funding outdated weapons systems and 300 percent cost overruns that would be completely unacceptable in any other part of government, continues to suck up over half of our nation’s discretionary spending.”

“With that money, we could have avoided the state’s deficit, funded Head Start, health care and education, and have been ready to help families hit hard by the state’s recession,” she added.

Fiscal conservatives plan to hold their own “Tax Day Tea Party” protest in front of the Statehouse in Providence from 3 to 6 p.m. The event will coincide with hundreds of other rallies that will be held today in as many as 2,000 cities nationwide, organizers said.

The event, which was organized by Pawtucket resident Colleen Conley and will be hosted by WHJJ-AM radio host Helen Glover, will feature more than a dozen speakers. They are scheduled to include the radio host John DePetro; Justin Katz, who writes the Anchor Rising blog; James Beale, president of the Rhode Island Statewide Coalition; and Robert Healey Jr., who ran for lieutenant governor in 2006.

The Tea Party protesters will call on politicians to reduce government spending and cut taxes. “On the part of both state and federal elected leaders, I think they need to take a hard look at what they’re spending our money on, and re-prioritize,” Conley told Providence Business News. “There’s a lot of wasteful spending out there.”

It's really not that nefarious or difficult to understand: the Tea Parties are an opportunity for people to advocate for reduced government spending and to rail against the professionalization of politics; all in an effort to exhort our government to spend our tax dollars more wisely.They're fed up with a political class that is increasingly out of touch with regular American tax payers.

For progressives, this was an opportunity to actually lend their support to a non-partisan, grass-roots movement aimed at doing what they claim they desire: democratizing the political system by "waking up" politicians to the needs of the common man. The truth is, these self-proclaimed progressive political insiders aren't really keen on changing the system. Instead, they devoted all their time trying to denigrate the effort and looking for George Soros-like conservative funders (I guess you assume what you know, eh?). Ah well, as the kids say, whatev.

Fiji, the Tax Man and Joe's Estate

Under "Fiji: Undemocracy in Action", commenter Joe B reminds us that Fiji is a tax haven for many, including the family of the senior senator from Massachusetts.

The Obama administration and some members of Congress would like to begin cracking down on tax havens by giving

... U.S. regulators the authority to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement.

When certain members of Congress decided to jack up the red herring of bonuses issued to some AIG staff members, they saw no problem with and vociferously advocated for an ex post facto law that would have retroactively taxed those bonuses at a rate of 90%+.

With that "precedent" in mind, if the tax status of Fiji is redefined under law, will Congress then pass an ex post facto law that would recover the many millions in estate taxes lost to trusts, including that of Joseph Kennedy, Sr., domiciled in Fiji rather than the United States?

Can We Afford to Do Everything?

Under Justin's post "Because They're Better than You" about the Chief Justice's nifty office renovation, commenter EMT points out that

... part of the cost was due to the historic status of the building.

Respectfully, regretfully, is it possible that we can't afford to keep or maintain historic buildings?

The renovation of Justice Williams' office highlights an unfortunate tendency when someone else's dollars are being spent. In the public sphere, when tax dollars are involved, the expenditure of certain budget dollars somehow doesn't count.

- It's a historic building so we had to overspend.

- We opened that new school/police station/fire station. That's why our budget went up that million dollars year over year. (Hello, Cranston.)

And the reaction too often is, "OOOH, okay." It's a one time expenditure that didn't go to salaries, benefits or supplies. The money to pay for it will come off the One Time Expenditure Money Tree.

Except, of course, that it doesn't. This is not to question the necessity of projects such as schools and public safety buildings. But in actuality, there is no money tree. However necessary the expenditure, additional tax dollars must be collected to cover this expenditure, whether it be up front or as a bond. (Bonds count as spending, too!)

The way it works in real life is that if an extraordinary expenditure comes up, either another item of an equal amount is cut from the budget or the extraordinary expenditure is not made. In the public sphere, there's a third option: hand the bill to someone else.

Case in point. The state has issued an RFP for the restoration of the exterior of the Statehouse Dome. All surfaces to be washed with a trisodium phosphate solution. Three coats of paint on some surfaces. Marble to be repointed, grouted and waterproofed. All seals checked and repaired. Et cetera. By the way, bidding contractor, the historic people will be looking over your shoulder.

We have the most beautiful capitol in the world. Design, construction, materials -- seriously, it's breath-taking. But how much is this restoration project going to cost? What will be cut from the state budget to fund it? Alternately, what has the state been spending money on that should have been set aside for this project or, even more expensively, to pay for the bond?

Some would say that it would have been wrong to save for such a project; the expenditures made were correct and should, indeed, come ahead of a historic renovation, which might be viewed as a luxury. Good, bring on the debate about priorities. The point is that there are a finite number of hard earned dollars in the kitty. And every reach-in counts.

Gotta Take a Dollar to Give a Dollar

Tom Sgouros has penned another missive explaining why Rhode Island's fiscal conservatism has spelled its doom, and why more progressive spending and a bigger state government is the solution. I know. I know. Such are the indications that, though we all breathe the same air, we live in the different realities of our preconceptions.

One side's obvious conclusions are the other side's insidious illusions. My first reaction is to see in Tom's rhetoric and in his sources a deliberate deception founded in financial and ideological motivation. His sympathizers will see in my response a desperate attempt to spin away the incontrovertible at the behest of the puppet masters who control my financial well-being (and at whose suggestion I suffer through those staged photo shoots on construction sites).

I'll give Tom this: He bases his argument on a persuasive table, which Economy.com's Mark Zandi has gone so far as to present to Congress (PDF):

My understanding of this data — although specifics aren't easily available — is that it derives from a macroeconomic model into which Zandi plugged the various instances of government spending. If that's correct, then the exercise is fatally skewed based on the simple fact that the government must take a dollar in order to give a dollar.

Actually, the government must take more than a dollar in order to give a dollar. In 2004, for example, the Food Stamp Program spent about $0.20 for every dollar that it gave away (PDF). That's not the whole story, of course, because there were expenses associated with collecting, allocating, and processing the program's budget. According to Charity Navigator, 9 out of 10 charities spend no more than $0.54 per dollar given away on administrative costs, and 7 out of 10 spend no more than $0.33. For the sake of consideration, then, let's assume that it costs the federal government no more than another five cents per dollar handed out to get that money from the taxpayer to the Food Stamp Program, so the total cost per food stamp dollar would be $0.25.

That means that, for every food stamp dollar given, the government must take $1.25 out of the economy at some other point. According to Zandi, an across-the-board tax cut would add $1.03 to the next year's GDP, so it follows that taking a dollar costs $1.03. Based on an across-the-board increase in taxation, the cost of every food stamp dollar is therefore $1.29, making the actual amount that the whole process adds to the next year's GDP only $0.44. Inasmuch as it does not cost any money not to take a dollar from somebody, a broad tax cut would actually add $0.59 more to GDP than would the food stamp.

The intuitive sense, here, is that it doesn't make any difference, economically, whether I spend a cash dollar on groceries or a welfare recipient spends a food stamp dollar on the same items. If the government largess is extracted from everybody, then the working poor and middle class don't have those dollars to spend. In fact, it appears that funding food stamps by taking a dollar from a family that must therefore reduce its grocery bill in response winds up costing the GDP $0.43.

The appeal of Sgouros's argument comes in the fact that those who don't have to spend will tend to save; those who take in more than they could possibly spend will save even more. Indeed, looking at the numbers on the table, it's tempting to observe that a one-dollar increase in the corporate tax rate would appear to cost the GDP only $0.30, so reprocessing that dollar into food stamps would provide a net GDP gain of $1.43. That possibility is an illusion for two reasons. The first is that the $0.70 difference must come from some theoretical savings account (or untapped credit); thought through in reverse, the reason a dollar of corporate tax cuts only results in a GDP gain of $0.30 is that the rest goes somewhere unproductive. If that tax rate becomes confiscatory in order to alleviate the tax burden on the poor and middle class, corporations and the proverbial rich will not for long watch their reserves being depleted without reacting.

The second reason is that, when heavily taxing the rich, a marker of single dollars no longer applies. Wealthy entities (whether families or organizations) work in different amounts than do the the rest of us. It's true that a rich man may be less productive with a free dollar than would a poor man, but take from him ten million dollars, and he won't invest in a company, donate to charity, build a house, and so on, and those activities all filter down to folks who'll spend their money in the same fashion as welfare recipients, but without the government processing fee. If a few percent of the society is going to pay most of the cost of government, the taxation dollar amounts are exponential.

To be sure, Sgouros whistles an enticing tune when he writes:

People routinely misunderstand the important points of policy that stem from Keynes's findings. Government spending and progressive taxation aren't good things because they support government workers or "punish" rich people. They are good things because they are how a government can help the economy grow. (Up to a point, of course, a detail Keynes made clear.) Government workers with money to spend will spend it, and that drives the economy. Progressive taxation keeps more money in the hands of the poor and people in the middle, both of whom are more likely to spend their income than rich people are.

But he loses the thread of his earlier wisdom. Private-sector workers funded via mutual agreement will also spend their money, but they have more reason to earn it efficiently than public-sector workers funded via compulsory taxation. They also can't hide their wealth as thoroughly. Tom notes that a "dollar saved is not a dollar invested" and that "people have different preferences for how they hold their money," but he doesn't acknowledge that unionized government workers save their money in the form of perks, accumulating benefits, and defined-benefit pensions. There must be some form of savings — actual or theoretical against future taxation and revenue — in order for somebody in his '40s or '50s to retire for the rest of his life. A person who lives for thirty years on an annual pension of $35,000 had stored away over a million dollars in some nook of the system.

For its larger projects and continued growth, a society needs people with financial reserves, but those reserves have to be accessible for spending. A society also needs people motivated to create, and capable of creating, wealth, and those (as I've argued here, here, and here) are the families that Rhode Island has been chasing out. Sgouros and Co. can flash all the statistical pictures they want, but what Rhode Island must do is to maintain the number of wealthy taxpayers while relieving the burden of (and thereby attracting) the productive class.

Ultimately, that leaves only one broad category to which to turn to balance the state's budget: Those who represent a net cost to the government.

RISC Winter Meeting: Gary Sasse Talks Taxes

Giving the first speech at the Rhode Island Statewide Coalition's Winter Meeting, Gary Sasse, Governor Carcieri's Director of the Department of Administration, spoke about tax policy (stream entire speech):

• RISC Chairman Harry Staley's introduction: stream, download
• Sasse's opening remarks — we compete for capital and labor, and tax policy affects our success: stream, download
• The reason for a Tax Policy Workgroup was our lack of competitiveness — we were "taking money out of the private sector and putting it in the public sector in a very uncompetitive way": stream, download
• The need for reform to prepare for the end of the recession: stream, download
• The tax reform in the governor's current budget — increase exemption of estate tax, phase out and eliminate the corporate tax ("That is the perception change we need. That is a bold step."), decrease personal income taxes ("Every income group, up to a half million dollars, pays lower average income taxes under the proposed system."): stream, download
• Closing remarks: stream, download

Governor Patrick's Trivialities

Amidst a billion dollar state deficit, a flagging economy, a state hiring freeze and a raging debate about whether to raise tolls or jack up the gas tax (with the smart money on a compromise - "what the heck, let's do both"), Massachusetts Governor Deval Patrick has been focusing on the important things.

- Appointment of a senator to a long-dormant $175,000 job;

- Hiring of a heavy campaign contributor to the newly created post of director of real estate services; annual salary: $120,000. (Did I mention the state's hiring freeze?)

- Hefty raises for a couple of sheriffs.

Add to that his Turnpike Authority which has implemented his campaign promise to lay off toll takers by hiring two staffers at a nifty $100,000 per annum.

I said these items are important, didn't I? My mistake. They are not important.

A dismissive Gov. Deval Patrick yesterday belittled as “trivial” recent exposes detailing plum jobs and fat raises to the politically connected under his watch, saying the controversies won’t distract him from “meaningful” issues.

“One of the challenges in life is concentrating on the meaningful and letting the trivial take a back seat,” Patrick said in the Senate reading room, after a reporter asked him whether patronage-packed Beacon Hill still has credibility with the public.

“I sometimes feel like I’m in a profession now where that is completely upside-down,” he added.

Funny, we feel that way, too, Governor. It might have been better to have skipped the trivialities altogether.

Good Night, Sweet Tiverton

I hadn't planned to attend the Tiverton Budget Committee meeting on Wednesday night, so when my eyelids became heavy around 9:30, and with the meeting looking as if it had settled into a series of unanimous votes on heavily debated dollar amounts, it was easy to talk myself into heading home. I wish I'd stayed:

All but one voting member of Tiverton's Budget Committee supported a proposal to move the town's financial town meeting to a later date, when more concrete state aid figures are available.

The vote came at the end of a long budget meeting Wednesday night, and just days before the Town Council is scheduled to meet and discuss whether to ask the General Assembly for the ability to postpone the meeting, which the town charter states is to take place the second Saturday of May. ...

Budget Committee Chairman Jeff Caron did not vote on the motion, and Vice Chairman Robert Coulter voted against it. The chairman usually votes only as a tiebreaker. ...

Sanford Mantell, a newly elected member of the Budget Committee, said he didn't have a problem with a request by Town Council President Donald Bollin for "unified" support from the Budget Committee to move the financial town meeting to a later date.

Some committee members made it clear that they would not want the meeting to open on May 9 only to be recessed to a later date. That would disenfranchise voters and cost the town additional money, they said.

Caron said the committee will continue to work on its budget recommendations and have a docket ready for May 9 if the meeting does end up convening on that date.

I very much hope I'm wrong about this, but it appears to me that the powers of Tiverton are in the midst of another scheme. Facing unexpected push-back from the budget committee, the town council and school committee squeezed their budgets as hard as they could even pretend to be doing. (Recall statements from the town side that the draft budget that they approved is "too low," even presenting a danger to residents.) Between that, some likely fudging of probable contract terms, and a very deep dip into reserve funds, the town brought the expected tax increase below the state cap.

That will depressurize some of the incentive for citizen activism, and a postponement of the financial town meeting will push actual decisions into the lazy summer, perhaps after municipal and school contracts are a done deal. No doubt, town officials are still hoping for the magic Obama money to save the day, but I suspect they're already planning methods of peeling the facades from the budgets and coming on strong with the message that "we must raise taxes" because we're awash in "obligations."

Business as usual may be in the middle of a hiccup, but it remains the paradigm, and when our eyes clear, we'll see whether the town's gamble that the world will go back to the way it was has paid off. Me, I think Tiverton's future gets a little bit darker every week.

As I said, I hope I'm wrong.

Talking About Bonuses

On last night's Matt Allen show, Monique and Matt shared disbelief at the disbelief that Congress (particularly one marble-mouthed representative) has expressed regarding AIG's bonus handouts. Stream by clicking here, or download it.

Latest on the Bonus Sideshow

The BBC reported last night that the US Treasury Department will hold back the amount of the bonuses from the next round of bailout money to AIG.

Ailing insurer AIG will pay back the hugely controversial bonuses it awarded after taking public bail-out money, the US treasury secretary says.

In a letter to congressmen, Timothy Geithner also said $165m (£116m) would be taken from $30bn the firm is due to get as part of its government bail-out.

While it will hopefully quell foolish suggestions to create highly targeted (and therefore highly illegal) income tax brackets of 100%, this resolution has not derailed today's AIG hearing before Congress, where relieved outrage has not abated

The remarks did not assuage the anger expressed by both Democrats and Republicans in response to the bonus payments to workers at AIG's financial products unit. Frank called the payouts "wholly unjustified," while other lawmakers took aim at the firm's management

and clever new names for the firm were presented.

"AIG now stands for arrogance, incompetence and greed," Rep. Paul Hodes, D- N.H., said.

Congressman, you've made it awfully tempting to fill in the acronym CONGRESS.

The real outrage, of course, is Congress placing AIG (and other private corporations) in a position to hand out tax dollars to begin with as part of a very expensive and highly quizzical effort to stop or shorten the fiscal slide created in 1995 by Congress itself, along with the Executive Branch. Every indignant word spoken at that hearing today to the hapless Mr. Liddy should be reserved instead by that congressperson for a quiet session with a mirror.

UPDATE

Question for Congressman Frank: in view of the death threats received by AIG management and employees, is it altogether prudent to be requesting the names of those who received bonuses?

UPDATE 2

And a follow up, sir. Will you also be requesting the names of those employees at Fannie and Freddie due to receive bonuses? [H/T Drudge.]

Who Is Outraged?

So let's understand this.

The government precipitates a fiscal crisis by

1.) Authorizing/encouraging banks to make bad real estate loans: President Clinton with the help of both Repubs and Dems in Congress;

2.) Repealing Glass Steagall: President Clinton, egged on by Senator Phil Gramm and with the help of both Repubs and Dems in Congress;

3.) Fending off all oversight and regulation of taxpayer-backed Fannie and Freddie: Congressman Barney Frank, all by his little self.

[Other/overlooked failures cheerfully appended.]

The government - one Republican president, one Democrat president and lots of Repubs and Dems in Congresss - then tries to fix the problem it created by shoveling massive amounts of our tax dollars out the door, much of it without strings or conditions (by the way, why didn't regulation-adoring Democrats scream bloody murder about this at the time? but this is intended to be a bi-partisan/anti-partisan post), in an effort to correct market and other forces that need to work themselves out "naturally". Side note: painful as that would be, it would be much less painful in the long run than dismantling what remained of a capitalist economy and converting to ... something else, whatever that would be.

Yet for the last couple of days, Congressman Frank, the junior Senator from Rhode Island and other federal officials have been very indignantly directing outrage at the private corporations involved for distributing bonuses that they (our elected officials) facilitated?

Getting out the calculator here ... Hang on ... Yup, trillions of dollars wasted on bailouts and stimuli is a larger amount than $165 million wasted on unearned bonuses.

I agree it is outrageous that hard earned (and not yet earned) tax dollars have been distributed in this and other irresponsible fashions. But with their high dudgeon pronouncements, aren't our elected officials really saying,

Pay no attention to the trillions we've spent like sailors on shore leave. Look! Look at those millions being spent over there!

In short, how can this dramatic reaction by our elected officials be viewed as anything other than a vigorous attempt to distract us and deflect blame from themselves?

Business Tax via Sales Tax

An article in last week's Sakonnet Times (not online) informs the reader that my representative in the State House, Jay Edwards, has submitted legislation reducing the sales tax:

"This legislation would stem the tide of consumers who leave Rhode Island to shop in Massachusetts just to save on the sales tax," said Rep. Edwards. "We must start thinking of ways to make our state more competitive instead of accepting the status quo and allowing Massachusetts and Connecticut to reap the additional sales."

The bill does not spread the tax to everything — as previous efforts have seemed to attempt — but there is some curious broadening, considering that the name of the game is competition. Taxes on computer software and floral business equipment are one thing, but adding a tax on the necessary supplies of the jewelry industry and greatly expanding the net that would catch commercial fishing boats in the sales-tax Web from 5-ton vessels to 50-ton vessels seems a bit like circling around ailing bison.

Why can't we just cut the sales tax, period? Maybe when our state economy has rocketed to the forefront of the nation we could think about broadening it, but desperate times call for bolder measures.

Twenty Percent of Massachusetts Stimulus Dollars Directed to Honor One Family

Who would that be? You guessed it.

H/T Howie Carr. From the American Thinker:

According to an AP article , Massachusetts is receiving 126 million stimulus dollars; of that amount more than 1 out of 5 of those dollars "is going to help preserve the legacy of the Kennedys."

1) $5.8 million to plan and design the new Senator Edward M. Kennnedy (D-MA) Institute for the Senate plus, perhaps, an endowment for said institute. (Quietly insert your own free Senator Edward Kennedy Senatorial Institute joke here.)

2) $22 million for expanding the John F. Kennedy Presidential Library and Museum.

3) $5 million for a downtown Boston park; a new gateway to Boston Harbor Island on the Rose Kennedy Greenway.

A caller to Howie correctly pointed out that the honorable thing for the Kennedy family to do would be to decline these projects and suggest that the funds be directed to more urgent and practical projects.

Governor's Tax Policy Workgroup Report

Governor Carcieri's Tax Policy Strategy Workgroup has released it's report (short version; long version). The ProJo has a story on the report and another on the impact that tax cuts will have on the budget deficit. They even have a poll asking, "Can Rhode Island afford to cut taxes now?" Funny, I don't recall any polls over the last decade or so asking, "Can Rhode Island afford to continually increase spending and grow government?" Anyway, here are the highlights of the committee's recommendations.

Tweaking the Pork Position: Aged is Fine, Fresh is Bad

As Congress successfully fends off attempts to reduce the considerable pork in an omnibus spending bill, President Obama has indicated that he will not veto the bill. Defending an apparent flip-flop on a campaign promise,

The White House says this bill is just last year's unfinished business -- and next time, it will be different.

"We'll change the rules going forward," White House Press Secretary Robert Gibbs said Wednesday when asked about the legislation.

For the record, Senator John McCain lists... make that, tweets the "Top 10 Porkiest Projects" in the bill.

And Conn Carroll over at the Foundry points out that the costly aspect of pork is not so much its own price tag but what it buys.

The problem with earmarks is not $16 million for water-taxis and manure management. All 9,287 earmarks in the omnibus bill come to a total of $12.8 billion, or 3% of the total package. The problem with earmarks is the other spending that 3% buys. As data from the Office of Management and Budget shows, the rise in the number of earmarks tracks closely with the rise in overall spending by the federal government. Sen. Jim DeMint explained the link to Politico last year: “I talked to colleagues who would say, ‘DeMint, I gotta vote for this bill because it has my project in it,’ even though the bill was way over budget.” The evil of earmarks goes far beyond their nominal price tag. The real damage they do to our country is the votes they buy for ever higher levels of spending.

Flipping that around, every serving of pork, earmarked as much for a reelection campaign as for a specific district, comes with a three thousand percent surcharge. On the bright side, it all ends next year ...

Taxing the Rich and Hurting the Poor

Apparently we are all well aware that the rich can afford to pay more taxes--"their fair share." But can the poor afford it?

The administration’s recently released budget will limit tax deductions on gifts made to charities by those earning over $250,000 a year, raising (we are told) almost $180 billion over the next ten years. It’s an extraordinary grab for money — money given to private charities by private citizens as private donations. These donations directly fund programs that (among other things) feed, clothe, and house the poor, deliver after-school programs to disadvantaged children, build new facilities for colleges and other schools, and generally enrich everyone’s lives through education and the arts.

The way this will work in practice goes like this: Assume someone in the top tax bracket wants to make a $1,000 donation to a local homeless shelter. Currently they would be eligible for a deduction at the top 35 percent rate, so the donation costs them only $650. This proposal would allow deductions at only the 28 percent rate, meaning the donation will now cost $720, an increase of over 11 percent. In other words, $70 that could have gone to the homeless shelter will now go to the government. In the aggregate, then, charities can expect to lose about 7 percent of their contributions from givers in the higher tax brackets. The new top tax rate of 39.6 percent in 2011 makes the math even more punitive, making the cost of donations 19 percent higher.

A study released Friday by the Center on Philanthropy at Indiana University shows that if the provision had been in place in 2006, charities would have lost almost $4 billion in donations in the intervening period. With the incomes of the so-called wealthy dropping, at the same time that their taxes are going up, it’s hard to see how limiting the deduction will not have a significant impact on charitable giving. The dollars taken away from private donations and directed into government coffers are not going to be magically replaced.

The drop in giving is less stark when looked at in the context of how it would affect all Americans who itemize on their tax forms and claim charitable deductions. Total giving by people who itemize would have dropped just 2.1 percent if the Obama plan had been in effect in 2006, the center estimated. Itemized charitable contributions totaled nearly $187-billion that year.

But the center cautioned that giving is far more likely to be affected by the condition of the stock market than by President Obama’s tax proposals. It noted that every time the stock market declines by 100 points, giving declines by $1.85-billion. Charitable donations rise by that same amount when the stock market increases.

Patrick M. Rooney, interim director of the Indiana center, said he worried about the effect of the tax change at a time when the downturn in the economy has put a squeeze on many donors and the charities they support.

“Tax incentives do stimulate more giving,” Mr. Rooney said, “and the challenges facing the nonprofit sector in 2009 suggest that this might be a good time to provide additional incentives, rather than reduce the value of the tax deduction for high-income households, so that the donors with the greatest capacity to give have more reasons to do so.”

12:30 PM | Comments (1) | TrackBack (0)

Obama Versus Tax Dodgers

President Obama is going to go after international tax dodgers (h/t):

President Barack Obama's Treasury secretary says the administration will unveil a series of rules and measures in the coming months to limit the ability of international companies to avoid U.S. taxes.

Treasury Secretary Timothy Geithner told the House Ways and Means Committee on Tuesday that Obama will propose legislation to limit U.S. companies' ability to shelter foreign earnings from taxation in the U.S. He also said the administration will try to limit wealthy Americans' ability to use tax havens to avoid taxation.

Ka-Boom! Tiverton Residents Sue for Refund of Illegal Tax Increase

Things are going to get even a leetle more interesting in our sleepy corner of the state:

Danielle Coulter, a chiropractor and Tiverton School Committee member just elected to office last November, has filed a lawsuit against the Tiverton’s tax assessor.

She claims that last year’s property tax levy in excess of the tax cap was excessive and unlawful, and she asks the court for relief from paying the taxes on property at 34 Lawton Avenue which she and her husband Robert D. Coulter are listed as owners.

Their property is assessed for tax purposes at $395,700 and they pay, according to tax assessor records, $4,455 in taxes.

Mr. Coulter is a lawyer with a Providence law firm and was elected last November to the town Budget Committee, on which he serves as vice-chairman.

Explaining the process that "has brought about this suit," Ms. Coulter said "I am simply appealing my tax bill, everyone has that right."

"The suit is not about money," she said. "The overall amount in question is $193. If returned to us it will be donated to the Tiverton Land Trust. The Financial Town Meeting process is in question. This is about fairness and following the law. It is my belief that the town was lied to in the initial FTM, regarding the timing needed to reconvene the next FTM." ...

Ms. Coulter made other allegations in her complaint about last year's town meeting that she said was "fraught with irregularities ... (that) amounted to a deprivation of due process."

I can't promise to give my refund to charity, but I might donate some of it to a joint Coulter reelection fund.

High Taxes Coming

From ABC News:

President Obama's budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.

1) On people making more than $250,000.

$338 billion - Bush tax cuts expire
$179 billlion - eliminate itemized deduction
$118 billion - capital gains tax hike

Total: $636 billion/10 years

2) Businesses:

$17 billion - Reinstate Superfund taxes
$24 billion - tax carried-interest as income
$5 billion - codify "economic substance doctrine"
$61 billion - repeal LIFO
$210 billion - international enforcement, reform deferral, other tax reform
$4 billion - information reporting for rental payments
$5.3 billion - excise tax on Gulf of Mexico oil and gas
$3.4 billion - repeal expensing of tangible drilling costs
$62 million - repeal deduction for tertiary injectants
$49 million - repeal passive loss exception for working interests in oil and natural gas properties
$13 billion - repeal manufacturing tax deduction for oil and natural gas companies
$1 billion - increase to 7 years geological and geophysical amortization period for independent producers
$882 million - eliminate advanced earned income tax credit

Total: $353 billion/10 years

If the government took 100% of earnings from those making more than a half-million dollars a year, it would add only $1.3 trilion to federal tax receipts. Even the most ardent demand-side economists who usually scoff at the Laffer Curve, will have to admit a 100% tax rate is going to yield significantly smaller receipts.

Barack Obama’s plans to hyper-inflate the government bubble while he taxes the rich at confiscatory levels, is so certain to collapse the economy that I can only conclude that he is a brilliant Rovian plant whose purpose is to finally drive a stake into the heart of the era of big government.

Hammering the Tax-Cut = Pay-Increase Principle

Those seeking some reason for optimism may find it (in small measure) in Neil Downing's language:

More than 400,000 Rhode Island workers will soon receive what amounts to a pay raise.

Employers by April 1 must begin withholding less federal income tax from paychecks.

Thus, workers will soon be taking home more than they are now — about $10 more a week for someone who is single, about $15 more a week for someone who is married.

If taxpayers begin to think in those terms, maybe they'll start to wake up. The federal, state, and municipal governments could all give us raises — which would be more substantial than a few cents per hour — in these hard times by cutting spending.

Another RI Newcomer Speaks Truth to Insanity

Gary Smith, of Newport, has come to a conclusion that will be familiar to Anchor Rising readers:

So I asked myself: What is keeping companies away, especially those for whom shipping is not an issue? The answer is and has long been obvious — taxes. CEOs won't relocate to places where their high incomes get hit hard. Companies won't relocate to a state where corporate taxes exceed those of neighboring states. So it would appear that the recommendations of the governor's panel are right on target — and the key part of the panel's findings is that the changes, if enacted, will be revenue-neutral.

It's time for our legislature to wake up and move forward expeditiously and get this state on the move again; it has much to offer. Maybe it takes an outsider to see it. With competitive taxes I think Rhode Island is an easy sell.

Welcome to the battle, Gary. I regret to inform you, however, that the project is much more daunting than you realize.

Exercise your Constituent "Franking" Right

Can't find any web reports but I heard a news report that the House has just passed the non-economic stimulus bill and the Senate was expected to act on it later today.

Do you support or oppose this bill? Let your voice be heard. Senatorial contact information below.

Senator Jack Reed: (202)224-4642. Website.

Senator Sheldon Whitehouse: (202)224-2921. Website.

No More Political Cover

This is an instructive episode:

A House vote to raise the state's cigarette tax by $1 a pack — to what would be the highest level in the nation — was aborted at the last minute yesterday after Republican Governor Carcieri yanked his support from his own tax-raising proposal.

Carcieri's eleventh-hour move was announced by a visibly annoyed House Finance Committee Chairman Steven Costantino on the House floor, the unexpected development punctuated by this uncharacteristic utterance by House Speaker William J. Murphy: "Get it out of here!"

Earlier in the day, Murphy had said raising the cigarette tax "doesn't bother me" because people choose to smoke.

It appears that the General Assembly Democrats would very much like to raise taxes as a way out of their personal-special-interest-debt conundrum... but not without cover. I say that the governor should finally learn this lesson: Go for the conservative gold and declare that anything less is the full property of the legislature. Make them wear it. Make them fight for every ounce of political cover that he's willing to give as part of negotiations.

Meanwhile, remind them that the clock is ticking and that the bomb is on their desk.

Increasing the Cigarette Tax: Will the GA Put Our Money Where Their Mouth is?

The extra financial burden of smoking to the health care system and, more specifically, the state has been put forward as one of the justifications for the proposed one dollar increase to the state cigarette tax being contemplated by the General Assembly even as we speak.

It was interesting and a little nauseating to read in today's ProJo that tobacco is a significant driver of customer traffic for certain stores and that making cigarettes sold in Rhode Island the highest taxed in the country might impact the overall business of those stores.

It also failed to take into account the impact on lawmakers of a hearing-room packed with convenience store owners begging them not to choke off a rich vein of business for them. Their warning: Fewer people will be able to afford cigarettes and those who can will look to the Internet and low-cost states such as New Hampshire for cheaper deals.

The feared result: Rhode Island’s sales will plummet and they’ll lose much-needed business. Manish Modi, who owns a small convenience store in West Warwick, told lawmakers at a recent hearing that he’s barely surviving as it is. “I cannot afford to lose any more business,” he said. “This tax increase is going to drive more and more people to close their stores and drive me almost to bankruptcy.”

Setting that concern aside for a moment and projecting that revenue to the state does increase, in view of one of the asserted reasons for this tax increase, will revenue derived by the state from this tax increase be segregated and directed not into the General Fund but towards the state's tobacco related health care expenses?

A Hidden Tax in the Middle of the Road

Rhode Islanders are beginning to catch on, I think, to the game whereby the state government spends our tax dollars on labor costs, entitlements, and other non-essential or excessive line items and then returns to the taxpayers requesting the passage of bonds for infrastructural basics, like roads. As has come up on Anchor Rising, before, the scheme contains a hidden tax, as well:

Gaping potholes have opened up in town and are snagging cars left and right.

All on Feb. 2, police received reports of eight incidents where drivers struck a pot hole and seriously damaged their vehicles — and many more strikes went unreported. All of these incidents occurred on state roads, and those with damage to a vehicle resulting may be able to recoup up to $300 from the state. ...

A Portsmouth man said he was at the Cumberland Farms on East Main Road, between Pine Tree Road and Schoolhouse Lane, when he noticed four drivers in the parking lot with "blown out tires." Twenty minutes later, he got a call from his daughter who needed help changing a tire that was popped by the pothole near Pine Tree Road.

When he arrived to help his daughter, he said "another six cars were changing their tires at that time."

"This is outrageous," the man wrote in the report he filed with police. "Because it is a state road, police cannot do anything. Shame on the R.I.D.O.T."

Police checked out the pothole on East Main Road near Pine Tree Road and measured it at one foot wide.

Department of Transportation Public Affairs Officer Dana Nolfe said on Tuesday that DOT's dispatch received six calls that day about potholes on state roads in Portsmouth. Now that DOT is aware of them, she said, workers will go out and patch the holes as soon as the weather permits.

Yes, in the extreme, direct circumstances, the motorist can recoup some or all of the repair expense, but note the declining number: One eyewitness observed a total of thirteen cars, while police received reports of eight, and the DOT heard from four people (who weren't necessarily among those experiencing damage).

One also must remember that the $300 doesn't cover the lost time, productivity, and peace of mind on the day of the incident or of the repair. More broadly, it doesn't cover the gradual accelerated wear on the vehicles of everybody who drives over the miles of rough roads every day nor the time and aggravation of those who face the roads' effects on traffic. The right-hand southbound lane of West Main in Portsmouth is a painful ride — just about undrivable in a work van — so drivers tend to stay in the left, congesting flow.

To avoid such outcomes is why we pay taxes in the first place.

More Tax Aversion from the Tax-and-Spend Left

I'm sure Tom Daschle had every intention of filing three years of amended tax returns (one for every year since he was bumped from public office, I believe) whether or not he'd been presented with the opportunity of joining the Obama administration:

Thomas A. Daschle recently filed amended tax returns for 2005, 2006 and 2007 reporting $128,203 in additional tax and $11,964 in interest. The adjustments resulted from additional income for consulting services and the use of a car service, and reductions in charitable contribution deductions. Senator Daschle filed the amended returns voluntarily after Barack Obama announced his intention to nominate the senator to be the Secretary of Health and Human Services. The Presidential Transition Team identified the charitable contribution issue and Senator Daschle self-identified the income adjustments.

If not, citizens of the United States of America — even those who support the current president — might have reason to question whether Mr. Daschle possesses the ethical fortitude to hold appointed office.

Discouraging Behavior

This quotation from the Providence Journal's latest story on Gov. Carcieri's tax panel pretty well highlights the philosophical differences at play:

... under proposals involving the personal income tax, lower-income and many higher-income taxpayers would generally pay less, but middle-income taxpayers — and the state’s highest-income taxpayers — would generally pay more.

This is partly because the proposals would eliminate most tax credits; end the favorable tax treatment of profit on the sale of stock and other such assets; and prohibit a taxpayer from deducting, for state tax purposes, such items as charitable contributions, mortgage interest and local property taxes.

So the disfavored demographic in this proposed tax rearrangement would be charitably inclined homeowners investing in the state. Somehow I have a difficult time believing that this particular panel is trying to edge the state even closer to socialism, but at some point effect must subsume intention.

Et Tu, Cusack?

Damien Baldino beat me to the punch, but the same thing jumped out at us both from this article about Massachusetts Governor Deval Patrick's consideration of toll booths at the border:

Robert Cusack, a member of the panel and an East Providence councilman, said that the Massachusetts governor has the right idea. As much as his own constituents would dislike paying fees and tolls, he said, he thinks they would rather pay a toll than live with a disruption to a state highway system in disrepair.

"We are the lowest state in the Union when it comes to our percentage of contribution to highway repairs. On average, states contribute 60 percent of the cost of repairing their highway infrastructure. We contribute somewhere between 20 to 30 percent, and have been relying on the federal government to pay the rest."

Cusack said people may complain about tolls, but New Hampshire has had tolls for a long time and no one complains. "New Hampshire has more severe weather, but their roads are in first-class condition because they have tolls to finance it."

Of course, tolls in New Hampshire are more of a use fee in lieu of taxes. Our taxes are already high — ostensibly with the roads included therein. Administrators and legislators throughout our state must get it into their heads that there is no viable long-term solution that involves squeezing more money out of Rhode Islanders.

Those Who Face Reality, Those Who Do Not

AR commenters and contributors have observed for some time that the source of the budget problem now facing the state and locals is not a lack, demonstrated by our high property and other taxes, of revenue but rather, many years of imprudent spending.

In Providence, Local 1033 of the Laborers’ International Union of North America representing 1,900 city workers has offered concessions, including an 18 month pay freeze.

In Cranston, Local 153 of the National Association of Government Employees representing one hundred school custodians and maintenance workers have agreed to forego raises for two years and to contribute more towards health coverage.

Both sides called the contract a compromise, one that saves money and puts people back to work.

“A job is a job,” said John F. Carbone, president of Local 153 of the National Association of Government Employees. “In layman’s terms, we were able to save five jobs.”

Tuesday night, East Providence City Councilors instructed legal counsel to research and report back on the option of municipal bankruptcy. By making such a request, it is clear that they are serious about their promise not to try to stick their taxpayers with a substantial budget shortfall. Quite simply, there is no more revenue to be had. Local 1033, Local 153 and the City of East Providence appear to be coming to grips with that fact.

As for "Those Who Do Not":

For Immediate Release

January 22, 2009

Statement from National Education Association Rhode Island (NEARI) President Larry Purtill in response to Judge Pfeiffer’s decision regarding East Providence:

We are disappointed in Judge Pfeiffer’s decision to deny the restraining order that would have stopped the East Providence School Committee from unilaterally rolling back teacher salaries and implementing a 20% co-share for health care. Teachers are being harmed by the loss of pay but we have confidence that the union has a good argument before the Rhode Island State Labor Board, who has initial jurisdiction in the case. At the moment, NEARI and East Providence teachers are considering all their options, based on the judge’s decision, including an appeal to the Rhode Island Supreme Court.

East Providence teachers, despite doing their job each day in teaching the students in their classrooms, are losing money and that will continue until we reach a resolution. With the anticipated increased revenue for education from President Obama’s Economic Recovery Package, the School Committee could put an end to this contract dispute by accepting the arbitrator’s award and or sitting down with the teachers in serious negotiations.

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Why Don't They See This?

In a press release announcing his nomination for Director of the Department of Administration, Governor Carcieri says of Gary Sasse that he has "more than 30 years of experience in crafting and analyzing sound fiscal policies and sustainability for government programs," but I'll risk exposing my ignorance to scratch my head at the proposal taking shape in Sasse's tax panel:

The changes, if adopted, would have far-reaching effects on thousands of taxpayers.

Middle-income taxpayers would generally pay more, while lower-income taxpayers and some higher-income taxpayers would generally pay less. ...

Broadly speaking, people with $30,000 or less in AGI would wind up paying less in tax than they do under the current system.

People with between $30,000 and $110,000 in AGI would end up paying more.

Most people with AGI above $110,000 would end up paying less. But those with the very highest incomes, above $5 million each in AGI, would pay more.

That "middle-income taxpayer" group describes pretty precisely the range of households from which Rhode Island is losing population every year, and such folks are crucial to economic recovery and growth. The rich have money to invest, yes, but they're not the ones who'll put in 80-hour workweeks to keep industries developing. What Rhode Island needs is to match the investment-ready dollars with people who can use them — people in the middle-income group who need reassurance that their efforts will bring them closer to six-figure salaries.

That makes these suggestions downright pernicious:

... taxpayers would no longer be able to obtain a state tax benefit by making a separate list of their deductions, a process known as itemizing. ...

Under the plan, favorable treatment would be eliminated and capital gains would be treated as ordinary income, the same as wages, for example.

As far as tax rate is concerned, the thousands of dollars that I've invested in tools each of the last four years are of little concern. In terms of both investments and income, the big-nose/big-toes tax regime draining the middle for the benefit of the edges would pound yet another nail in Rhode Island's chance for innovation and accelerated growth.

How is it that such apparently qualified panelists can miss this perspective?

Sitting Down with the Treasurer

RI General Treasurer Frank Caprio invited Anchor Rising for a sit-down chat in his office last night, centering on pension issues, but touching on various other matters.

In general, I think the four of us in attendance were reasonably impressed with the treasurer's explanations for economic policies and his knowledge of political history in Rhode Island. In specific, some of the more detailed material is going to take time for us to digest prior to comment, but a few clips might be of interest to readers right off the digital recorder:

• On complete financial transparency in his office, to be unrolled in a few weeks: stream, download
• In opposition to the use of state-owned vehicles: stream, download
• I got a chuckle out of the notion of fear among those in his office promoted beyond the union's bounds to become (scary music) at-will employees: stream, download
• Caprio's got a merit-based promotion system in place with his workers' union, and he thinks the practice is transferrable across government: stream, download
• Apparently, Rhode Island "only" pays 7% of its revenue toward debt service. I wasn't wholly satisfied with the Caprio's description of the comparative appearance of that statistic against a typical business and wonder whether it's fair to compare the government to a mortgage-paying household: stream, download
• On the possibility of municipal bankruptcy (or entry into "a process"): stream, download
• On his pension-plan thinking. Apparently, much of the cost of switching to 401k would come from accounting rules, but with the possible loophole of diminishing, rather than "closing" the defined benefit program: stream, download
• The reason that Rhode Island actually ranks pretty well when it comes to retiree healthcare costs: stream, download
• On abortion and same-sex marriage, neither of which would be his center of focus for any campaigns or offices: stream, download
• Running for governor?: stream, download
• Wherein I continue to strive for an answer on the social issues: stream, download
• On eVerify and immigration: stream, download
• On branding the state otherwise than with corruption and mob films: stream, download
• With regard to a port project and other initiatives, the treasurer agrees with me that a broadly attractive economic environment (tax cuts included) ought to be the focus of policies: stream, download
• An interesting response to my question about his thoughts on Republicans running as Democrats ("Why not the reverse?") and a discussion of the RIGOP: stream, download

The Intangibles of Rhode Island

With taxpayers — especially business taxpayers — beginning to get uppity, one often hears the invocation of Rhode Island's Political Knot. Nothing objectionable is anybody's fault; it's all a natural construct that can't be changed... at least by the person to