How Central Falls's Property Tax Rate Nearly Doubled Year Over Year

There's been some question, in the comments sections, about differing tax rates reported for property in Central Falls. John Hill explains what happened:

Last year, the total value of residential, commercial and industrial real estate in the city was just under $685 million. The new valuation, based on sales figures from the past year, was $411.6 million, a loss of $273 million, or 40 percent.

The drop in the value of taxable real estate meant the city had to increase the 2010-2011 tax rate just to generate the same amount of revenue as last year. Last year, the property-tax rate was $10.78 per thousand of assessed value; this year it went to $19.22 per thousand.

State receiver Mark A. Pfeiffer, who oversees the city's municipal finances, announced last week a 10-percent increase on top of that, to $21.14.

This is one of those ambiguities of taxation that comes up from time to time. Is the amount that you are taxed, for your property, better thought of in context of the rate or of the amount? Most RI towns treat your property essentially as a share in the government's cost and tax you according to your share more than directly according to the value of the asset that they're taxing. Personally, I think that slyly saddles homeowners with all of the risk for local property values, insulating municipal governments from the effects that their own policies can have thereon. But given all of the other things wrong with the way government operates in this state, it's not really worthy of a crusade.

A Slash with a Fake Sword

I think it's pretty clear, from Ed Fitzpatrick's Tuesday column that the Deepwater deal has put Republican general treasurer candidate Kerry King in an awkward position, but a tangential parenthetical from Fitzpatrick offers unfortunate indication that the tax-change scheme has succeeded in accomplishing one thing while saying another:

King, a retired life-insurance executive, began an Aug. 6 news release by saying, "I am not a fan of the government loaning money to businesses for any reason. We have banks to do that." But, he said, we wouldn't need to guarantee loans if we elected "pro-business candidates" who did things like lower taxes. (He didn't mention that state leaders just slashed the top personal income tax rate from 9.9 percent to 5.99 percent.)

What Fitzpatrick doesn't mention is that the 9.9% rate was a paper-only kind of a thing, in light of the now-evaporated flat tax (on top, recall, of the elimination of the favorable capital gains tax reform). What the General Assembly did, essentially, was to freeze the flat tax at its previous rate (although it was scheduled to drop to 5.5%) and effectively increase taxes on upper-working and middle class Rhode Islanders.

It's very disheartening to see such a maneuver succeed so spectacularly within the mainstream media common knowledge.

Taxed to Prosperity

Arthur Laffer asks a good question: "Whoever heard of a country taxing itself into prosperity?"

When President Kennedy cut the highest income tax rate to 70% from 91%, revenues also rose. Income tax receipts from the top 1% of income earners rose to 1.9% of GDP in 1968 from 1.3% in 1960. Even when Presidents Harding and Coolidge cut tax rates in the 1920s, tax receipts from the rich rose. Between 1921 and 1928 the highest marginal personal income tax rate was lowered to 25% from 73% and tax receipts from the top 1% of income earners went to 1.1% of GDP from 0.6% of GDP.

Or perhaps you'd like to see how the rich paid less in taxes under the bipartisan tax rate increases of Presidents Johnson, Nixon, Ford and Carter? Between 1968 and 1981 the top 1% of income earners reduced their total income tax payments to 1.5% of GDP from 1.9% of GDP.

Given the inevitable relationship between taxes and the economy, it's difficult to tease out the effects of taxes as compared with the overall expansion and contraction of the economy, but as Laffer points out, even Sen. John Kerry's boat proves that the wealthy have great incentive to change their behavior in response to the incentives of taxation — even if that change only involves paying an accountant to place a particular dollar amount in one column as opposed to another.

To save the economy — and the government — elected leaders at all levels should cut taxes (adjusting spending as preparation) and encourage economic growth. The economy should come before the government. It's that simple.

Of Rates and Levies

This intra-conservative debate in East Providence points to one of those issues that tends to slide under residents' awareness:

[Mayor Joseph] Larisa is now trying to solidify tax limits by putting language into the city's Home Rule Charter. Charter amendments have to be approved by voters in a referendum, while ordinances are approved — and can be repealed — by a council majority. ...

But Bill Murphy, spokesman for the East Providence Taxpayers Association, said the charter language isn't identical to the ordinance and the changes, although "subtle," are a "step in the wrong direction."

Larisa has changed the limit from one on the total tax "levy" to one on the tax rate.

I've noted before that, in Tiverton, those who set policy treat the tax rate as entirely incidental to the levy, while in Providence, the change in tax rate has been a major fight. On one hand, focusing on the rate more closely aligns with the meaning of the tax; you're paying based on what your property is worth, and if you property values decrease you have less wealth and should therefore pay less. On the other hand, focusing on the levy insulates the town from downturns in the market, but it also prevents the town from taking upturns in the market as well as the fruits of economic development as an excuse to grow — which could become a huge problem when the market contracts or the tax base decreases.

For the record, I'm with Murphy, on this one.

Taxman as Enforcer

Randy Barnett has been following litigation in response to the individual mandate of the healthcare legislation that the Democrats rammed through Congress. Noting that the Obama administration's reliance on a claim of Congress's taxation power proves that arguments against the legislation's claims of Commerce Clause authority were never "frivolous," Barnett explains that the law, itself, relies on the now-challenged self justification. In other words, for the Supreme Court to uphold the mandate, it would have to "look behind that characterization during litigation to ask if it could have been justified as a tax."

Even so, Barnett doesn't think the tax power argument will fly with the current Supreme Court (emphasis added):

Now, of course, the Supreme Court can always adopt these two additional doctrines. It could decide that any measure passed and justified expressly as a regulation of commerce is constitutional if it could have been enacted as a tax. But if it upholds this act, it would also have to say that Congress can assert any power it wills over individuals so long as it delegates enforcement of the penalty to the IRS. Put another way since every "fine" collects money, the Tax Power gives Congress unlimited power to fine any activity or, as here, inactivity it wishes! (Do you doubt this will be a major line of questioning in oral argument?)

But it gets still worse. For calling this a tax does not change the nature of the "requirement" or mandate that is enforced by the "penalty." ALL previous cases of taxes upheld (when they may have exceeded the commerce power) involved "taxes" on conduct or activity. None involved taxes on the refusal to engage in conduct. In short, none of these tax cases involved using the Tax Power to impose a mandate.

Of course, some not-insignificant portion of ObamaCare supporters ultimately believe that Congress does have unlimited power over individuals. It's encouraging to know, therefore, that there are folks with the interest and resources to fight on our behalf.

The Illusion of an Improving Tax Structure

A while back, I pointed out (see the addendum) that what looked, at first, to be an economic improvement — the increased percentage of wealthy people in Rhode Island — turned out to be evidence of the contrary. The percentage improved because the non-wealthy left the state in such great numbers while the decreasing flat tax and capital gains tax maintained our population at the high end.

It seems likely to me that such less-encouraging factors explain the tax-related findings of the Rhode Island Public Expenditures Council (PDF), which Marc mentioned here. From the Providence Journal summary:

From 1998 to 2008, individual income tax collections, as a share of personal income, declined by about 7 percent, sales tax collections increased by less than 1 percent, and property tax collections increased by almost 4 percent.Simmons says the increasing reliance on the property tax in recent years can be attributed, in part, to the state’s decision to cut state local aid for education during the economic recession.

That forced communities to make up revenue losses through a combination of trimming expenses and raising the property tax — its only other major funding source besides state aid.

The silver lining is that Rhode Island's property tax grew at a slower rate than the national average of about 8 percent.

Because these calculations are made based on total income and population, in the state, and since our local economy has been struggling, while population has decreased, and since the General Assembly hasn't actually cut the tax, the sales tax revenue result is likely attributable to declining consumer confidence and increasing incentive to shop out of state, where sales tax is lower. On the income tax front, those who pay in the mid-range brackets have been leaving and out of work, while the tax on the upper range has been decreasing. That Rhode Island entered the recession ahead of the rest of the nation probably facilitated our "improvement" by this measure even more.

This puts a different light on the property tax question. Sure, the immediate cause was the cut in state aid, but the decrease in revenue from state-level taxes has surely been a prior cause (along with excessive spending and an unwillingness to cut state budgets to the necessary degree). That the growth in property taxes was slower than the national average need indicate only that Rhode Island was already closer to the threshold that residents could bear, and since the decrease in tax revenue for the state hasn't corresponded an increase, but rather followed from a decrease, in discretionary income for residents that threshold has, at best, remained stagnant.

Rhode Island, "Haven....for tax-skirting luxury yacht owners" Like John Kerry

As first reported by the Boston Herald:

Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multimillion-dollar yacht by mooring her in Newport, R.I.

Isabel - Kerry’s luxe, 76-foot New Zealand-built Friendship sloop with an Edwardian-style, glossy varnished teak interior, two VIP main cabins and a pilothouse fitted with a wet bar and cold wine storage - was designed by Rhode Island boat designer Ted Fontaine.

But instead of berthing the vessel in Nantucket, where the senator summers with the missus, Teresa Heinz, Isabel’s hailing port is listed as “Newport” on her stern.

Could the reason be that the Ocean State repealed its Boat Sales and Use Tax back in 1993, making the tiny state to the south a haven - like the Cayman Islands, Bermuda and Nassau - for tax-skirting luxury yacht owners?

Cash-strapped Massachusetts still collects a 6.25 percent sales tax and an annual excise tax on yachts. Sources say Isabel sold for something in the neighborhood of $7 million, meaning Kerry saved approximately $437,500 in sales tax and an annual excise tax of about $70,000.

The senior senator’s chief of staff David Wade denied the old salt was berthing his boat out of state to avoid ponying up to the commonwealth.

“The boat was designed by and purchased from a company in Rhode Island, and it’s based in Newport at the Newport Shipyard for long-term maintenance, upkeep and charter purposes, not tax reasons,” Wade told the Track.

Considering Unemployment

Having followed the work of Providence Journal reporter Neil Downing for years, now, I'm confident that it was not a deliberate omission, but I can't help but wonder why a particular factor contributing to economic malaise didn't make it into his recent article about unemployment:

In the current recession — which began in late 2007, and is now in its fourth calendar year — people are often out of work for 6 to 12 months — "if they're lucky to find a job," [URI Professor Edward] Mazze said; many are out of work for more than a year — or longer, he said.

The main reason, Mazze said, is that "no jobs are really being created." Partly because of high rates of foreclosures and consumer debt amid this recession, "businesses are afraid to spend because consumers are not spending," Mazze said.

Businesses and consumers both are facing uncertainty not only because of the depth of the recession but because we've got a "transformative" regime running the country. Massive public debt. Looming changes to healthcare requirements. Environmental regulations appearing inevitable, whether Congressionally enacted or administratively implemented. And the list goes on.

In such an environment, planning for as-yet prospective demand is even riskier than usual.

The Tax Burden Shell Game

The New York Times is the latest to bring attention to the "maverick" independent campaign for governor being run by Lincoln Chafee, specifically highlighting his call for an increase--and broadening--of the state sales tax.

[Chafee] would seek to eliminate a series of exemptions to the state’s sales tax, effectively raising the cost of food, clothing and other items by 1 percent — a proposal he says would raise $100 million more.

This would not seem like an especially radical idea, since it follows years of income and corporate tax reductions that would remain in place, and it means that $200 in school clothes would cost an extra two bucks....Whether or not more sales taxes make sense for Rhode Island (it would, after all, close only a quarter of the projected budget gap while adding to the burden of low-income families), the rarity of Mr. Chafee’s argument — and the fact that is comes from an independent — tells us something about the boxes in which both parties find themselves at the moment.

With that in mind, and with the news that RI taxpayers will be asked to foot even more of the state pension bill, we have the seemingly positive recent data published by RIPEC that explains that, over a 3 year period, Rhode Island has gone from 10th to 15th to 17th in the nation as far as overall tax-burden.

That reduction is thanks to income tax reform that has been implemented over the last few years--particularly the now defunct flat-tax option--such that Rhode Islanders now pay about the national average. Additionally, according to RIPEC, we also pay a lower than average percentage sales tax (79% per capita), which is presumably why it caught the eye of Sen. Chafee. The idea of broadening the sales tax to generate "more revenue" may seem like a small sacrifice--even a measly 1% as the Times suggests--and, as a consumption tax, it is arguably more fair. Further, it may even seem reasonable to take steps to bring the state sales tax in line with the national average.

Unfortunately, that's not the whole Rhode Island tax picture. RIPEC also reports that Rhode Islanders pay approximately 144% (per capita) the national average in property tax and 123% the national average in "intergovernmental revenues" (federal taxes that come back to the state). These last two explain the reason that conservatives take such a hard line on tax increases. Rare is the politician who will ask for a tax increase in one area while asking for a tax reduction in another. Sen. Chafee is no different. While he says property taxes are bad, he doesn't offer a plan for reducing them concomitant to his sales tax increase plan, other than the catch-all "economic development." (Well, no kidding--and how do high taxes help with that?).

Unlike Chafee, some of the gubernatorial candidates--Caprio, Robitaille, Moffit--are proposing cuts to the state budget. Of course the problem is, no matter who is the Governor, the real budgetary power at the state level lay in the hands of the General Assembly. The same General Assembly that has done barely enough to get by and are responsible for passing along some of the excess property tax burden onto the municipalities in the first place.

Further, unfunded state mandates aside, the municipalities are the ultimate arbiters of the property tax burden. Across the state, they've made cuts in fits and starts--nibbling at the edges with small, short-term concessions made in a few renegotiated contracts--while also relying on car tax revenue to fill gaps.

None of these entities have yet to truly address the structural economic problems we face, all of which are centered around the fact that we spend too much money on government at all levels. Remunerations--for government employees and government dependents--need to be reduced; expectations regarding the level of government services have to be lowered (and fewer required!); consolidation at the top. Don't fall for this bizarre shell game that shifts our tax burden from one category to another. Unless real reduction and reform is implemented--not the aforementioned nibbling or the one-time fixes so beloved by the General Assembly--we'll continue to bear the too-heavy tax burden we do, no matter what shell it's under.

Winning the Sales-Tax-Cutting Race

We keep hearing about the horrible prospect that Massachusetts is going to steal Rhode Island's gambling revenue if we don't win the race to build our own full-scale casinos, but what do you suppose would be the consequence, for RI, were the voters of MA to implement this?

The initiative would reduce the sales tax rate from 6.25 to 3 percent, a move that would cost the state up to $2.4 billion in annual revenue beginning Jan. 1.

Economy-wise, I'd wager that this is a far greater threat to Rhode Island than the casino competition. Of course, proponents of gambling and opponents of tax cuts are less concerned about the health of the economy than the health of state government. Indeed, the debate over the Massachusetts cut runs right along contemporary debates about just that division:

Millions of dollars were spent during the 2008 campaign by public employee unions and other opponent groups to defeat the initiative. ...

Opponents of rolling back the state's sales tax to 3 percent argue that such a large cut would put tremendous pressure on state lawmakers to reduce spending leading to widespread layoffs and cutbacks in services on which millions of people depend.

Note well that last word, "depend." The objective of big government is to make as many residents dependent as possible so that we'll all be afraid that our own dependency will hit the chopping block when the ruling class doesn't get its way.

"It will have a drastic impact on a whole range of services that the public expects from state and local government in Massachusetts -- local schools, public safety, human services, health care," said Michael Widmer, president of the Massachusetts Taxpayers Foundation. "The problem is this will take full effect in fiscal 2010 on top of a structural deficit in fiscal 2012 that could already be more than $2 billion. You're talking about a $5 billion hole in the 2012 budget."

For fiscal year 2009, Massachusetts's budget was $28 billion. Even if we assume that the tax decrease would lead to zero increase in transactions (thus mitigating the loss to state government), that number represents about 8.5% of the budget. There is surely that much fluff. And it's absurd to think that the actual decrease in revenue would not be much less.

Carla Howell, who is leading the charge is absolutely correct that "the only way to force lawmakers on Beacon Hill to eliminate wasteful spending is to take away their revenue streams." The problem is that the waste is more important to them than the services by which they hook residents, so they'll line up residents' dependencies — addictions — for cuts first. One can see this dramatically during local budget battles, and the principle holds at the state and federal levels, as well.

Expiring Tax Cuts=Tax Increases

Unless Congress and President Obama take action, the so-called Bush tax cuts will expire at the end of the year. Despite the rhetoric, it ain't just "the rich" who will be affected, folks. Here are a couple of the expiring cuts that will affect us "working class" people.

1) The tax brackets will go up from 10%, 15%, 25%, 28%, 33% and 35%, respectively, to 15%, 28%, 31%, 36% and 39.6%. Even if the bracket definitions are changed, that's still an increase for most of the workin' people.

2) People in the lowest two brackets (10% and 15%) pay 0% tax on investment profits. That will go up to 10% on long-term gains and 15% and 28% on dividends.

3) Married couples get twice the deduction of singles. Next year, this will fall to 167%. The marriage penalty is back.

The "Stimulus" in Miniature... or Hatchback

It appears that many residents' car tax bills will offer an early illustration of the consequence of the big-spending stimulus pursued by Congress and the White House:

A number of cars, which normally lose value each passing year, have increased in value this year as a result of several economic forces hitting the used car market. ...

"There are less used vehicles out there for people to buy," said [state Vehicle Value Commission Chairwoman Linda] Cwiek, who also is the tax assessor in North Kingstown. She placed blame for the short supply of used cars on the federal "Cash-for-Clunkers" program.

To stimulate a sagging automotive economy and to aid the environment, the federal program offered financial incentives to turn in older vehicles in favor of buying more fuel-efficient models. In all, the program removed 677,842 vehicles from the road and sent them to the shredder. That prevented them from entering the used-car market.

Not only does the government have to take money out of the economy to put money into it (even if it takes from the future), but distortions of the marketplace will ripple. In this case, the effect was exacerbated by the environmentalist lunacy of destroying the cars. Many of us observed at the time that the government was essentially paying out money to ensure that used cars would be more expensive.

On a broader scale, big government-initiated spending only works as a stimulus if the economy is already headed for a breakthrough. Softening the interim with public debt is a gamble that's best hedged, and Obama and the Democrats went all in, mostly in order to prevent government entities from having to contract.

ADDENDUM:

By the way, it looks as if I wasn't so unreasonable to question the General Assembly's change of law allowing vehicle assessments to go up for the purposes of taxation.

In Defense of Realistic Taxation

In defense of the Tea Party — in the broad movement sense — Fred Deusch of North Providence sums up the problematic thinking of those who advocate for progressive taxation:

Rhode Island has about 1 million people, but only 12,000 pay 41 percent of the state's taxes, according to Treasurer Frank Caprio. How much does Mr. Platt want from those 12,000? In a May 9 Commentary piece, Michael McMahon, former head of the Rhode Island Economic Development Corporation, wrote: "Montgomery County, Md., similar in size and population to Rhode Island, tried to balance its budget by increasing taxes on the top wage earners from 4.75 percent to 6.35 percent. This was supposed to generate $106 million of additional revenue. But many of the wealthy, who are very mobile, left town. Revenue actually fell by $257 million as the number of millionaire taxpayers declined from 7,989 to 5,529."

When the wealthy leave for greener pastures, whether from Maryland or in Rhode Island, who does Mr. Platt think makes up the for the loss in tax revenues? Answer: We all do.

As I've pointed out multiple times, for much of the last decade, Rhode Island's tax policies — the flat tax and the capital gains tax — appeared to be maintaining our base of wealthy residents, while high property taxes (to fund unrealistic contracts for public-sector unions) and the general hostility of our political culture to economic growth continued to drive out the working-to-middle class folks who wish only to build on that base of wealth in order to improve their own circumstances.

Now, the capital gains tax is back with a vengeance, and the flat tax has been eliminated through a clever "overhaul" that appears to make the income tax more progressive, in its real effects, not less. And nothing has been done to improve the lot of those who've been fleeing all along. As Mr. Deusch suggests, we're all going to pay the consequences... all of us, that is, who stay.

Can the New Fiscal Stabilization Act Be Used to Exceed the Rhode Island Property Tax Cap?

Monique asks a question about the state's new "fiscal stabilization" procedures...

In view of the fact that receivership involves entities that are bankrupt, i.e., that lack sufficient money to operate and/or pay their debts, did lawmakers identify the source that would fund these inexplicably inviolable contracts?

The division of municipal finance shall ascertain whether the budget for that fiscal year contains reasonable revenues from taxation and other sources to meet the appropriations and other amounts required by law to be raised, and the division of municipal finance shall report its conclusion to the director of revenue. If the director of revenue determines that the municipal budget as presented does not contain reasonable revenues from taxation and other sources to meet appropriations and other amounts required by law to be raised, the director of revenue shall certify this determination in writing...and notify the city or town that its tax levy has not been approved and that the city or town is not authorized to mail or otherwise transmit tax bills to city or town taxpayers. If the director of revenue has made the foregoing determination, the city or town shall prepare a revised budget for review and approval by the director of revenue.

45-9-15. Inconsistent provisions. -- Insofar as the provisions of this chapter are inconsistent with the provisions of any charter or other laws or ordinances, general, special, or local, or of any rule or regulation of the state or any municipality, the provisions of this chapter are controlling.

Tax Changes as Blatant Gimmick

John Kostrzewa is much more positive about Rhode Island's revamp of its income tax structure. I tend to see "revamp" in terms of a cosmetic makeover for a vampire. Kostrzewa apparently believes that's better than nothing:

... the origins of the plan to simplify the tax code and send a message outside the state that Rhode Island is serious about changing its reputation as tax hell stretch back to summer 2008.

That's when the Tax Policy Workgroup, the group of 21 accountants, lawyers, economists and other tax specialists appointed by Carcieri, began sweating out the details of a long-term strategic tax plan.

I'm sure many of the same points were made when the capital gains tax phase-out — now reversed — became law, or when the flat tax option was implemented. But as I've argued, this "revamp" appears to be little more than a means of stopping the flat tax in its tracks. But at least the cap-gains and flat tax efforts were an effort to introduce new cards, not to reshuffle the marked and sticky ones already on the table. When the governor's workgroup began with the principle of being "revenue neutral" the inevitability of scheming was built into the process.

Strange Agreement on Income Tax Changes

So, the revised income tax scheme is now law, and we'll soon enough find out whether it's actually beneficial or just shuffles some numbers around. I continue to be suspicious that it's just a roundabout way of freezing the flat tax with a positive spin. I'm also concerned that it further favors those who are less productive and less economically active, which puts me in an uncomfortable agreement with left-winger Peter Asen, of Ocean State Action:

Peter Asen of Ocean State Action, a coalition of community organizations and unions criticized the law, saying it does not do enough to help taxpayers. He said that some of the credits being eliminated, such as the mortgage-interest deduction, may hurt middle-class families.

As I've said, the flat tax and phasing-out capital gains tax had been maintaining Rhode Island's wealthy population, but the productive class (including, essentially, the middle and upwardly mobile working classes) has been fleeing the state. On top of which, Rhode Island's welfare system and tax code have actually being attracting those who would be an overall drain on our economy. This legislation appears to worsen the situation for productive working/middle class families (by eliminating itemization) and to worsen the expected situation for upper-income residents.

Consider this, from the folks at the Tax Foundation blog, which generally likes the new law (albeit tempering its praise with a list of other things the state should look at):

I should note that at the last minute, the proposal was made revenue-neutral by phasing out the standard deduction for high-income earners, a tactic also used in Utah and Maine recently. This results in a higher marginal effective tax rate than the statutory rate...

Tax Hikes and V Number 2

Not to kick off a beautiful Tuesday with gloom, but it seems inescapable. Environmental catastrophes, lingering war, emboldened terrorist states, and shifting demographics in the West that give those terrorist states reason for optimism about the future would each be bad enough, but the economy is what brings the world's problems to the front doors of every American. And on that topic, there appears to be an expanding feeling that recovery is not pending.

Indeed, Arthur Laffer foresees a likely scenario in which 2011 brings a second dip to the Great Recession:

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession.

I hope he's wrong. Given everything else going on in the world, an economically depressed, socially dispirited United States will be an ineffective beacon during the dark days ahead.

Should We Be Willingly Fooled by the Tax Overhaul?

I'll tell you the honest truth: I really desire to play along and cheer the proclaimed income tax revision just passed by the General Assembly, but that "revenue neutral" thing gives the whole endeavor the feeling of a scam. Consider:

An analysis of the plan by Paul L. Dion, chief of the state Office of Revenue Analysis, showed the following:

• About 60 percent of resident taxpayers — 297,489 — will see a tax decrease, averaging $226 apiece.
• About 21 percent — 103,434 — will see no change.
• About 19 percent — 96,461 — will see a tax increase, averaging $654 apiece.

In the past decade, Rhode Island's flat tax reduction and (since-abandoned) capital gains tax phase-out have helped to maintain our base of wealthy taxpayers, but we've been bleeding what I've called "the productive class": motivated, upwardly mobile folks in the working and middle class range. So, the question of how many people will gain or lose according to the new policy is less important than the matter of which people will gain and lose. I lack the time for an analysis of my own, but the General Assembly's press release provides some clues:

The legislation would lower tax rates, simplify the system by reducing the number of tax brackets, exemptions and credits, eliminate itemizing and increase the size of standard deductions. It would go into effect Jan. 1, 2011, and it is estimated that it would save taxpayers whose adjusted gross income is less than $175,000 a total of about $4 million in 2011.

It would eliminate the flat-tax option for the highest earners, instead reducing the top marginal income tax rate from 9.9 percent to 5.99 percent. That amount would still make Rhode Island more competitive with neighboring states in terms of attracting high-earning taxpayers and help shake the state’s reputation as being unfriendly to high earners, but would not give the highest earners as low a rate as the flat tax would have eventually become if it were to continue being reduced, as it would under current law.

Notwithstanding the proclamations of folks (like Gary Sasse) whom one expects to be on the right side of such issues, it looks like the state government has mainly orchestrated a freeze of the flat tax with a positive spin. In other words, they've made the tax code more progressive.

And it may be somewhat worse than that. I'd be in favor of a flat, percentage-based tax that everybody pays and can figure out in minutes with a calculator, but disfavoring those who itemize, in favor of a standard deduction, would seem to turn against economic activity. At least to my experience, the years that I've itemized have all, first, been years during which I carried a mortgage (i.e., invested in the state by buying a house) and, second, made significant investments in the work that I do (i.e., buying tools for carpentry and equipment for writing).

The basic problem with focusing on the visible tax rates — as this legislation does as its central premise and objective — is that the families that can help to pull Rhode Island out of its death spiral will also be disproportionately likely to look past the headlines. To the extent that taxation makes a difference (and it isn't all-determining, to be sure), those who are wealthy and those who are most motivated to build wealth will take a moment to figure out whether they're among the 19% whose taxes are going up.

UPDATED: Every Which Way They Can Stick It to You Slyly

So, yeah, the General Assembly has managed to keep its hands pretty clean when it comes to raising taxes, but Rhode Islanders shouldn't expect to have more money in their pockets — at least not unless they get involved in local government right now. As we've seen, in Tiverton, the state bureaucracy is willing to be complicit in complete flouting of the law and regulations when it comes to local officials' desire to tax residents more.

Now, as Marc mentioned, yesterday, the General Assembly has removed almost all of the exemption that prevents towns from taxing the first $6,000 of your car's value, enabling town governments to increase taxes almost passively. In Tiverton, that means another $105.27 per year on cars valued over that amount.

But here's an interesting edit of the legislation, on the General Assembly's part:

The excise tax rates and ratios of assessment shall be maintained at a level identical to the level in effect for fiscal year 1998 for each city, town, and fire district; provided, in the town of Johnston the excise tax rate and ratios of assessment shall be maintained at a level identical to the level in effect for fiscal year 1999 levels and in no event shall the final taxable value of a vehicle be higher than assessed in the prior fiscal year, and the levy of a city, town, or fire district shall be limited to the lesser of the maximum taxable value or net assessed value for purposes of collecting the tax in any given year.

Inasmuch as there's no language restricting increased assessments to classics, it would appear that a town now has the ability to decide that your car is worth more than it was last year. Presumably if the mileage goes down or you remodel its kitchen.

ADDENDUM:

In the comments, John offers the explanation:

The language was changed because the taxable value of most cars will necessarily increase due to the lowering of the exemption. My $15,000 car would have a $9,000 taxable value with a $6,000 exemption. When the exemption drops to $500, the taxable value is increased to $14,500. Therefore, if the locals are to tax the vehicle at the higher "taxable value", the law needed to be amended.

The Underlying Assumption of the Leftist Taxers

In a review of some of the tax consequences of Obamacare, Grafton Willey conveys this bit of policy that one suspects underlies many of the assumptions of those who advance policies in the mold of nationalized healthcare:

Imposing a 3.8 percent "unearned-income Medicare contributions" tax on higher-income taxpayers. The 3.8 percent unearned-income Medicare contributions tax is imposed on the lesser of net investment income or the excess of modified adjusted gross income (AGI) over the threshold amount ($200,000 for single individuals or heads of households; $250,000 for married couples filing a joint return and surviving spouses; and $125,000 for married couples filing separate returns).

Neither the $200,000 nor $250,000 amounts are indexed for inflation. Modified AGI is adjusted gross income increased by the amount excluded from income as foreign earned income less deductions attributable to such income.

Net investment income includes interest, dividends, royalties, rents, gain from disposing of property from a passive activity and income earned from a trade or business that is a passive activity. In determining net investment income, investment income is reduced by deductions properly allowed to that income.

Net investment income does not include distributions from qualified retirement plans, including pensions and certain retirement accounts. For example, income from individual retirement accounts (IRAs), 401(a) money purchase plans, 403(b) and 457(b) plans would be exempt.

Some of the hardest work that I've ever done was the back-room labor involved in selling fish from a truck, and there were times, while hauling crates in the snow or cleaning putrid wooden boxes in the beating sun, that I marveled that it should be so difficult to earn $7 per hour and wondered what one could possibly do to "earn" the salaries of the wealthy. (For clarity: I look back on those days very fondly and came around to appreciating them even while they were in process.)

I don't offer that anecdote as a means of transforming economic ignorance into a populist cry. To the contrary: the notion of "earned income" is hopelessly subjective and, therefore, merely a dash of political rhetoric to justify confiscatory taxation. Consider the amount of money that President Obama has earned as an author. Personally, I love writing and undertake it as a compulsion and balm. But in the course of lugging a table saw up the narrow steps to the third floor of a Newport mansion, I might be inclined to challenge the assertion that Mr. Obama "earned" that money in the sense implied by the Medicare tax.

While Your Eye Is on the Tax Cutting Hand

Something just isn't adding up with the news out of the General Assembly about this supposed "tax overhaul." According to some details explained by Neil Downing, it looks like all taxpayers would make out pretty well under the Senate's version, although the rich and the single appear to get the best deal, relatively speaking. Those on the lower end of the scale would appear to do pretty well, also, with only middle-income families facing a question mark. The one possible trick toward which Downing points is that the flat tax would disappear, and although the new top bracket would equal the current flat tax, those expecting it to drop to 5.5% for next year would be disappointed.

The peculiarity — as distinct from the vague sense that something isn't right — emerges with a subsequent article:

But the plan cannot be approved as it stands because it would result in lower state tax revenue, forcing the state's budget out of balance, a top negotiator said. ...

But the plan would also implement other provisions to reduce taxes. As a consequence, overall, 61 percent of taxpayers would see a tax decrease, 18 percent a tax increase and 21 percent no change, according to Senate fiscal office figures.

But the plan would also reduce state tax revenues by about $11.5 million for the fiscal year that ends June 30, 2011 (and more in later years), Senate fiscal office figures show.

The key question is who the 18% seeing a tax increase would be, especially in light of the fact that they'd be taking the burden of 61%. The curious question is why such a big deal is being made of an $11.5 million shortfall. Personally, I'd like to see government revenue decreased by many times that amount, but if the goal is to pass something revenue neutral right away, it shouldn't be difficult to make that up.

Perhaps my RI-skepticism is too finely tuned, but if we see another General Assembly session come and go, in the next few weeks, without fruits from all of this hype, I'll be inclined to wonder what they were actually trying to distract us from. (Apart, of course, from the mountain collapsing beneath our feet.)

Ushering in Further Decline with Cutsie Tax Changes

Uh-oh.

Legislative leaders are poised to unveil a sweeping plan as soon as next week that would bring fundamental changes to the state's personal income tax system.

This may be one of the few times that I agree with a statement related to taxation coming out of the Poverty Institute, whose fiscal policy analyst, Russell Dannecker, advised legislators to "try to look for the unintended consequences."

With respect to the tax code, the problem begins right at the General Assembly's first statement of objectives. Requiring revenue to remain largely neutral means that necessary tax cuts in some areas have to be made up with tax increases elsewhere. Looking at the 9.9% top tax rate as the main culprit for detrimental perception of our tax climate focuses on a bullet point rather than the comprehensive list of ill-conceived policies.

As came up in recent conversation comparing Massachusetts and Rhode Island, the very progressivity of Rhode Island's tax system is central to its revenue and demographic problems, attracting those with low incomes and repelling those with middle-to-high. I'm not suggesting that Rhode Island should shift its tax burden suddenly onto its poorest residents. What the state government should do is cut taxes at the top and middle brackets and then cut spending as necessary.

I can't be alone in doubting the ability of the people who got us into our current budgetary mess to discern a careful path out of it.

ADDENDUM:

As pointed out by a commenter, I had misread part of the article. (It's been a very, very rough week.) I deleted the section related thereto.

When Taxation's Involved, Everything's a Sin

One of my classes in high school did a unit of debating, and among the topics was the legitimacy of sin taxes. Something peculiar is in play when a government entity takes more of your money for your own good, and not surprisingly, the scope of taxable sins is apt to expand:

One week after a White House task force suggested that raising taxes on sugary drinks might help combat childhood obesity, Rhode Island's House Finance Committee will hold a hearing on a bill that would levy a new tax on soda.

The measure would make Rhode Island consumers pay a 5-cent tax on every soft drink they buy and 10 cents on each such beverage larger than 20 ounces.

Far be it from me to suspect the motives of our good legislators, but given the flow of this tax money, I can't help but recall that the state has been trying to cut its aid to cities and towns:

It is not clear how much money the proposed tax would raise, but the bill would funnel all such revenue to the city or town where the drink was sold. The resulting funds could be used to establish or maintain local recreational facilities, jogging paths and the like, [State Rep. Edith] Ajello [D, Providence] said.

Greener Taxation Grass Across the Border

An interesting conversation took place in the comments section of my "Nothing to See Here" post, and this offering from Patrick is worth highlighting:

Let's look at facts now:

Using the numbers here, on the state's department of revenue web site:
https://dlsgateway.dor.state.ma.us/gateway/Public/WebForms/TaxRate/ReportTRApprovalPublic.aspx

And here at Riliving.com for RI's:
http://www.riliving.com/aboutrhodeisland/taxrates/index.aspx

East Providence: 15.43
Seekonk: 9.64
Rehoboth: 8.90

Woonsocket: 22.36
Wrentham: 12.22
Blackstone: 12.52

Pawtucket: 17.78
Attleboro: 10.09
N. Attleboro: 9.82

Tiverton: 14.35
Fall River: 8.06
Westport: 5.54

Those are all bordering towns. Why the difference? Rather than spewing your normal nonsense, I've provided you with facts and sources. Now explain it?

One commenter objected that Massachusetts has higher income tax, and that the state money is spread to municipalities, lower the need for property taxes. The analysis is complicated by the fact that Massachusetts' income tax rate is 5.3% of adjusted income, while Rhode Island breaks its rates up into progressive tiers: 3.75% to $32,550, 7% to 78,850, 7.75% to $164,550, 9% to $357,700, and 9.9% over that. And of course, there's RI's flat tax option, at 6.5%. In other words, Rhode Island's tax rate is only lower for folks at the bottom of the spectrum.

Another way to look at the comparison is through the prism of tax collections, and this chart (granted, from 2002) does show that Massachusetts collected $31.75 per $1,000 to Rhode Island's $25.83. This moves us away from the topic of comparative property tax rates, but it appears to be the case that Massachusetts collects more in income tax because it takes more from people at lower ends of the income spectrum.

Put differently, if you'd like to own a home and work hard to increase your income, you're better off in Massachusetts. If you're content to rent or to live in subsidized housing and earn a small salary, you're better off in Rhode Island. That may, we can suppose, have something to do with Rhode Island's dire economic condition.

So Future, Potential Tax Revenue (i.e., Private Income) Is and Has Been the Property of Public Labor?

Eight public labor unions filed suit Wednesday to stop the implementation of minor changes made last year to public pension eligibility guidelines. The basis cited for the claim is revealing.

Calling the changes a “taking of property without justification,” the unions are asking that the changes be declared unconstitutional, that lost benefits be restored and that the state pay for the unions’ legal costs.

The pension system consists of past and future contributions by employers and past and future contributions by employees, together to be amplified (hopefully) by investment instruments. However, as has been noted here and elsewhere, employer contributions have not been made as required; accordingly, the pension system is not sitting fully funded in a lock box. And even if it were, defining it as the property of current and future retirees still seems far from the mark.

The only way that the current Rhode Island pension system can play out as envisioned by the politicians who promised these pensions and then failed to properly fund them is via the appropriation, over many years, of a seriously non-feasible amount of taxpayer money. The only way that these eight labor unions can make the far-fetched case that public pensions are their "property", then, is if they are laying claim to the private sector funds that may or may not materialize over the next couple of decades in the pockets of taxpayers who may or may not even be here to surrender those funds.

Why the Federal Health Insurance Mandate Cannot Be Made Constitutional By Calling it Tax

Article I, sections 8 and 9 of the United States Constitution originally defined the taxing authority of the Federal Government...

(s8) The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States...(s9) No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Not purchasing insurance is not income under the Court's definition of income because the non-purchase of insurance is not "an undeniable accession to wealth" and therefore cannot be taxed under the Sixteenth Amendment's grant of authority. Nor can the non-purchase of something meet the criteria of being subject to a directly apportioned or indirect tax, meaning that nothing in the Constitution allows the Federal government to tax an individual's non-purchase of health insurance.

But the dubious constitutionality of the Federal health insurance mandate doesn't end with this significant problem.

Congress and the President could have, in a clearly Constitutional manner, used its taxation power to influence the purchase of health insurance by creating a tax-deduction associated with the purchase of health insurance. This idea was, in fact, proposed by officials like President George W. Bush and United States Senator Ron Wyden. However, Congress chose not to go this route.

Given the current Federal tax code, such a deduction would extend an advantage already enjoyed by corporate purchasers of health insurance to individual purchasers of the same products. But in choosing not to create an individual deduction, and opting for a tax on non-behavior instead, Congress chose a mechanism of dubious Constitutionality specifically for the purpose of preserving an advantage that some purchasers of health insurance, i.e. the corporate ones, have over others.

One of the most fundamental purposes of a Constitution is to prevent a government from taking arbitrary actions that would favor some over others. When Congress stretches beyond its clearly enumerated powers, with the specific intent of preserving government created-advantages for some over others, it doubly violates the Constitution's reason for being.

Get Those Taxes in Early, or The Refund May Be Late

Here's a telling turn of events:

The state has delayed the payment of thousands of Rhode Island income-tax refunds because of cash-flow problems.

The delays involve more than 65,000 individual income-tax refunds, as well as some refunds of the state business-corporations tax, that were processed and ready to be issued in April.

State officials decided to hold back those refunds, totaling about $39 million, and release them over time.

The delays were disclosed on the fourth page of a six-page state revenue report issued Thursday.

The justification for the move is at least understandable: The state delayed the filing deadline because of the flooding calamity, and since people who are getting money back file early, while people who owe money file late, the cash flow is out of balance.

The adjustment does highlight the central fact of Rhode Island governance, though: the state is run so poorly that we're not in a position to absorb unexpected difficulties without disrupting basic operations, like returning tax money to people from whom the state took too much in its interest-free loan from workers' paychecks.

Dog Bites Man, Reed & Whitehouse Support More Taxation

There have been rumblings that President Obama was looking at pushing for a VAT (value added tax) to help pay for the growing government under his watch. While many people, including conservatives, have theorized about (and even supported) the institution of a VAT, they have done so with the idea that it would replace the current income tax system, not be a supplement to it.

To forestall the bubbling movement, Sen. John McCain submitted the following amendment (SA 3724):

It is the sense of the Senate that the Value Added Tax increase will cripple families on fixed income and only further push back America’s economic recovery.

Among the 13 who voted against this simple declaration were Reed and Whitehouse. So, on the same day that citizens rallied across the country--and even in their own home state--RI Senators Reed and Whitehouse affirmed their support for taxing all Americans even more. Blind ideology knows no discretion, I suppose.

Tea Party!

The Nanny State Will Tax Your Skin

Fellow blogger and Providence Firefighter/EMT Michael Morse and his wife sent an op-ed to the Providence Journal objecting to an Obamacare tax on tanning salons:

A small group will be the first to pay for national health-care reform, the first to put their hard-earned dollars into the system. Starting July 1, they will pay 10 percent more for a service that helps them feel better and look better and promotes healthy living.

You can’t tax sunshine, right? Think again. The indoor-tanning industry, mostly small-business owners, the majority of them women, has been singled out to provide funds for a program that claims to be equitable for all.

As they note, other skin-related professions avoided proposed taxes because of the size of their lobbies and the urge to protect people from themselves that has begun to creep from smoking to tanning (let alone eating fast food). For their part, the Morses dispute the ill effects of artificial tanning on health.

Personally, I think that's besides the point. It isn't the role of government to impose a healthy lifestyle on individuals, especially with matters of such long-term repercussions as exposure to light. We'd best get used to it, though. With the government intimately involved in our healthcare system — even more than was already the case — your every behavior is now a matter of interstate commerce.

Compounding Rhode Island's Pre-Existing Condition: Impact of Health Care Reform on the State Budget

So here's the deal. When "reform" kicks in, best estimates are that 50,000 people will be added to Rhode Island's Medicaid rolls. Amy Kempe at the Governor's office advises that, after federal matching funds go away, this will cost Rhode Island taxpayers $100-$150 million. Further, Ms. Kempe goes on to point out that

We also know that Medicaid is the 2nd largest budgetary expense, and the new law does little to control healthcare costs, so the Medicaid inflation rate could continue as it has.

So for planning purposes, we should pencil in the higher figure.

The budget deficit for 2011 is over $400 million. Four hundred million ($400,000,000) dollars in current state spending will have to be eliminated just to get to a break even budget. But, as difficult as that will be, our task will not be done at that point. If health care "reform" is not overturned, in four years, we'll need to find an additional $150 million annually.

Every member of Rhode Island's Congressional delegation voted for the health care reform bill. Voted for this additional substantial budget deficit. Voted to expand the second largest spending item in the state budget. Can we look to them for suggestions as to where to find this additional $150 million?

RISC's Open Eye Catches More Economy-Killing Taxes

The Rhode Island Statewide Coalition has been making a concerted effort to peruse all of the legislation making its way through the General Assembly and recently unearthed this gem from Senator Charles Levesque (D., Bristol, Portsmouth), creating a Highway Maintenance and Public Transit Trust Fund, financed as follows:

... There is imposed a surcharge of forty dollars ($40.00) per passenger car and light truck to be paid by each car and light truck owner in order to register that owner’s vehicle and receive license plates. ...

... There is imposed on each company that is engaged in the refining or distribution, or both, of petroleum products and that distributes such products in this state a tax at the rate of three percent (3%) of its gross receipts derived from the first sale of petroleum products within this state ...

... There is an imposed on each company that imports or causes to be imported, other than by a company subject to and having paid the tax on those imported petroleum products that have generated gross receipts taxable under subdivision (b)(2) of this section, petroleum products for use or consumption by it within the state a tax at the rate of three percent (3%) of the consideration given or contracted to be given for such petroleum products if the consideration given or contracted to be given for such deliveries made during a quarterly period exceeds three thousand dollars ($3,000)

There really is no surprise in the fact that Rhode Island is wallowing at the bottom of the nation's economy. As I've said many times, public infrastructure is a legitimate function of government, and it ought to be the first thing funded by taxes that we already pay.

Big Business v. Big Government on Healthcare

Big Business learns that Big Government giveth and taketh away:

On Capitol Hill and in the White House on Monday, Democrats were fuming over a series of announcements that started Friday from Fortune 500 firms saying their bottom lines will take huge negative hits because of changes in tax law mandated by Obamacare. That hit in turn means lower profit projections. Caterpillar estimates, for example, that Obamacare will cost it $100 million; John Deere faces expenses of $150 million; 3M, $90 million; AK Steel, $31 million; Valero, $20 million. And then there's AT&T, which is marking its balance sheet down by a whopping $1 billion. All in all, the Wall Street Journal estimated a $14 billion haircut for these corporations.

Under post-Enron accounting rules, the corporations were required to revise their projections to account for the effect of Obamacare on their bottom lines. The effect is negative because Democrats, in their zeal to raise revenues and improve Obamacare's claimed effect on the federal deficit outlook, took away a tax break these companies needed in order to supply prescription drugs to their retirees. The tax subsidy, itself a government accounting ruse crafted in 2003 by the Republican Bush administration to dissuade corporations from dumping their retiree drug benefit programs on the then-new Medicare Part D, becomes taxable under Obamacare. Corporations are now being reminded of the harsh truth: What Big Government giveth, Big Government taketh away, too.

Feeding the Beast: General Assembly Looks to Take a Bite Out of Non-Profits

"Desperate times call for desperate measures", right? So now we learn that the RI General Assembly is looking at taxing non-profits to earn more "revenue." The method will be via suspension of the tax-exempt status by removing the sales tax waiver that non-profits receive (the GA isn't considering property taxes or taxing donations...yet). According to the Steve Peoples' story in the ProJo, this will effect 6,600 nonprofit organizations, including churches, hospitals, private schools, youth sports leagues, PTO's/PTA's and the YMCA among others.

It's obvious that the General Assembly has done a poor job of managing state revenue and has made poor choices in what it prioritizes for spending. I'm also sure there are those who will argue that hospitals and private schools and the larger non-profits that proliferate in this state can afford to be taxed. But what about the Parent-Teacher groups and sports leagues and any number of smaller non-profits? Many of these groups help fill the gaps caused by budgetary oversights and misplaced priorities that have trickled down from the General Assembly into our cities and towns.

For instance, with more education dollars going towards personnel costs, it is up to the Parent-teacher groups to pay for programs--field trips, assemblies, etc.--that once were funded by the school districts. In Warwick, youth sports leagues help keep Jr. High age kids on fields because Warwick schools don't offer organized sports. Levying the sales tax will leave less money to spend on an event at a school or available for financial aid to help a kid from a poor family play ball with his friends.

Then there are animal shelters and soup kitchens and hundreds of other small groups of people giving of their free time to do what they can to help the community. They didn't expect the government to help pay for things, but asked instead to be left alone and given a tax break in recognition of the good works they perform. These groups certainly didn't expect to be taxed for giving a helping hand. This really is shameful.

The Consequences of Fairness?

I've been intending to look into arguments for a "Fair Tax," but they seem so unnecessarily complicated that I've continued to demur. In his usual manner of breaking such things down to the basics, Ramesh Ponnuru suggests that it sounds too good to be true because it is:

It is not at all clear that this 30 percent sales tax would raise enough revenue to eliminate income and payroll taxes. Brookings Institution economist William Gale has estimated that to replace current federal tax revenues, the tax rate would have to be 44 percent (or 31 percent the way the FairTaxers calculate rates: A $100 product would cost $144 after tax). Gale’s calculation assumed that nobody would evade the sales tax and that Congress would not narrow the tax base by, for example, exempting medical services from the tax. Relaxing those assumptions increases the rate required even further. ...

The middle class would also pay higher taxes. Under the FairTax plan, the federal government would give all legal residents of the U.S. a "prebate" to cover sales taxes on all purchases up to the poverty line. That would protect the poor (except for illegal immigrants; higher prices are supposed to induce immigrants to come legally so they can get their prebate). And the rich would pay less than they do now, since returns to investment typically are a large share of their income, and these would go untaxed. So if revenues are to stay the same, the middle class will have to pay more. If the change in tax policy increases economic growth, this effect will be mitigated — but it will take a very long time for it to disappear under any plausible assumptions. Governor Huckabee's claim that voters in all income groups would come out ahead while the federal government would raise the same amount of revenue as before is of course unsupportable.

As ever, problems arise whenever government seeks to determine fairness. In the intricacies by which politicians seek to persuade constituencies that they won't be harmed by changes that must ultimately have some effect on somebody, plenty of limited interests manage to insert advantages. It therefore strikes me as necessary to shrink government before manipulating taxation, rather than using taxation to (maybe) shrink government. Anything short of a frankly simple flat tax (or similarly straightforward approach) will quickly deteriorate in the current system of government.

Itchin' for Some Taxin'

If you put your ear to the exterior walls of the State House, you might actually be able to hear the antiquated gears of the General Assembly's brains whirring a little harder to come up with a strategy for getting away with tax increases:

The plan was broadly outlined by Grafton H. Willey IV, co-chairman of the Rhode Island chapter of the Smaller Business Association of New England, an advocacy group for small businesses, and John C. Simmons, executive director of the Rhode Island Public Expenditure Council, a business-backed group that monitors the state’s finances.

Asked about the plan during a break at Tuesday's conference, DaPonte said that General Assembly leaders are "absolutely" talking about the possibility of revising the personal income tax.

With a variety of tax credits and other provisions, "Rhode Island [has] a very complicated tax code," he said. DaPonte said he is concerned not only about the system's complexity, but also about the personal income tax's top tax rate of 9.9 percent.

I don't know that I've ever read an article so thoroughly built around hints and insinuations, without any real indication of what "the plan" might look like. Of course, one doesn't need more than hints and insinuations to be concerned:

If the regular system's top rate were reduced, a flat tax "may not be necessary," DaPonte said. Costantino made similar comments last month.

This year the flat tax is 6%. One needn't be a professional political cynic to suspect that the likes of DaPonte will think that number is "not necessary" if the regular rate were, say, 8.5%.

Wanting More, Taxation Gets Less

The Tax Foundation has looked at Amazon taxes and found the following:

Contrary to the claims of supporters, Amazon taxes do not provide easy revenue. In fact, the nation's first few Amazon taxes have not produced any revenue at all, and there is some evidence of lost revenue. For instance, Rhode Island has seen no additional sales tax revenue from its Amazon tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax.

Amazon taxes also do not "level the playing field" between brick-and-mortar and online businesses; the laws actually mandate disparate burdens on online businesses. Litigation over the constitutionality of Amazon taxes is ongoing, with scholars on the left and right disputing their wisdom and legality.

The report cites General Treasurer Frank Caprio's statement that the tax should be repealed "immediately" and provides a map showing Rhode Island as one of only four states with such a law. Once again, whatever the fairness of the policy, Rhode Island must stop being on the cutting edge of economic experiments that bleed our local economy.

Any Way to Tax the Productive

A letter by Middletown Republican Town Committee Chairman Antone Viveiros in the Newport Daily News directs attention to H7563, submitted by Rep. Amy Rice (D., Portsmouth). The legislation would add the following language to Rhode Island tax law:

Opting out of the domestic production deduction. — All corporations doing business in the State of Rhode Island shall add back into their taxable income any amount deducted under the federal "domestic production deduction" also known as section 199 of the federal Internal Revenue Code. State tax forms shall be changed if needed in order to comply with this statute.

For the likes of Rice, it appears, ideology trumps economic wisdom. Even were it a principled correction to remove national tax reductions from the Rhode Island calculation, sucking money out of the productive segment of the state is plain lunacy in the current economy and in our current condition of civic deterioration. As Viveiros asks in closing:

Is this the way to create jobs?

Why won't the General Assembly majority cut spending, as we have? Do they have to, to get reelected? I'll leave those answers to you.

From the Garden to the Ocean

One must suspect that Ed Achorn is link-seeking when his column addresses both state-government dependents and the state of my youth, New Jersey:

Ultimately, while the public-employee unions and other government-fed special interests keep fattening up, the middle class suffers from a loss of jobs and opportunity, and the poor suffer from a loss of charitable dollars. The quality of life goes down, as money to pay for vital government services disappears, leaving a state with poor roads and bridges, aging school textbooks, leaking roofs and canceled sports programs, while the politically connected demand the same plush benefits they have long received.

In the comments to my Sakonnet Times letter, a teacher is claiming that he can't possibly survive with a 5% cut. The disconnect from what the rest of us have been experiencing is palpable. There's just not much more my family can cut from its budget, and nothing more we can trim and still justify living in a state that won't recover from its economic slump for years to come.

We have to turn things around quickly, in Rhode Island, because the downward spiral is self-propelling; the faster it goes, the faster people will leave, and the faster it will go. It isn't a matter of whether public-sector employees can afford a cut. If current trends continue, the cities and towns and the state will find it more difficult to pay them every year.

The General Assembly as RI's All-Purpose Charity

It's a small thing, perhaps, but then they're all small things, from a certain perspective. This is just too perfect an emblem of the government under which we're living:

All the funds raised for those three [charitable] purposes, listed on the "Rhode Island Checkoff Contributions" portion of the tax return, go directly into the state's general fund.

And they have since 1995.

The state uses the money however it wants, from plowing roads to paying the salaries of members of the General Assembly, which voted in 1995 to divert the money without telling taxpayers that it was no longer going toward the stated purpose.

Give this greedy beast nothing more than it can take by force. Apart from its catastrophic incompetence, the government of Rhode Island simply cannot be trusted.

Not One Dime But Many? President Obama Loses His Religion on the $250,000 Line of Demarcation

Remember this explicit statement that President Obama made almost a year ago?

if your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.

Oops.

- President Obama says he is now "agnostic" about raising taxes on households making under $250,000 a year to help cut budget deficits, signaling a possible retreat from a campaign pledge.

In an interview with Bloomberg BusinessWeek on newsstands tomorrow, Obama said a presidential budget commission needs to look at all options for deficit reduction - including tax increases and cuts in spending on such programs as Social Security and Medicare.

"The whole point of it is to make sure that all ideas are on the table," Obama said. "So what I want to do is to be completely agnostic, in terms of solutions."

("Agnostic"? Is that a new euphemism for wavering on an iron clad promise?)

Let's see, he wants to give us lots of stuff, like universal healthcare and stimulus money and bailouts and unemployment benefits. But then, he's going to have to take more and more money from us to pay for all of this stuff. Wouldn't it be more straight forward to just not give us stuff and then allow us to keep more of our money?

Howie Carr made a good point this afternoon: will the press pounce on President Obama the way they pounced on President George "Read my lips" Bush?

In the meantime, on the subject of dimes, one of Howie's callers reminded him of this scene from "Blazing Saddles". [Warning: language.] Indeed, it looks like some of us are going to have to "go back and get a s******d of dimes".

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 st