December 14, 2004

Rhode Island Politics & Taxation, Part II

This posting builds on the Part I posting of November 29, 2004.

Let's begin talking about the facts with the following empirical summary statement: Rhode Islanders are some of the most highly taxed citizens in America as our state and local governments take an unusually large portion of our hard-earned incomes.

So how bad is the tax burden here?

According to the Tax Foundation, Rhode Island residents have the 5th highest combined state and local tax burden, a full 11.1% above the national average.

The Tax Foundation continues:

Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2004, Rhode Island taxpayers had to work until April 16th to pay their total tax bill, ranking it 4th [highest out of 50 states] in the nation...Rhode Island taxpayers must work 40 days into the year just to pay their state and local tax bill...

Rhode Island's personal income tax system consists of a simple tax of 25% on the taxpayer's federal liability...16th highest nationally...

Rhode Island's corporate tax structure consists of a flat rate of 9% on all corporate income. Among states levying corporate income taxes, Rhode Island's rate ranks 8th highest nationally...

Rhode Island levies a 7% general sales or use tax on consumers, well above the national median of 5%...Rhode Island's gasoline tax stands at $0.28 per gallon (3rd highest), while its cigarette tax stands at $1.50 per pack of 20 (2nd highest)...

Rhode Island is one of the 38 states that collect property taxes at both the state and local levels...Rhode Island's local property taxes are 4th highest in the nation by per capita measure and 3rd highest as a percentage of income...its combined state/local property taxes...ranked 5th nationally.

Another analysis by the Tax Foundation shows that Rhode Island's combined state and local tax burden used to be as low as 31st in 1970, moving up to 22nd in 1971-1972. It has been in the top 10 since 1996 and in the top 5 since 2000. That is disgraceful.

These are not just abstract numbers. Higher taxes mean that working families and retirees have less money to spend on food, medical care, clothing, heating oil, car repairs, education and retirement. In other words, high taxes mean Rhode Island citizens have less freedom in their daily lives than most Americans.

Or, as Ed Achorn of the Providence Journal wrote:

The June 2004 issue of Bloomberg Wealth Manager warns well-to-do people, once again, to avoid what the publication calls "tax-hell Rhode Island."

Indeed, Rhode Island is the worst place in the country -- ranked 51 among 50 states and the District of Columbia -- for people who wish to keep some of their wealth.

Retirees, too, are warned away...[ranked 47th]...

The Bloomberg study is more evidence, if you needed any, of the rape of Rhode Island by politicians who are either too small-minded or too uninterested in the public's welfare to consider what they are doing to the people they supposedly serve.

We all know the classic class-warfare line. The wealthy? To heck with them! Let them pay higher taxes so that middle-class public employees can make out like bandits. And why would we ever consider cutting rich people's taxes when the state is facing huge deficits? After all, the poor and the children will suffer if we restrain government (i.e., by reducing public-employee jobs or curbing their benefits).

There's one problem with Rhode Island's class-warfare approach: People in this country are free to move around and pursue their economic self-interest...

Consider what the magazine discovered ("Ride the Wave," by Janet Bamford and Thomas D. Saler) by running state and local tax forms through Quicken's Turbo Tax program. A hypothetical well-to-do family, under one calculation, would pay $7,259 in taxes in Wyoming; the same family would pay $56,419 in Rhode Island.

Now, living in Rhode Island is wonderful. Is it eight times more wonderful than Wyoming? Is it seven times more wonderful than the Rocky Mountain State, Colorado ($8,003 in taxes)? Is it that much more wonderful than less punishing Hawaii, or Arizona, or Massachusetts?

At some point, well-to-do people make such calculations. And when a state is described nationally (and internationally) as "tax-hell Rhode Island," they know to steer cleer.

So who needs upper-middle-class people? To heck with them.

Except: They do contribute something to a community. Let us count the ways:

Jobs. Corporations tend to be where executives want to live. The beauty of Rhode Island, its superb quality of life and its proximity to New York and Boston would surely draw them to the Ocean State -- if not for its tax burden. Why would they throw away money to live here, when they could make a better life for themselves and their families somewhere else?...

Families. Rhode Island does a good job of splitting apart loved ones. Because its tax and regulatory structure chokes off new jobs, children often must move out of state for work. And because it is one of the worst places for retirees, elders often move far away, taking their spending power with them.

Rhode Island, in trying to punish the wealthy, has only ended up punishing its middle-class and poor citizens.

Mr. Achorn's conclusions are reinforced by a study from the Rhode Island Public Expenditure Council (RIPEC), which noted diverging tax trends between Rhode Island and Massachusetts:

While Rhode Island’s and Massachusetts’ State and local tax burden approximates each other in FY 1982, the data presented in this edition of How Rhode Island Compares – State and Local Taxes reveals a tale of two states that are headed in drastically different directions when state and local tax trends are compared.

In FY 1982, there was little difference between Massachusetts and Rhode Island in state and local tax collections per $1,000 of personal income. In that year, Massachusetts’ tax collections per $1,000 of personal income of $120.81 ranked 9th highest or were 9.1% above the national average. In FY 1982, Rhode Island’s State and local tax burden of $119.07 per $1,000 of personal income ranked 10th highest in the United States or was 8.1% above the national average.

...In FY 2002 (latest national data available from the U.S. Census Bureau), Rhode Island’s total State and local tax burden was the 6th highest in the United States or 9.3% above the average for all 50 states. However, state and local tax collections per $1,000 of personal income in Massachusetts had declined from 9th highest in FY 1982 to 40th in FY 2002. Between FY 1982 and 2002, Massachusetts’ state and local tax burden had declined from 9.1% above the U.S. average to 7.8% below the average state and local tax burden of all 50 states.

In which state do you suppose economically rational people will choose to live? Where do you think economically rational corporations will build their businesses?

The answers to those two questions mean that it will be difficult for Rhode Island residents to realize any relief from high taxation without changing the political landscape in our state.

The summary facts on the Rhode Island tax burden are now in plain view. It shows how we have a serious problem.

How much longer are working families and retirees going to take this economic abuse?

I believe that the first step toward ending the abuse is to open up a broader public debate. The quality of today's public debate has improved somewhat thanks to public officials such as Governor Carcieri and Mayor Laffey. It has improved thanks to outspoken editorialists like Ed Achorn at the Providence Journal. It has improved thanks to numerous groups and individuals around the state who support open and fair practices at the local government level.

But today's public debate in Rhode Island has a long way to go before it is truly open and factually rigorous.

The spineless behavior of politicians and bureaucrats as well as the outrageous demands of public sector unions will only be changed after we shine an unrelenting spotlight on their actions and make that information easily accessible to the voting public - and the public then cares enough to vote for change.

The next posting will present major highlights in the 2004 public debate. It will also show how far we have to go to have a rigorous, wide-open public debate.