January 8, 2006

Governor Carcieri and the Politics, Maybe, of Tax Reform

Carroll Andrew Morse

Possibilites for tax-reform in this session of the Rhode Island legislature appear strangely muddled. On the one hand, Speaker of the House William Murphy named tax-reform as one of the three highest priorities for the 2006 legislative session...

Let it be our New Year's resolution; let it be our sense of duty to every Rhode Islander struggling to make ends meet that puts Responsible Tax Reform, A Comprehensive Energy Strategy, and A Fair Minimum Wage and to protect identities of individuals and other things that come to the floor front. Let?s resolve to make those some of our legislative priorities this year (emphasis in original).
(Sidebar: Does anybody understand what the phrase "to protect identities of individuals" means in this context?)

Despite the fact that the Speaker of the House -- generally regarded as the most powerful individual in Rhode Island politics -- is amenable to tax-reform, Governor Donald Carcieri was recently quoted in an Andrea L. Stape article in the Projo as saying that he doesn't believe tax-reform is possible this year...

Consequently, he is considering a legislative proposal that would phase in a reduction of the historic-preservation tax credit and follow that with a phased-in income tax cut. Overall, he said that structural change would bring the state's tax burden more in line with neighboring New England states and make it more attractive to companies.

The governor said the proposal is interesting now, since it would work to reduce the state's tax burden in future years without significantly affecting the 2007 fiscal budget.

"This year is probably not the year to get tax [reform] done," he said.

I see two possibilities for the disconnect between Governor Carcieri and Speaker Murphy. The first is that the governor wants to proceed with extreme caution due to the budget shortfall. The most recent estimate says that Rhode Island needs to close a gap of about $77,000,000 for the current fiscal year. It could be that the Governor doesn't want to advocate tax-cuts while the budget still needs to be reconciled and program cuts may be necessary.

However, there may also be a political element at work here. The Governor's political strategists could be telling him that he and Republican legislative candidates would lose an issue to run on if a major tax-reform package were to pass this session. The idea that the Governor is thinking politics also explains why he has embraced the minimum-wage increase this (election) year that he vetoed last year.

Either way, I fear the Governor is being a tad shortsighted. Governor Carcieri needs to seize this opportunity to shape the debate about Rhode Island's economic and fiscal future. By talking about the minimum wage increase and tax-reform at the same time, explaining how employers and employees are all part of the same community, and how taxes and regulations are all part of the same system, the Governor could effectively counter the Democrat's message of class warfare in a way that cannot be done when fiscal and economic issues are discussed in an isolated, unconnected manner.

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OTOH, there is something to be said for letting Murphy take the lead, and shoot for incremental reform.

Anything that Governor Carcieri proposes will immediately be attacked by the welfare lobby / wealth redistributionists in the General Assemby (consider how last week Amy Rice et als. jumped all over his Medicaid comments).

I believe that there are two very different wings of the Democratic Party in RI. The "union Democrats" (the definition should need no explanation) and the "liberal Democrats" (the Paiva-Weeds, Perrys and such) ... the welfare lobby.

The union Democrats compose most of the corrupt culture within the party, while the liberals tacitly agree to look the other way so long as their pet welfare programs are fully funded and their social issue legislation (at least) gets to the floor for a vote.

The union Democrats are starting to realize that the public is becoming increasingly resentful of the rich pay and benefit packages bestowed upon public sector workers, and are starting to realize that without economic growth they've about hit the limits of how much they can tax Rhode Islanders.

Also, I suspect, union workers in the private sector may be starting to pressure the state AFL-CIO with a "all you seem to care about is the public sector unions, what about us?"

So, it may (finally) be dawning on the union Democrats that the class warfare stuff is hurting them, that improving Rhode Island's business climate might be to their benefit as well.

The liberal Democrats don't care - their whole world view is forever bound to a tunnel-vision belief that wealth redistribution / ever-more "progressive" income tax structures are, in and of themselves, noble ... they are not only a means, but an end. So they will never sign on to meaningful tax reform.

Therefore, absent an unassailable Republican / "moderate Democrat" majority in the General Assembly - which does not appear imminent (talk about understatement!) - perhaps the best we can hope for is that the union Democrats be gently groomed and nudged toward enacting incremental reforms.

If APC and Textron and CVS announced that they were moving out of state because of the taxation here, all bets would be off - the General Assembly has shown it will move when the big boys rattle them. However, the approach has been "let's make a deal" for a particular large company. If multiple companies threatened to leave, the door might be open for comprehensive reform in one step. But I just don't see that happening ...

Posted by: Tom W at January 8, 2006 2:11 PM

Tom W.

I think now is the time for US to come up with the Gingrich plan for Rhode Island. And have all canidates run on this platform for 2006. You are going to see some salesmanship behind this.

#1 Fair Sales Tax for the AVERAGE RHODE ISLANDER. Lower sales tax from 8% on prepared food and 7% on all other taxable items to 5% with 1% of all tax going to town where it is purchased. This makes it so all Rhode Islanders will feel better about supporting there town and will not have and issue with the tax.

#2 "Tom W." Teacher's union reform. With the added insentive " If they go on strike they are fired" Since it is not about the kids and it does effect the income of one of the family members for the effective child.

#3 Make Law which penalizes Child Molestors FOREVER. All Child Molesters are Registered and Addresses told to town where they live and published in Providence Journal and local papers.

The rest can be added too.

It is time for change.



Posted by: Fred on the Blog at January 8, 2006 8:39 PM

Fred on the Blog:

We agree in spirit.

As for me, I'd like to rescind the statutory permission given to the teachers unions to even exist - up until the 1960's there were no teachers unions in RI. The General Assembly gave permission for them to exist here, and it can take it away.

From a macro standpoint, this would be a critical step in improving public education in RI. So long as the teachers unions remain on the premises, mediocrity will be the rule in public schools.

As a side benefit, this would eliminate one of the power / money centers of the Democratic Party.

Posted by: Tom W at January 8, 2006 9:54 PM