October 8, 2008

Lessons in the Muck

Justin Katz

To the surprise of few readers, I'm sure, after just the first quarter, Rhode Island is now more than $50 million behind its budget. (I'll stick with my $150 million prediction for the mid-year review.) There is, however one interesting bit of information in the disheartening revenue picture (emphasis added):

The state derives its revenues from taxes and a myriad of other sources, including federal aid, licensing fees and departmental revenues which include the state Lottery. And some were up, including cigarette tax collections, which the state's chief revenue analyst Paul Dion attributes to a hike this past summer in neighboring Massachusetts, where the cigarette tax is now $2.51, compared with $2.46 in Rhode Island. Dion pegged the average price of a brand-name pack of cigarettes at $7.09 there, $6.10 here. He believes the disparity in tax rates, minimum markups and price accounts for the $1 million-over-estimate surge here. Alcohol taxes were also up.

Do you suppose cigarettes are the only product, good, or service to which this dynamic applies?

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Gee, I can't imagine that dynamic would apply to gasoline, alcohol, televisions, or any other product or service. Only smokers are willing to drive 10 minutes over the border, right?

Posted by: Greg at October 8, 2008 12:31 PM

All one need do is watch the Rhode Island registrations as they travel to the shopping centers along Route 1 in Attleboro and Route 6 in Seekonk and you will learn all you need to know about the 2% effect. And I'm sure that most don't report these purchases on their RI1040 each year.

This is one example of where less (lower sales tax) could produce more (sales tax revenue).

And isn't the DEPCO debt paid off? This temporary tax should be long gone by now.

Posted by: John at October 8, 2008 5:28 PM

$150 million?
Way too low.
Figure the 60 we're at now. Add 33.3 for each of the next 3 quarters (very conservative)-now we're up to 160. Add the 40 from Council 94, which have proven illusory. That's 200. Now throw in the illusory 80 from the "Medicaid Global Waver". That's 280. Round it up to an even $300 million for my estimate.
That's for 09. For FY 10, with ever escalating labor costs and declining revenues look for $400 million or more. Why so much?
Remember the Bob Walsh plan to solve the pension deficit on the backs of the taxpayers in "only" 22 more years?
Well that so-called plan requires an average 8% return. The return for this year has been something like negative 20%. Any idea who is going to be "asked" to make up the difference?
Hint-it won't be the NEA.

Posted by: Mike at October 8, 2008 7:17 PM
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