Rhode Island is a 'tax hell' no more

 In his 2009 State of the State Address, Gov. Donald Carcieri said he was “tired of people writing stories that Rhode Island is a tax hell.” In response, the governor called for a strategic plan to make Rhode Island’s taxes more competitive, fairer and efficient. Over the next few years, the General Assembly enacted game-changing tax policies.

The individual income tax was restructured and the top marginal rate was reduced from 10.9% to just under 6%. The method of apportioning the corporate tax was modified and the tax rate was cut from 9% to 7% — the lowest rate in New England. The threshold for the estate tax was increased from $650,000 to over $1.5 million and indexed. Phase-out of the property tax on motor vehicles commenced, and unemployment insurance costs reduced.

Unfortunately, to support growing spending the sales tax base was broadened, truck tolls levied, and gasoline and tobacco taxes were increased.

Did these changes improve Rhode Island’s relative tax competitiveness and tax equity?

The most common measurements of state and local tax burdens include the following: per capita collections, taxes paid as a percent of income, representative taxpayer profiles, and tax incidence analysis.

Per capita rankings shed little light on interstate tax burdens. Per capita tax collections can show a lower or higher tax burden based on population density and demographics. The Federation of Tax Administrators noted “a high or low per capita dollar figure does not necessarily mean a government’s burden is excessive or minimal.”

Tax collections as a percent of personal income are a better way to compare interstate taxes.

WalletHub, a financial website, recently ranked each state’s income, property, and sales and excise taxes as a percent of personal income. When reviewing these rankings, it is important to consider each major revenue source. Rhode Island’s property tax was fourth highest in the nation, the income tax ranked 27th, and sales and excise tax collections were 34th highest.

 It is not uncommon for state and local tax structures to be regressive. However, Rhode Island’s tax system is more equitable than most states.

The progressive Institute on Taxation and Economic Policy found that 31 states had a more regressive, less fair, tax system then the Ocean State.

Interstate tax burden rankings can also be made developing taxpayer profiles. For years, the District of Columbia has prepared such profiles by estimating consumption patterns, housing costs, income sources and family size for households in the largest city in each state.

A Providence family earning $100,000 had the 14th-highest tax burden among the 50 cities.

Today Rhode Island is no longer the “tax hell" Governor Carcieri referenced. It has moderate and competitive income, sales and business taxes, but imposes some of the highest property taxes in America.

It is time for state officials to exercise the same vigor and leadership in addressing Rhode Island’s over-reliance on property taxes that they did when enacting other tax reforms. Real structural property tax reforms could be achieved by considering the following:

-Control spending growth by leveling the playing field when municipal and school labor agreements are negotiated. The recently enacted contract continuation law is an example of what not to do.

-Increase the state share of school funding. Rhode Island ranks 39th in state support for public education and 12th in local support. The House fiscal staff concluded, “This means that Rhode Island ranks among the top in the nation when it comes to local funding of public education and among the bottom when it comes to state support.”

-Enhance local business development by eliminating the property tax on tangible personal property. This tax is currently assessed on such items as furniture and fixtures.

-Finally, assist municipalities in fixing underfunded retirement plans. This is a must to limit huge property tax increases in the future.

 Gary Sasse is the founding director of the Hassenfeld Institute for Public Leadership at Bryant University.