In an era of shrinking tax revenues, most states are rushing to raise funds by increasing rates and simply taxing more stuff. Rhode Island, however, has a different idea. The tiny New England state may be geographically the smallest in the country but it has big plans to make the state more attractive to business. This week, Gov. Don Carcieri (R) signed into law a bill passed by a Democratic-led General Assembly to lower taxes. That’s right, I said lower taxes.
Okay, they’re not cutting taxes for everybody – but mostly everybody. The new law will reduce the state income tax rate for top earners from 9.9% to 5.99%. The number of tax brackets is also tweaked from five down to three. The result, according to a budget analysis, is that 302,500 taxpayers would see a tax decrease; 103,434 taxpayers would see no change and an unfortunate 91,404 taxpayers would see a tax increase. The changes are effective as of January 1.
Proponents of the measure hope that lower taxes will kick start Rhode Island’s economy, which has suffered along with most of the country. Its unemployment rate sits at 12.5%, higher than the national average.
Rhode Island’s tax structure has previously been attacked as too high and too complicated. The state has long been considered tax heavy, ranked a miserable 44th by the Tax Foundation (downloads as a pdf) in terms of desirable state business tax climate. Only California, Iowa, Maryland, New Jersey, New York and Ohio are ranked lower.
With holes already in the state’s budget, it’s a gutsy move. Expect other states to keep an eye on Rhode Island to see if altering the tax structure actually makes a difference in the economy. It’s a question that tax policy analysts have been debating for years: are tax cuts incentives for taxpayers to make more money – or just plain ol’ tax cuts?
Mostly a tax cut for the richest, it looks like. Unsurprising move for a Republican Regressives like their governor.
Better keep your mouth closed, during the “trickle down”–it might not be what you think it is.
Ya, Carcieri did cut down the top rate — but among other things, he and the legislature set the stage for a tax hike on the low-end. Specifically, the car tax — in some states, they call it an excise tax — a personal property tax based on the car’s value.
Until now, the first $6,000 of a car’s value has been exempt from the car tax — but the legislature slipped in a provision that lowers the exemption to a mere $500:
http://www.projo.com/news/content/CAR_TAX_REACTION_06-06-10_4OIOR4E_v22.175ee9b.html
This is a tax hike that will fall disproportionately on the lowest-income people in the state (not counting those who are too poor to have a car, even an old one like mine).
Color me unimpressed with the governor and legislature. They can *claim* they lowered taxes — and technically, they did not raise the car tax — they simply *allowed* cities and towns, who are the ones who tax cars, to do it. I know who I’m NOT voting for in November!
Urb (Providence, RI)