2008 State and Local Tax System Report

Before any changes to the state’s tax policy are made, the impact must be carefully considered, using the most recent data available, to ensure that the resulting state-local tax structure is equitable, fair, balanced and serves to strengthen the state’s economy – in both the short term as well as the long term. Even in times of fiscal constraints, it is crucial to be thoughtful and understand the implications of tax policy changes before they are enacted.

Rhode Island’s state and local tax burden is already the 7th highest in the country; in FY 2005 citizens of the State paid 12.3 percent of their personal income to support state and local governments. In the ten-year period between FY 1995 and FY 2005, the total amount of taxes paid by Rhode Islanders increased by 4.6 percent while our neighboring states and the national average decreased.  RIPEC urges caution when considering the many tax policy proposals before the General Assembly in the current fiscal environment. Effective tax policy legislation should have an economic impact analysis that clearly outlines the estimated impact on resident tax burdens, and the long- and short-term effects on economic development and competitiveness. Changes to the tax system designed to increase revenue must be carefully weighed against their potential to impact sales, investments, and individual and business decisions.

Various bills introduced in the House and Senate have the potential to impact the state’s tax structure. On Wednesday, March 26, 2008, the House Finance Committee will consider House Bill 7950, entitled the “Economic Growth and Fairness Act of 2008”, an omnibus bill which will have a significant impact on the personal income, sales, business and property taxes currently in law.  At this critical juncture in the state’s fiscal and economic future, RIPEC believes it would not be advisable to create such substantive change without a fiscal and administrative analysis including information on the revenue raised, the tax incidence, what the source of the tax will be, the impact on state competitiveness, and the anticipated administrative burden. Without knowing the true impact of the legislation, and given the state’s already significant tax burden, a more prudent course of action would be to exercise caution and continue with the positive steps the state has already made.

A thoughtful tax restructuring effort, distinct from a piecemeal approach, will enable the establishment of a tax system that reflects the Rhode Island of tomorrow instead of the Rhode Island of yesterday. The fiscal and economic impacts of tax changes should be thoroughly and carefully evaluated before actions are undertaken that fundamentally change the system of taxation in Rhode Island. 

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