A System at Capacity – Rhode Island’s State and Local Tax System

Today, June 5, 2008, the Rhode Island Public Expenditure Council released an executive summary of “A System at Capacity”, an updated report on Rhode Island’s state and local tax system, which reviews the state’s current tax structure vis-a-vis the national average, Massachusetts, and Connecticut.  The report examines the personal income tax, general sales and excise taxes, business taxes, and property taxes. 

As the General Assembly considers the FY 2009 budget, RIPEC recommends holding the line on taxes. At this critical juncture in the state’s fiscal and economic future, RIPEC believes it would not be advisable to create uncertainty or increased burden 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.

Rhode Island’s state and local tax burden is the 10th highest in the country, a decline from 8th highest in FY 2005.  This decrease in ranking is primarily reflective of the movement in the rankings of other states who have seen their tax burdens increase.  However, despite the change in national rankings, Rhode Island’s state and local tax collections remain higher than the national average and both Connecticut and Massachusetts.  Further, between FY 1996 and FY 2006 the total amount of taxes paid by Rhode Islanders increased by 6.3 percent while the tax burden in both neighboring states decreased.

While the state has seen the first positive signs of change in the overall tax burden, any changes should be undertaken with both a short- and long-term outlook.  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.

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