PUBLIC POLICY

Report: Eliminating sales tax could foster job growth

COURTESY R.I. CENTER FOR FREEDOM AND PROSPERITY
PHASING OUT Rhode Island’s sales tax could create more than 21,000 new jobs, according to a new report by the R.I. Center for Freedom and Prosperity. For a larger version of this graph, click HERE.
Posted 6/5/12

PROVIDENCE – Phasing out Rhode Island’s sales tax could create more than 21,000 new jobs, according to a new report by the R.I. Center for Freedom and Prosperity.

The report, Zero.Zero, was released by the public policy think tank Monday and demonstrates how reductions in the state tax rate could lead to economic growth.

“For too long, policymakers have considered only two options: raising taxes or doing nothing. Both of these have clearly failed our citizens,” Mike Stenhouse, CEO for the center, said in a release announcing the report.

“A third option - reducing the tax burden on Rhode Island residents and businesses - must now be considered,” added Stenhouse.

The report boasts that eliminating the sales tax, which currently accounts for $1 billion in state revenue, would create more than 21,000 new jobs, increase the state’s GDP, create a windfall for cities and towns, and create a net inflow of shoppers and residents to Rhode Island.

The Center based its forecast on results from RI-STAMP, a customized economic modeling tool, which has been used to project recent tax policy changes in both Massachusetts and New York City.

“Recent performance indexes make it clear that Rhode Island is on the wrong path, and only dramatic reform can produce dramatic results,” said the report. “While a broad package of tax and regulatory reform is required, the elimination of the state sales tax would mark a bold — yet viable — change of course.”

The report recommended a four-year tax rate phase out, stating that it “would be no more dramatic than the adjustments that the state government has been making to its enacted budgets year after year.”

According to the center, the tax rate elimination would pay for up to 75 percent of missing revenue in the early years through increased income and property taxes thanks to the influx of people and businesses.

The report recommended curbing government budget growth, eliminating corporate welfare, applying the $81.5 million budget surplus projected for the end of 2012 and reducing 75 government jobs.

“[The] state’s budget has been growing so much more quickly than inflation and population changes alone would justify …” said the report, adding that the General Assembly’s proposed 2012 budget is 26.24 percent larger than it would be using a 2001 baseline.

“Elimination of the sales tax would represent a relatively minor adjustment toward that level of spending, returning state government to a budget a little below its 2011 level,” said the report.

For the full report, visit www.RIFreedom.org.

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