Report highlights ways to reduce budget impact of sales tax cut

As the R.I. House Finance Committee prepares to discuss a bill proposing to cut the state sales tax from 7 percent to 3 percent at a hearing Wednesday, the Rhode Island Center for Freedom & Prosperity released updated information about the impact such a reduction could have on the local economy. More

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Report highlights ways to reduce budget impact of sales tax cut

COURTESY RHODE ISLAND CENTER FOR FREEDOM & PROSPERITY
IN ADVANCE OF a Wednesday hearing on a bill that proposes cutting the Rhode Island sales tax to 3 percent, the Rhode Island Center for Freedom & Prosperity released updated information about the potential impact of such a cut that it hoped would showcase the proposal as a "complete solution" that includes budgetary management concerns.
Posted 5/7/14

PROVIDENCE – As the R.I. House Finance Committee prepares to discuss a bill proposing to cut the state sales tax from 7 percent to 3 percent at a hearing Wednesday, the Rhode Island Center for Freedom & Prosperity released updated information about the impact such a reduction could have on the local economy.

The study, which used the algorithms of the center’s updated 2014 Rhode Island State Tax Analysis and Modeling Program, showed that a 3 percent sales tax rate could produce as many as 13,424 new jobs in the state, revised from the previous estimate of 13,735 jobs.

The center also revised its projections for total tax revenue impact of a lower sales tax both statewide and locally. The original report, published in December, estimated that the state would lose approximately $48 million in annual revenue under the 3 percent sales tax, but that the state and municipalities together would see a net revenue gain of $61 million when a $109 million increase in revenue from municipalities – which the center said would come from increased residential and commercial property taxes and unspecified other local taxes and fees – was included.

The updated information released May 5 projected a net revenue gain of $71 million overall, with a $47 million annual loss in state revenue and a $119 million annual gain in “municipal” revenue.

“Major sales tax reform is no longer just an interesting idea; it has evolved into a complete solution,” said Mike Stenhouse, CEO for the Center for Freedom & Prosperity. “After new research and testimony presented at last year’s special commission hearings, and now, with credible spending and budget-management ideas on the table, lawmakers can consider a complete, well-thought-out solution as the best way to provide a much-needed boost to grow our economy and create jobs for Ocean State families.”

Stenhouse said he didn’t expect House bill H8039 (which proposes a sales tax reduction to 3 percent) to go to a committee vote Wednesday, but that his testimony would focus on ways to manage the budgetary impact of the sales tax cut.

Last month, the Center for Freedom & Prosperity released a separate study identifying nearly $225 million in non-essential government spending in Rhode Island that the center suggested could be used instead to fund the sales tax cut.

The spending report, together with the center’s projections of “dynamic” revenue increases caused by increased sales volume, form what Stenhouse called the “complete solution” offered by his organization’s vision of a 3 percent sales tax.

In advance of Wednesday’s House Finance Committee hearing on H8039, scheduled for 4:15 p.m. in Room 35 at the Statehouse, Americans for Tax Reform president and national anti-tax advocate Grover Norquist voiced his support of the bill.

“This important legislation would take a step in the right direction towards reversing course on decades of uncompetitive and anti-growth tax policies that cripple the Ocean State economy,” Norquist said in a statement. “Whether this bill’s full impact is phased in over several years or adopted immediately, it is a bold move in the right direction… The full legislature should have the opportunity to debate this bill’s merits which include more jobs, more investment, and a reduced burden on Rhode Island taxpayers.”

Stenhouse said that if the proposal were to move forward, it could either receive a committee vote on bill H8039 as it is, or the sales tax cut could be incorporated into the fiscal year 2015 budget and voted on that way.

H8039 was introduced this year by Reps. Jan Mallik (D-Barrington), Raymond A. Hull (D-Providence), Mary Messier (D-Pawtucket), K. Joseph Shekarchi (D-Warwick) and Joseph M. McNamara (D-Warwick).

For more information about the Center for Freedom & Prosperity’s updated data on the impact of a sales tax cut, visit www.rifreedom.org.

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