Gubernatorial candidates differ on lowering tax burden

Most comparative surveys find Rhode Islanders are overtaxed, and most of the candidates running for the governor’s office this year – including the incumbent – are promising to lower that burden.

At one extreme, Republican candidate Giovanni Feroce has pledged to eliminate the personal income tax – ala New Hampshire and Florida.

See related story:
Interview with Cranston Mayor Allan W. Fung 

At the other end is Matt Brown, a candidate who is challenging Gov. Gina M. Raimondo in the Democratic primary, who wants to repeal previously approved tax cuts that favored corporations and high-income earners.

GOP candidates Rep. Patricia L. Morgan, R-Coventry, and Cranston Mayor Allan W. Fung, and independent Joe Trillo, are targeting the state’s 7 percent sales tax with reductions that would take it down below neighboring Massachusetts and Connecticut.

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And several of the candidates want to reduce or eliminate taxes and fees that don’t affect everyone but which have their own constituencies, such as taxes on inherited assets, or on the pensions of U.S. military veterans.

RhodeWorks, a signature program of Raimondo, is funded through an electronic toll on tractor-trailer trucks traveling on Rhode Island highways and major roads. It’s only recently been imposed at two locations in the state.

Most of the major candidates – save Raimondo herself – want to eliminate it. Brown has yet to identify his position on it.

Raimondo has touted the success of tax-incentive programs aimed at corporate relocation and job creation for moving or expanding 24 companies in Rhode Island since she took office. But the package of tax credits and discounts have found universal criticism among her GOP, Democratic and independent opponents. Some say Rhode Island-based businesses should be the focus.

Others say no companies should get specific tax breaks.

Brown, a former secretary of state, has described the current policy as a system of “corporate socialism.” He wants to create a graduated tax that would charge smaller businesses a lesser rate.

“Her primary economic agenda is to take money from taxpayers, who are struggling, and give it to corporations who have more money than they know what to do with,” he said. “I don’t think that’s real economic development. That’s not free-market economic development.”

That each of the candidates has formed an economic policy speaks to its importance in the campaign, and the state, which was beset by job losses and depreciated assets in the Great Recession. Only recently has Rhode Island started to see sustained job growth.

Even now, with unemployment of less than 5 percent, economists say many of the jobs being created are not paying the median salary, or hourly wage. According to R.I. Department of Labor and Training documents, seven of the 10 fastest-growing jobs in the state pay between $10.84 and $17.62 an hour.

How important is a sound economic policy for a candidate? Tax policy matters, say economists, to the point where high-salaried individuals will move to take advantage of lower-income taxes.

Among states, there is a trend in lowering income and corporate taxes, said Matthew Gregg, an associate professor of economics at Roger Williams University. Companies are sensitive to it, he said.

Eliminating the state income tax altogether is unusual, he said. “It’s a pretty extreme reduction. It’s not impossible,” Gregg said.

But given the impact on the state’s budget – in Rhode Island, income tax accounted for $1.2 billion in fiscal 2017, about one-third of all revenue collected – it would have to be counterbalanced in some way.

“You would have to supplement that with a raise in the sales tax,” Gregg said. “You’re probably not going to cut education and Medicaid and other things that are being funded with 33 percent of the budget.”

Sales taxes, which in Rhode Island are set at 7 percent and collected on all merchandise except food, generated $997.5 million in fiscal 2017. Through April this year, the sales tax had pulled in $870 million, about 5 percent more than that point last year.

‘[Raimondo’s] primary economic agenda is to take money from taxpayers … and give it to corporations.’
MATT BROWN, Democratic gubernatorial candidate

The state’s Department of Revenue, based on a 2013 analysis, found that for every one-quarter percentage-point reduction in the rate, the state would lose revenue of $38.6 million.

Fung has proposed a gradual lowering of the sales tax to 5 percent, over the four-year term. Morgan has proposed a lowering to 6 percent. Trillo, meanwhile, has said he will reduce the sales tax from 7 to 5.5 percent, and then reduce it to keep competitive with Massachusetts.

He also wants to put a 2 percent cap on property taxes annually.

“My projections and tax policy stem directly from what I believe will work to lessen the burden Rhode Island taxpayers and businesses face and jump-start our struggling economy,” Trillo said.

Fung argues the lower rate would recapture sales that are now crossing the border to lower-taxed states, which would help to reduce the impact on the budget. “It will stop that border flight, going into Massachusetts,” he said.

Morgan, who is the House minority leader, said she wants to use taxes now being collected by Amazon and other online retailers to reduce the overall rate to 6 percent over four years, and then incrementally after.

“Our state will become more competitive and all of us will benefit,” she said.

Raimondo, who is seeking a second term, is pointing to her record of attracting companies to locate in Rhode Island, or expand within the state, as evidence that her economic policies have been working.

“In the last two years,” her campaign page states, “We have recruited or expanded 24 companies that would have gone somewhere else but today are on track to hire more than 2,000 Rhode Islanders, at an average salary of more than $70,000.”