When former U.S. Sen. Lincoln D. Chafee recently announced his campaign for governor, he explained that Rhode Island faced an untenable budget situation and suggested the possibility of a two-tier sales tax system, in which the state would begin taxing items currently exempt from the sales tax, such as food, clothing and over-the-counter drugs.
Could someone please inform Mr. Chafee that Rhode Island has one of the highest unemployment rates in the country? A sales tax on items such as food, clothing and medicine will be incredibly regressive, meaning that it will affect the poor, unemployed and working class citizens of this state most heavily.
We have an economy in shambles, and the former senator hopes to engineer a turnaround by raising an already crushing tax burden. According to the Tax Foundation, Rhode Island has the 10th highest state and local tax burden in the United States.
Meanwhile, Rhode Island ranks 44th in the country in terms of its business tax climate. Rhode Island’s top personal income tax rate of 9.9 percent turns out to be the fifth highest in the nation. State and local property tax payments per capita rank seventh highest in the country.
Rhode Island does not have a “dearth of revenue” problem; it has a spending problem. Let’s take a look at a few key facts with regard to government expenditures in Rhode Island. According to the Tax Foundation, state and local spending per capita in Rhode Island ranks higher than 42 other states. An analysis by the Rhode Island Public Expenditure Council shows that Rhode Island spends more per capita on firefighting than any state in the nation, about twice the national average.
Rhode Island needs to build the tax base, not create further disincentives to work, save and invest. We need to attract businesses and retain our young college-educated talent, much of which leaves the state upon graduation.
How might we turn things around? Perhaps we should consider a much simpler and flatter pro-growth personal income tax system that provides incentives to work and invest in Rhode Island. At the same time, the state could lower the sales tax so as not to impose an unfair burden on poor and working class citizens. Then, the state must make it easier for entrepreneurs to launch new businesses in the state by reforming the regulatory environment.
Finally, the state must tackle the public sector spending largesse that makes balancing the budget so difficult.
Mr. Chafee, perhaps people of your socioeconomic status can afford a sales tax on food and medicine, but most citizens of Rhode Island cannot. They need tax and spending policies that fuel economic growth, rather than push people and businesses away. •
Michael A. Roberto is the trustee professor of management at Bryant University.
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