PROVIDENCE – The Rhode Island business community is mobilizing to urge the General Assembly to rethink proposed legislation aimed at increasing income taxes on Rhode Island’s highest earners, saying it could hurt the state’s economic recovery from the COVID-19 pandemic.
The R.I. Business Coalition held a press conference via Zoom on Monday to discuss the topic of taxation, with business leaders weighing in with their thoughts and answering questions. Business leaders expressed frustration with the legislature, noting that increasing taxation on high-income earners could lead businesses to migrate to tax-friendly states.
Their concern is four pieces of legislation proposed in the legislature that would add an income tax bracket for state income taxation. Gov. Daniel J. McKee is also proposing taxation of forgivable Paycheck Protection Program loans greater than $150,000.
Although McKee is standing firm on the taxation of PPP loans, he told Providence Business News recently that he is not in favor of legislation that would raise the tax rate on personal income.
One piece of legislation is sponsored by Sen. Tiara Mack, D-Providence, which would add a new bracket with a rate of 10.99% on taxable income over $475,000, effective Jan. 1, 2022. A proposal sponsored by Sen. Melissa A. Murray, D-Woonsocket, is also being considered with a rate of 8.99% on income over $475k.
The state’s current top rate is 5.99%.
On the House side, Rep. Karen Alzate, D-Pawtucket, sponsored legislation that would create a tax bracket with a rate of 8.99% on taxable income greater than $475,000, effective Jan. 1, 2022. Her colleague, Rep. Gregg Amore, D-East Providence, is sponsoring legislation for a new income tax bracket of 6.99% on taxable income over $500,000.
Laurie White, president of the Greater Providence Chamber of Commerce, said that it’s not the time to tax businesses. “Any increase in the personal income tax would adversely affect Rhode Island’s business climate,” she said. “So, this is a business climate issue.”
White said the majority of businesses, and nearly all small businesses in the state report their profits through the personal income tax rather than corporate tax. “This is why this issue of increasing the personal income tax rates is a real problem for the business community, and it is going to cost jobs,” she said.
Alan H. Litwin, managing director at Providence accounting firm Kahn, Litwin, Renza & Co. Ltd., said that raising personal income taxes will stifle job creation and cause some “businesses to leave the state, making recruiting new companies even more challenging.”
“We have learned during the pandemic that companies can easily relocate from high-tax states to lower-tax states, and their employees can work remotely,” said Litwin. “Rhode Island is not business-friendly now. We all know that; we all live with it. But we make it work.”
Litwin said that the four proposals would make the state’s marginal tax rate between 80% and 120% higher than Massachusetts. “Think about that,” he said, noting that Massachusetts is not a low tax state.
As for the proposed PPP taxation, Litwin said, “That’s totally inconsistent with the terms in which the employers took these loans upfront, and to why they brought back their employees so quickly,” he said.
Karl Wadensten, who owns and operates Richmond-based VIBCO Inc., said that his company relied on the PPP to keep his workforce employed.
“This isn’t a good message that Rhode Island values its employers or the employees of our state,” said Wadensten. “You know we talk about Rhode Island being last; well this dark cloud will come over us once again – not business-friendly, the only state to tax PPP.”
Wadensten said the PPP money was spent to retain employees. “I thank God we had PPP to retain our people and make sure it was clear and predictable and reliable that they had a paycheck coming every week,” he said.
Farouk Rajab, general manager of the Providence Marriott Downtown and chairman of the Rhode Island Hospitality Association’s board of directors, echoed the sentiment. He said the PPP was designed to help small businesses and a lifeline for keeping employees on payrolls.
“Now the state wants to tax that lifeline,” said Rajab. “That program saved the state unemployment insurance. That’s what the program was designed for, and that’s what the program did.”
Rajab said the hospitality industry did not choose to shut down, and has endured hardships. “We are asking that the state does not penalize us for accepting help when it was offered,” he said.
Christopher Carlozzi, state director of the National Federation of Independent Businesses, said businesses struggling with the threat of permanent closure cannot be saddled with higher taxes as they attempt to recover.
“Raising taxes on small business through new tax brackets sends the wrong message,” he said, noting that raising taxes could dissuade businesses from incorporating in the state. “Rhode Island cannot tax itself into prosperity and into recovery.”
Michael DiBiase, CEO and president of the Rhode Island Public Expenditure Council, said that when Gov. McKee proposed the PPP taxation he was facing a budget deficit gap of about $130 million.
“I would hope the General Assembly could reconsider given that the situation has changed a great deal,” he said.
DiBiase was referring to the news that the state is now in a better financial position due in part to the Office of Management and Budget projecting a $416 million surplus for the fiscal year ending on June 30.
As for the reason for the press conference, Wadensten said the business community is mobilizing to fight taxation due to the challenges that businesses are facing. This press conference, he said, was intended to inform the business community about the taxation issues.
“We are mobilizing everybody in the state that is an employer because it could have a profound effect on us all and the future of Rhode Island,” he said.
Cassius Shuman is a PBN staff writer. Contact him at Shuman@PBN.com.