Seizing the reins on a top business priority, the R.I. House Democratic leadership has proposed a tax reform plan that would, among other things, reduce the top personal income tax rate from the current 9.9 percent, to 7.5 percent in 2007 and 5.5 percent in five years.
The “Taxpayer Relief Act of 2006” also includes small increases in tax credits given to the poor, elderly and disabled; an acceleration of the car tax phase-out, two sales tax holidays, a review of the sales tax system, a personal income tax overhaul, and a new policy office.
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“This legislation is a comprehensive approach to providing relief to all taxpayers throughout the state,” said House Speaker William J. Murphy. “Rather than taking a piecemeal approach to the issues that affect our tax system, we’re going to look at how to make the entire system work for the state and for all its taxpayers.”
The plan, which was devised in consultation with the Greater Providence Chamber of Commerce and the business-backed Rhode Island Public Expenditure Council (RIPEC), but doesn’t fully mirror their priorities, received praise from Chamber President Laurie White at its unveiling on Feb. 2, but got a mixed response from other people.
Even before the details were out, the Senate leadership – fellow Democrats – said cutting taxes in the face of a major budget deficit was unfeasible and not the best way to promote economic growth, especially because for most Rhode Islanders, the personal income tax is already low.
Gov. Donald L. Carcieri said through a spokesman that he welcomed the prospect of tax cuts, but stressed that “cutting taxes requires cutting spending.”
The personal income tax cut alone would cost an estimated $17.2 million in fiscal 2007, House Finance Chairman Steven M. Costantino said. Asked where it would come from, he replied, “This has to be worked in, obviously.”
But Costantino also said the proposed tax reforms are “investments.”
“We need people working and making money and paying taxes here to support our expenditures,” he said.
Yet even RIPEC, whose research the House leaders quoted repeatedly in touting their plan, back the plan. Executive Director Gary Sasse said it includes “ideas that we obviously like,” such as the sales tax study, tax code simplification, and an office devoted to revenue tracking and policy, but he was unsure about the income tax cut.
“All our studies have indicated a need to cut” the top marginal tax rate, Sasse said, “but we really want a study to see if this is a workable solution.”
