R.I. revises tax overhaul calculations, wealthiest seen paying less than expected

RHODE ISLAND recently revised the tax overhaul legislation calculations, giving the wealthiest a tax break. For a larger version of this chart, <a href=CLICK HERE. / " title="RHODE ISLAND recently revised the tax overhaul legislation calculations, giving the wealthiest a tax break. For a larger version of this chart, CLICK HERE. /"/>
RHODE ISLAND recently revised the tax overhaul legislation calculations, giving the wealthiest a tax break. For a larger version of this chart, CLICK HERE. /

PROVIDENCE – As of June 9, Rhode Island’s wealthiest taxpayers were collectively going to pay $5.27 million more in taxes in 2011 than in 2010, based on a new income tax regime. As of Aug. 25, however, that same group will pay about $560,000 less in taxes, according to a non-public draft of revised figures on the tax overhaul law.

The overhaul, signed into law by Gov. Donald L. Carcieri on June 9, structured a cut in the state’s top marginal income tax rate from 9.9 percent to 5.99 percent and also reduced the number of tax brackets from five to three while simplifying deductions.

The overhaul was supported by local business leaders, who thought a reduction in Rhode Island’s top marginal rate – one of the highest in the country – would attract new businesses in the area, and it was designed to be close to revenue neutral in comparison with the old structure.

But Rhode Island’s highest-income taxpayers caught a break after the Department of Revenue revised the projections previously presented to the General Assembly in order to take into account the state’s Historic Preservation Investment Tax Credit.

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The tax credit was designed to spur re-development of abandoned or underutilized historic properties by allowing the developers to sell the credits for cash to high-income taxpayers to reduce their tax liability. This process would subsequently reduce the state’s tax revenue.

For next year, the lost revenue from tax credits will be partially reimbursed by a separate state fund that has budgeted $17.19 million for the purpose.

The recalculation of the taxes to account for the tax credits affect taxpayers across most income brackets, but the largest effects will be for those with adjusted gross incomes of $175,001 and above. And the most dramatic change will be for those 30 Rhode Islanders who report more than $10 million in AGI. For example, the $175,001 to $250,000 bracket was set to pay $655.58 on average less on its taxes under the original tax calculations; now, the group will pay $140.52 more on average.

“They considered legislation without a fiscal note that properly reflected the impact on the taxpayers,” said Russell Dunneker, fiscal policy analyst at the Poverty Institute.

The 30 taxpayers with the largest incomes were set to pay an average of $175,638.90 more in taxes next year under the new law. But when the state recalculated, they will pay $18,664.63 less on average than before.

The bottom line, however, for the state remains almost the same in both versions. The June 4 legislation calculated total income tax of $750.29 million, while the revisions project a total for the state of $751.92 million.

Rosemary Booth Gallogly, director of the state Department of Administration and acting director for the Department of Revenue, did not immediately return calls seeking comment.

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