Taxes, education and housing are all facets of a rich combination
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Is it lower taxes on corporations and the wealthy? Or is it good schools, skilled workers, affordable housing, good government services? Do we build on the strength of our colleges, our neighborhoods, our natural resources?
It’s all of those things, speakers at a Rhode Island College symposium said on Dec. 6. That’s why economic development is so challenging: There’s no magic bullet, so to build a strong economy, Rhode Island has to work on many areas at once.
“We have to succeed on all these levels, and we have to succeed on them simultaneously,” said Christopher “Kip” Bergstrom, executive director of the state Economic Policy Council. “And it’s not good enough to have strengths; we need to be the best, at least in some areas.”
That was the backdrop of the symposium, sponsored by The Poverty Institute at RIC’s School of Social Work, a think tank that often clashes with economic-development officials over tax policy and state budget priorities.
As the institute sees it, giving tax breaks to the rich and to businesses is unforgivable if it forces the state to cut services for the poor.
But the late Nancy Gewirtz, the institute’s co-founder and longtime director, also used to say the best way out of poverty was a good job, so she wouldn’t object to tax breaks for economic development if they were proven to work.
State Economic Development Director Michael McMahon seized on that point in his presentation, which he titled “Good jobs, good life.”
Rhode Island needs to support its neediest residents, and continue investing in education, McMahon said, though it has to get a better return than it’s getting now. But that doesn’t change the fact that Rhode Island’s taxes are “very high”: the top income-tax rate here is 9.9 percent, compared with 5.3 percent in Massachusetts and 4.5 percent in Connecticut.
“I’m not here to shill for rich people, but I will say that rich people have choices,” he said. They can choose to live elsewhere – and whether or not there’s a causal relationship, Rhode Island has less than half the share of taxpayers with incomes above $500,000 than Massachusetts, and less than one-third of Connecticut’s share. They also decide where to locate good jobs. And they support the nonprofits that serve low-income people.
The same goes with business tax incentives, McMahon said: Companies do look at the tax outlook in each state, and sometimes a tax break will help Rhode Island close a deal. The problem with the EDC in the past, he said, is that it opened up discussions by offering tax incentives, as if that’s all the state had to offer.
The EDC’s strategy now, he said, is to “differentiate” Rhode Island and sell its inherent strengths, then use incentives, when appropriate, to finalize a deal. The EDC has also set clear policies on what it considers a “good” job – paying at least $25,000 a year, with benefits – and on how companies are held accountable when they do get tax breaks.
Matthew Murray, a professor of economics and tax policy expert at the University of Tennessee in Knoxville, said his home state is proud of its “very low” taxes, but “you do get what you pay for,” he said, and for Tennessee that means limited government services and a per-capita income about 20 percent below the national average.
Still, high-income people and entrepreneurs do respond to tax rates, Murray said, so Rhode Island is not alone in its concerns. There’s also a lot of pressure to cut business taxes, he said, and not to get in the way of companies’ tax evasion strategies.
“You’re going to continue to see an erosion of your business tax base,” Murray said. “And if you don’t lower your taxes, you’re going to see an erosion of your high-income tax base.”
And that is Rhode Island’s approach, Bergstrom said. School quality and adult education are a priority, he said. The EPC is also focusing on commercial revitalization, especially in urban neighborhoods.
Don’t forget good, affordable housing, said Barbara Fields, senior program director at the Local Initiatives Support Corporation of Rhode Island. This state has “the severest housing crisis” in the United States, she said, and it needs thousands of new units “just to keep up with job creation.”
Scott Wolf, executive director of Grow Smart Rhode Island, offered some advice as well: Focus on urban areas, which need investment the most; improve public transit; keep supporting historic preservation; and preserve Rhode Island’s forests and farmland.
A big part of Rhode Island’s appeal is its combination of historic, distinctive urban clusters and great open spaces, Wolf said, and it’s “commonsensical” to protect those assets.
“We are not Anywhere, U.S.A.,” he said.
