Tax talk focuses on cuts, credit programs

Although a number of state legislative leaders have agreed the state shouldn’t raise business taxes to ease its fiscal woes, at least one high-ranking legislator is saying some previous tax cuts should be re-examined.
“I think we have been fair to the business community, but we also have to look at those in society that do have to struggle every single day,” Senate Finance Committee Chairman Stephen D. Alves, D-West Warwick, told about 500 local business leaders earlier this month at the Greater Providence Chamber of Commerce’s Legislative Luncheon at the R.I. Convention Center.
“I don’t really attest to the idea that cutting the taxes on the wealthy … in the state helps our economy,” Alves said. “If you take away $50 a week from someone making $200,000 a year, it does nothing for the economy – it doesn’t stop their spending. You take $50 from someone making $40,000 or $50,000 a year, it stops them from the extras of going out to dinner, maybe from purchasing an electronic product.”
The luncheon and Alves’ comments come as the General Assembly begins to grapple with fiscal 2009’s projected deficit of more than $384 million, as well as an anticipated shortfall of more than $150 million this fiscal year.
Gov. Donald L. Carcieri’s $6.89 billion budget proposal submitted Feb. 1 would hold the line on major taxes. Still, some business leaders are concerned that the deficit situation will force the state to backtrack on tax reforms made in recent years, including the introduction of the alternative flat income tax, the elimination of the capital gains tax, and the historic preservation tax credit.
Indeed, Alves questioned the effectiveness of some of the tax-credit programs approved by the General Assembly over the years.
Also, he asserted that of the 45,800 corporations in Rhode Island, 42,974 of them – or nearly 94 percent – pay only $500 a year in corporate income tax.
“I look at those statistics and I say, perhaps we’re going in the right direction, but I think we really need to think about the balance between the working men and women in this state and the corporate structure,” Alves said.
Last week, Chamber President Laurie White took issue with Alves’ comments.
She said the majority of those corporations are either S corporations (which are taxed like partnerships) limited-liability companies (LLCs) or limited-liability partnerships (LLPs). Their profits or taxable income are passed through to the owners, and assessed on the owners’ personal income instead.
White said she has heard talk of a proposal to increase the business-entity tax in Rhode Island from $500 to $1,000. That proposal, she noted, comes at the same time as Connecticut’s governor is proposing the repeal of a similar tax in that state. In an e-mail briefing to members last week, the Chamber described that move as Connecticut’s effort “to crank up its competitive posture.”
Meanwhile, in Rhode Island, “the burden is already disproportionally high on business in this state,” White said.
Most legislative leaders at the luncheon – both Democrats and Republicans – appeared to be in agreement with White.
Other members of the legislative panel at the Chamber luncheon on Feb. 7 agreed that tax increases would severely damage the state’s economic-development effort.
The panel included House Speaker William Murphy, House Finance Chairman Steven Costantino, Senate President Joseph Montalbano, Senate Majority Leader M. Teresa Paiva-Weed, House Minority Leader Robert Watson and Senate Minority Leader Dennis Algiere.
White was particularly delighted that Murphy said publicly that he is opposed to the governor’s proposed retroactive cap on the state’s historic tax-credit program. “You can’t pull the rug out from these projects,” he said.
Murphy did, however, add that the state may have to “scale back” the program in the future.
Most lawmakers on the panel urged the business community to help them to develop other ways to overcome the state’s gaping structural deficit and restructure the way it does business.
“We need everybody at the table to change the vision of Rhode Island,” Costantino told the business leaders. “We need a commission, and not the type of commission we form. But the type of commission you form, where business leaders, small and large, stakeholders, and labor are at the table to redefine the mission of what Rhode Island should stand for.”
Alves agreed that the state must work with the business community, but he also insisted that various tax-credit programs should be examined for their effectiveness.
In some situations, the credits have worked out well, Alves said, citing the arrival of Fidelity Investments in Smithfield that created well-paying jobs.
But the senator also referenced a year-old report from the R.I. Department of Human Services that showed that three of the state’s top employers – Bank of America, Citizens Financial Group and CVS Caremark Corp. – have a total of about 1,500 employees on RIte Share and RIte Care, the state’s health insurance assistance programs.
He said it is “somewhat distressing” that these companies have received job development tax credits.
“We put these programs in place,” Alves said, “but I guess we really didn’t put enough thought into it to make sure the jobs we’re giving these companies credits for are providing health insurance.”
“Perhaps we were very lax in proposing some of these credits without really looking at the outcome,” Alves said. “We’re going to look at each and every one of those programs and make sure that people who are receiving these benefits also are providing the jobs that we hope all of our citizens can enjoy.”
White noted after the luncheon that the three employers have a certain percentage of part-time workers who don’t qualify for company-sponsored health insurance.
But she also acknowledged that the state should review some of its credit programs, particularly ones approved decades ago when the state’s economy was manufacturing-based. •