While conservative activists claim the Ocean State can cut its way back to prosperity, most academic economic studies agree that lowering income tax rates hasn’t worked that way, according to a new report from the Center for Budget and Policy Priorities.
In fact, the study uses Rhode Island’s recent income tax cuts as an example of how not to grow an economy.
Rhode Island, Arizona, Louisiana, New Mexico, Ohio and Oklahoma, says the report, all “enacted significant personal income tax cuts. In every case, proponents claimed the tax cuts would improve the state’s economic standing, just as proponents of similar cuts today are claiming.”
But, according to the study, “that has not worked particularly well in the past and is not supported by the preponderance of the relevant academic literature. The results make clear that deep personal income tax cuts are no panacea for state economies.”
The report uses a quote from then-majority leader Gordon Fox praising the 2010 income tax cuts (here’s the article the quote comes from):
“This new tax rate. . . is certain to create new jobs, spur economic development, put money back in taxpayers’ pockets, and otherwise bring Rhode Island to a position of twenty-first century economic leadership in the region and, indeed, in the country.”
As has been well-documented, the tax cuts were followed by a sharp economic downturn in the Ocean State. According to the new CBPP study, in Rhode Island personal income fell by 2.4 percent; unemployment increased by 3.7 percent and the state’s share of the gross national product dropped by 3.9 percent between instituting the flat tax in 2010 and 2011.
Legislation before the General Assembly this year would reverse the tax breaks for those who earn more than $200,000 a year.