Repealing car tax changes would cost $15.15 million, not $20.5 million

When Mayor Angel Taveras and Council President Michael Solomon hiked car taxes to balance the Providence budget a few years ago, they did not just hike car taxes on working families. They also cut taxes for cars worth more than about $24,000.

Before the hike, the car tax had a $6000 exemption and a rate of 7.678%. In addition to lowering the exemption to $1000, the city cut the rate to 6%. The net result was a lower effective tax rate on cars worth more than roughly $24,000 and a higher rate on cheaper cars. To his great credit, Solomon now says that this tax cut for expensive cars was unintentional and a mistake. Here is what he told the Progressive Democrats at our mayoral forum:

“Because the exemption was taken away, we thought it was easier for people with a $5000 car to pay $60 per thousand than $77 per thousand.* In hindsight, we probably would have been better off raising the exemption level. So we kind of did it backwards…Ultimately, what we had in mind was taking care of people who had cars under five or six thousand. We thought, by lowering the rate from $77 to $60,* that that would save them some money.”

When I first met Mayor-elect Jorge Elorza, months before he announced his campaign, he told me how concerned he was about how the Taveras-Solomon car tax hike hurts working families. It is a message he repeated time and time again on the campaign trail. But the City of Providence does not have very much money, so the price of a repeal matters.

That is why the fiscal analysis the Providence City Council quietly released right before Christmas matters so much. It pegged the price of a repeal at $20.5 million. As policymakers struggling with the next budget try to squeeze in some sort of repeal, that is the cold, inflexible number they will be facing. But it should not be.

When I first saw that figure, I was surprised, since the car tax hike had only netted the city $14.2 million in the first place. Digging deeper into the report, the reason for the discrepancy became clear. The $20.5 million figure assumed the city was going to maintain the lower rate, which led to the tax break for expensive cars.

I wrote to the author of the report, Nick Freeman, and he happily provided me the cost of a clean repeal of the car tax changes—$15.15 million.

So when budget writers try to find the cash to return to the old car tax system and provide some relief for Providence’s working families, that is the number they should be aiming for, not $20.5 million. It makes a tough lift quite a bit more realistic.

And if they cannot find the money, they should provide some quick relief by repealing the rate cut to fund an increase in the exemption. It would be free. It would be fair. And it would ease the financial squeeze so many in our city suffer under.

*Confusingly, car tax rates are typically reported as dollars per thousand, so when people talk about a $60 rate, they mean 6%.