This report comes at an opportune time for Rhode Island, just a week after learning that policymakers are considering increasing Rhode Island’s estate tax exemption from the current $1.5 million to $2 million, a move that would benefit the heirs of fewer than 100 estates.[1] As seen in Figure 1, the increase in the estate tax exemption enacted two years ago already has significant negative impact on state revenues.
As Rachel Flum, Executive Director of the Economic Progress Institute, notes, “We face a choice: we can either invest in the things that help our communities thrive and all of us prosper, or hand yet another tax break to a few of our state’s wealthiest people.” Changes to our estate tax have already compromised our ability to make critical investments in the Ocean State. Increasing the estate tax exemption from $1.0 million to $1.5 million in the 2014 General Assembly depleted revenues by $8.4 million in 2015 and by $6.1 million already in 2016, according to the Department of Revenue.[2]
The CBPP report, State Estate Taxes: A Key Tool for Broadly Shared Prosperity, calls on states that have repealed their estate taxes to reinstate them, and suggests that the eighteen states that have estate taxes in place (including every state in the Northeast except New Hampshire) consider improving them. At $1.5 million, the Rhode Island estate tax exemption falls midway between the $1.0 million exemption in Massachusetts, and the $2.0 million in Connecticut.
The CBPP report emphasizes three compelling public policy purposes that result from estate taxes:
Report author, Elizabeth McNichol, emphasizes the price we pay when we erode state revenues:
You can’t get something for nothing. States that have reduced or eliminated their estate taxes have less money for public investments, so they are seeing higher tuition at public colleges; cutbacks in teachers at K-12 schools; and deteriorating roads, bridges, water treatment facilities, and other public infrastructure.”
Important investments in tens of thousands of Rhode Island’s low- and middle-income working families – such as increasing the state earned income tax credit to 20 percent of the federal credit, and helping families pay for child care–should take priority over tax breaks for a few dozen of our wealthiest families. These investments are particularly important given Rhode Island’s overall tax system, which is “upside down”. The more money you make the smaller share of your income you pay in state and local taxes. A robust estate tax helps to reverse that upside-down tax system, as do changes at the lower end, such as increasing the state EITC.
Douglas Hall, Director of Economic and Fiscal Policy at the Economic Progress Institute notes that “Preserving the estate tax at its current levels gives us revenues needed to give Rhode Island working families a boost, strengthen our economy, and invest in education and infrastructure, while making our tax structure more fair, and preventing those most able to pay from avoiding taxes on their accumulated assets.”
[1] Based on the most recently available data, after reducing by more than half the number of estates subject to the estate tax via changes adopted in 2014, only about 86 filers would remain, 39 of which would see their estate tax completely disappear if we were to raise the exemption to $2.0 million
[2] Revenue projections from the estate tax, seen in Figure 1, incorporate the revenue impact from changing the exemption level, but also reflect the number of estate tax filings, which vary from year to year.
]]>In “It’s Time for States to Invest in Infrastructure,” CBPP Senior Fellow Elizabeth McNichol urges states to make sound infrastructure investments. Now is the time for states to reverse years of decline and step up investment in state-of-the-art school facilities; up-to-date water treatment plants; better highways, railroads, and ports; and other public infrastructure — which is vital to creating good jobs and promoting full economic recovery.
The Center on Budget report places Rhode Island third last among all states (ahead of only Michigan and New Hampshire) for total state and local capital spending as a share of state gross domestic product in 2013 (the most recent year for which 50-state data are available).
Here in Rhode Island, years of neglect have resulted in consistently low ranks on infrastructure such as roads and bridges – more than one in five bridges in our state is structurally deficient according to the American Society of Civil Engineers, and 41 percent of our roads are in disrepair, compromising public safety and costing motorists nearly half a billion dollars a year in additional transportation and repair costs. This state of disrepair should come as no surprise – since 2000, Rhode Island has ranked in the bottom three for state and local capital outlays as a share of GDP in ten of the twelve years for which we have data.
Since 2013, more infrastructure investments have been made. In 2015, the General Assembly approved a five year, $3.4 Billion Capital Budget, heavily weighted towards investments in transportation (43.2%) and Education (17.9%), spanning investments in K-12 schools, higher education facilities, as well as vocational schools, and the School Building Authority was created to oversee the process of overhauling the state’s crumbling school buildings.
The Governor’s 2017 budget proposal recommends significant further capital investment such as in Rhode Island’s public colleges, for affordable housing, and for the “Rhode Works” overhaul of the state’s transportation infrastructure. The recently passed Rhode Works legislation provides much-needed investment to fix Rhode Island roads and bridges and underscores the importance of raising sustainable revenue to ensure that our transportation infrastructure is well-maintained and safe for those who use them.
Modernizing Rhode Island’s transportation systems and other infrastructure boosts productivity by supporting businesses and residents, improving the education and job readiness of future workers, and helping communities to thrive. Investing in our infrastructure will also provide immediate job opportunities for Rhode Islanders who are working less than they would like and making less than it takes to get by.
Infrastructure investments typically bring higher wages and better quality of life for years in the future. Investing in our public infrastructure – our roads, bridges, schools, ports, and more – creates immediate jobs, makes our communities safer and healthier, and lays the foundation for a brighter future for all Rhode Island families.
]]>Thursday, February 16, 2012
$35 per person
Featuring keynote speaker Jared Bernstein
Senior Fellow, Center on Budget and Policy Priorities
Former Chief Economist and Economic Advisor to Vice President Biden and member of President Obama’s economic team.
A Skilled Workforce: Meeting the Demands of the Innovation Economy
Rhode Island’s Human Service Budget: The Story Behind the Headlines
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Step Two: Ignore the growth of income inequality in the U.S. over the past 30+ years, which is actually at the root of the economic problems the country faces. Don’t even mention it, and especially don’t do anything about it. Check!
I have watched in shocked horror over the past couple weeks, as conservative deficit hawks enabled by the Democratic Party, have marched toward a fiscal austerity program that will take the depressed and down economy and pummel it to a bloody pulp. This is all being done in order to alleviate some mythical inflationary pressure that wealthy bankers are terrified of (remember, inflation is the biggest enemy of accumulated wealth).
Of course none of this really matters to the tens of millions of people who are looking for work, have had their hours cuts, have been forced into part-time work, or are in fear of losing their jobs (55% of all adults in the labor force have been affected by this recession in some way).
The real problem is that people aren’t spending money because of the recession, and that is directly related to the growth in income inequality, albeit in complicated ways. Since the 1970s, U.S. wages have largely remained stagnant. At the same time, the vast majority of all the wealth created in the country over the last 30 years has been flowing upward.
Because the super wealthy don’t actually work to generate their income, wages as a share of national income has been declining for just as long. What that means is less and less money is being earned by workers, and that’s bad for the economy because workers spending money is what fuels economic growth. Consumers earning more money means that they can buy more goods and services, increasing the effective demand in an economy. Seems pretty simple, right? Well, yes, it is.
But Brian, if wages have been stagnant for 30 years, then why has the economy been growing that whole time? I’m glad you asked. The economy didn’t tank sooner because people have been supplementing their stagnant or declining wage income with credit and debt. As a society, America took out more and more, and larger and larger, loans either through credit cards, home equity loans, mortgages, payday loans, and all the other delightful financial products offered by financial institutions intent on making money off of your debt. Notably, as fake housing wealth grew, people used their homes as ATMs – we’re currently seeing how good of an idea that was (and once the housing bubble burst, the $1 trillion of increased demand that was based on it vanished).
As a result of all this borrowing, middle class Americans tripled their debt over the last 30 years. As we all know, when debt rises, service on the debt rises. That is yet another mechanism that sucks dollars from a local economy and puts it in the bank account of CEOs, exacerbating the income inequality problem (always remember that when millions of people have been losing their jobs since 2007, Wall Street managed to find $145 billion to pay in bonuses in 2009 alone).
Yes, there’s more to the story, there always is. But here we are, discussing the budget deficit and the national debt when the real problem is that average workers are getting screwed, they haven’t been making enough money to keep pace with the increases in the cost of living, virtually all the wealth accumulates into the hands of the few, and Democrats and Republicans continue to let it happen.
We need to put more money in the hands of people who will spend it in the economy – that’s the only way jobs will come back. Why the federal government isn’t spending every waking moment developing a strategy for making this happen is beyond me. Instead we get bank bailouts and financial reform legislation that makes Wall Street happy.
We expect Republicans to screw workers – that’s what they do. But Democrats have, time and again, been complicit in the weakening of the middle class. And it’s no different now.
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