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Do RI Corporations Really Need A Tax Break?


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The Senate Finance Committee hears tax code amendments proposing to drop the corporate income tax rate by 2 percent over the next three years. (Photo: Dave Fisher)

This week, both the House and Senate finance committees considered legislation that would reduce the corporate income tax from 9 percent to 7 percent over the next three years.

The move, as always, is touted as a way to make Rhode Island’s business climate more competitive with our neighboring states’. While Rhode Island’s corporate tax rate is the highest in New England, as I posted yesterday, the real-world ramifications of a 2 percent state tax reduction means little to most of our businesses, due to the fact that the majority of the tax burden on Rhode Island’s businesses are borne of local property, sewer, and tangible asset taxes.

The vast majority of our businesses, y’know, the small ones that legislators tout as the “lifeblood of Rhode Island’s economy” report income of less than $249,999 on their tax returns. Even at the top of that tier, a business that reports earnings of $249,999 pays $22,499 in taxes to the state at 9 percent. At a rate of 7 percent, that same business would pay 17,499; a net gain of $5,000 which could easily be eaten up by those local taxes, especially if that business made capital improvements to its structure or purchased new equipment.

Check out this chart of the combined corporate income and taxes collected by the state for FY 2010 from the R.I. Division of Revenue.

As you can see, the 42,929 businesses that reported a loss/or $249,999 or under in income paid just under $29 million, even though the combined adjusted income of these entities was actually a loss of  over $370 billion.

At the other end of the spectrum, the 152 businesses that reported income of $500 million or over, whose adjusted taxable income was just over $212 billion – a 580 billion dollar increase from the low end of the tier – paid just under $25 million, or $4 million less than the nearly 43,000 businesses who posted either a loss or income of $249,999 or less.

A policy brief issued by the Economic Progress Institute stated,

“With a price tag of almost $90 million over five years, the proposed corporate income tax reduction could backfire if public services that businesses rely on are cut as a result of revenue losses. Furthermore, the proposal will do nothing to help the majority of local businesses that do not pay the corporate income tax. Finally, research suggests that corporate tax cuts do little to stimulate economic growth.”

Once again, our small businesses get hosed by the tax code. It seems that even when it comes to corporate “people”, the 1 percent ride the backs of the 99 percent. And to top it all off, many of these 152 top-tier businesses get cushy tax breaks on property and tangible assets from the cities and towns that they call home.

Tax equity anyone?

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Real Key To Fixing R.I.’s Business Climate


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On Tuesday, amendments to the state’s tax code regarding the corporate income tax rate was reviewed by the Senate Committe on Finance. The amendments, straight from the desk of Gov. Lincoln Chafee, would lower the tax rate on corporate profits from 9 percent to 7 percent over the next three years.

While the proponents of the idea that Rhode Island is anti-business may see this as a way to encourage more entrepreneurism in our state, or to make the state more attractive to business owners that may be pondering relocating to Rhode Island, once you plug in the numbers, the majority of employers in Rhode Island – the small businesses to which our legislators pay much lip service, but don’t offer much else –  won’t see a tremendous savings.

For example, if a small business posts a profit in any particular year of $100,000, at the current tax rate, they pay $9,000. At the 7 percent rate proposed for 2016, they would pay $7,000. A mere $2,000 savings, and given the rate of increase in the overhead of running a small business, this savings amounts to all but nothing in three years. This largely symbolic gesture has very little benefit in the real world. The real killers of small business are the local property, sewer, and tangible asset taxes.

If the state wanted to really promote small businesses and make the business climate in Rhode Island more hospitable to new and existing businesses, they would lower the income tax rate on the middle class, which is the greatest driver of our day-to-day economy.

By putting more disposable income into the pockets of the greatest percentage of our population, who then go out and spend that money on things like food and clothing, more constant commerce occurs, increasing revenue streams for businesses and hence, making the “onerous” 9 percent tax rate a bit more tolerable. Consumers may also opt to save that money to purchase a big ticket item like a car – hopefully an hybrid or electric –  or stash it away for a down payment on a home – hopefully one that has been retrofitted for the highest levels of energy efficiency. In either scenario, businesses benefit.

Even if a majority of the vast middle-class elect to save or invest that extra money, that contributes to consumer confidence, another indicator that is currently in the dumps in Rhode Island.

In the light of so many years of top-down, so-called economic development, and the current fiscal straits in which the state finds itself, you’d think that more legislators and leaders would recognize that the wind has shifted and take a new tack.

House Finance is scheduled to hear the amendment on Wednesday.

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Union Objects to Taxes Funding ALEC Costs


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Writing on behalf of the 80,000 members of the AFL-CIO, union leaders George Nee and Maureen Martin sent a letter to every member of the legislature asking that ALEC memberships not be funded with taxpayer money.

“If the views and priorities of ALEC align with your personal beliefs, then by all means remain a member,” they wrote in the letter. “We only ask that the Rhode Island taxpayer not be responsible for  paying your membership dues to a right-wing, business backed lobbying group, just as no one would ask the taxpayer to be responsible for paying any members dues to liberal organizations such as Ocean State Action, Emily’s List, or MoveOn.org.”

The state paid $2,300 for 23 legislators’ memberships in the American Legislative Exchange Council, or ALEC, a far right wing group that pairs together paid corporate interests and conservative legislators to draft model legislation used in states across the country. While the expenditure is relatively small, many consider what ALEC does to be lobbying, and thus shouldn’t be subsidized by taxpayers.

“ALEC is clearly not a non­partisan organization,” Martin and Nee wrote to legislators. “Ninety-eight percent of ALEC’s funding comes from corporate and special interest group donors such as BP, Verizon, the Koch  brother’s, Wal-Mart, the National Right-to-Work Committee, the NRA, the Heritage  Foundation, the United States Chamber of Commerce, among many others.”

Memberships to such organizations are approved by the powerful Joint Committee on Legislative Services – made up of House Speaker Gordon Fox, Senate President Teresa Paiva Weed, House Majority Leader Nicholas Mattiello, House Minority Leader Brian Newbury and Senate Minority Leader Dennis Algiere.

Fox, the chairman of the committee, told me he doesn’t see a problem with taxpayers paying for ALEC memberships, likening it to memberships in the National Conference of State Legislators.

“I just treat ALEC as I treat the NCSL and NCSG [National Conference of State Governments],” Fox said. “Yes they have a more conservative bent from some of the other ones. But there are members up here who are conservative and want to belong to something that’s a little more conservative.”

The NCSL and NCSG are non-partisan organizations that offer research and networking opportunities to state governments. Every state legislator in the country belongs to the NCSL. ALEC, on the other hand, exists to promote corporate interests and its legislative members are almost always conservatives.

Fox said taxpayers have been funding ALEC memberships for as long as his memory serves. While he didn’t rule out revisiting their funding, he wouldn’t commit to doing so either, saying, “I’m really looking at the budget right now but in my spare time i’ll look into that too.”

Recently, ALEC has been in the news for sponsoring, then distancing itself from, the Stand Your Ground law in Florida that almost allowed Trayvon Martin’s killer to avoid trial. Separately, Common Cause has filed a complaint with the IRS saying the group is evading taxes by not registering as a lobby organization. Critics claim ALEC is an example of how corporate America has an unfair advantage in the political process. While ALEC is known for its regressive tax policies that favor big business, it has also aligned itself with the NRA and the religious right in the past.

Locally, ALEC has been making headlines because Rep. Jon Brien, a conservative Democrat from Woonsocket, was recently named to the group’s board of director. Subsequently, it was learned that one in five state legislators are members – though some current and former members say they don’t know how they became members. Phil Marcello, of the Providence Journal, then reported that ALEC memberships are paid for with taxpayer dollars. Since then, two Democratic state Senators, John Tassoni and Walter Felag, have renounced their memberships.

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Taxpayers Are Funding Legislators’ ALEC Memberships


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Rhode Islanders taxpayers are funding legislators’ memberships in ALEC, the American Legislative Exchange Council, said House spokesman Larry Berman. He said the state paid $800 in January for eight new members (more than 20 percent of the legislature are members) that Rep. Jon Brien, a conservative Democrat from Woonsocket who was recently put on the group’s national board of directors, recently signed up.

“A payment is made annually,” Berman said.

Brien said he doesn’t have an issue with taxpayers funding legislators’ membership in the group that pairs corporate interests with state lawmakers.

“Why is this any different than paying for a membership to the NCSL,” Brien said.

The National Conference of State Legislatures, according to it website, “is a bipartisan organization that serves the legislators and staffs of the nation’s 50 states. NCSL provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues.”

According to ALEC’s website, the group “works to advance the fundamental principles of free-market enterprise, limited government, and federalism at the state level through a nonpartisan public-private partnership of America’s state legislators, members of the private sector and the general public.”

Two of the new ALEC members said they didn’t sign up for ALEC. Rep John Edwards, a moderate Democrat from Portsmouth, said Brien signed him up and Rep. Sam Azzinaro, of Westerly, said he didn’t know he was a member of ALEC, even though he was on a list provided by Brien. Brien said he would provide their membership forms that will show otherwise.

John Marion, of Common Cause Rhode Island, said taxpayers shouldn’t be funding ALEC memberships.

“There is no reason the General Assembly should paying for these memberships in the first place, and paying for people who may not even want to have joined is almost comical,” he said. “Clearly there need to be better controls in place for these sorts of requests from legislators.”

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Dem. Lawmakers Distance Themselves from ALEC


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Democratic legislators distanced themselves from involvement with ALEC, the far right wing group that acts as a stealth lobby organization to state legislators, saying they signed up because Rep. Jon Brien asked them to do so.

Many said they didn’t know much about the organization, even though it has been all over the news as of late, and that they would be taking a closer look to see if it jibes with their politics.

“I was asked to sign up,” said Rep. Peter Martin, a conservative Democrat from Newport, saying Brien asked him to join. “Now, I’m questioning why I did. I’m learning more about it and thinking I better learn a little more. I like Jon Brien but sometimes he’s a little more to the right than I am.”

Brien, a conservative Democrat, recently joined ALEC’s national board of directors. He said ALEC is actively trying to recruit more Democrats. A list of local members of the American Legislative Exchange Council indicates that more than 20 percent of the General Assembly belong to the group.

Rep. John Edwards, of Tiverton, said he didn’t join ALEC.

“Someone signed me up,” he said. “I thought it was more like the [National Conference of State Legislatures].”

The NCSL is a bipartisan group that helps state lawmakers share ideas. ALEC, on the other hand, supports only conservative ideology and is backed by corporate America. Edwards said being aligned with corporate America isn’t necessarily a bad thing, but it can be he added.

“Sometimes corporate America is aligned with my values and sometimes it isn’t, like when they are sticking it to the middle class,” he said. “I’m a moderate Democrat. I’m not one of those far-right Democrats.”

Rep. Sam Azzinaro, a conservative Democrat from Westerly, said he knew nothing about ALEC, even though he was on a list of members provided by Brien.

Rep. Lisa Baldelli-Hunt, a Woonsocket Democrat, said her membership in ALEC does not necessarily imply that she supports the group.

“If someone joins an organization, it’s not always because they are an advocate for that organization,” she said. “It might be just that they are looking for more information.”

Rep. Michael Marcello, a Scituate Democrat, echoed this sentiment, saying, “I don’t think there’s anything wrong with trying to get more information. It doesn’t mean I support 100 percent of what they do.”

In fact, Marcello distance himself from many of ALEC’s legislative priorities, saying he doesn’t support voter ID as well as other ALEC initiatives. “I didn’t join as a form of support, I joined to get more information.”

He said he and Brien attended an ALEC reception at G-Tech earlier in the year. Brien was an attorney for G-Tech from 2002 to 2007, and said he attended his first ALEC reception at G-Tech years ago when his wife was a member of the General Assembly, at the request of former Woonsocket legislator Jerry Martineau, who was convicted on corruption charges in 2009 for his cozy relationship with CVS and Blue Cross.

Brien, one of the more conservative members of the state legislature from either party, said he signed up most of the House members during the special pension session in November.

“They all thought it sounded good when they signed up,” he said. “My goal is to sign up as many new members as I can.”

Brien said the special pension session came on the heels of ALEC’s annual meeting last summer, at which he said he spent four days focusing on education reform. He described ALEC as being nonpartisan.

“I don’t find education reform to be a divisive or partisan or ideological issue,” he said. But, of course, in Rhode Island it is – and during the summer Brien almost got into a fight in an elevator with an official from the NEARI after the two exchanged words outside of a courtroom when another union official was on trial for cyberharassing an anti-union Democrat during the 2010 election season.

He said his politics are closely aligned with ALEC’s legislative agenda, but that he will not do its bidding.

“Is my goal to have ALEC have influence at the State House? No,” he said. “My goal is to bring together politically like-minded representatives and senators when we believe in the same issues and ideas. If we do that, ALEC will by osmosis have influence at the State House.”

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More than 20% of General Assembly Involved with ALEC


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More than 20 percent of Rhode Island’s General Assembly is affiliated with ALEC, the right-wing group sponsored by corporate America that drafts model legislation for use at state houses across the country, according to a list provided by Rep. Jon Brien, the state chairman and a member of the group’s board of directors.

There are 24 legislators, half of whom are Democrats, associated with the conservative group that has come under fire as of late for sponsoring the Stand Your Ground law in Florida, voter ID efforts and other conservative initiatives. 11 of the members are from the Senate

Additionally, according to Brien, there are 14 former members of ALEC in the General Assembly, all of whom are Democrats, including some of the state’s most liberal legislators, such as Harold Metts, Josh Miller and Rhoda Perry. All of the former members are Senate Democrats

Here’s the list:

Current members

  1. Sen. Dennis Algiere, R – Westerly (12/31/12)
  2. Rep. Samuel Azzinaro, D – Westerly  (12/31/13)
  3. Rep. Lisa Baldelli-Hunt, D – Woonsocket (12/31/13)
  4. Rep. Jon Brien, D – Woonsocket (12/31/12)
  5. Rep. Doreen Costa, R – North Kingstown    (12/31/13)
  6. Rep. John Edwards, D – Tiverton    (12/31/13)
  7. Rep. Laurence Ehrhardt, R – North Kingstown    (12/31/10)
  8. Rep. Michael Marcello, D – Scituate    (12/31/13)
  9. Rep. Peter Martin, D – Newport    (12/31/13)
  10. Rep. Brian Newberry, R – North Smithfield    (12/31/12)
  11. Rep. Daniel Reilly, R – Portsmouth    (12/31/13)
  12. Rep. John Savage, R – East Providence   (12/31/12)
  13. Rep. Lisa  Tomasso, D – Coventry    (12/31/13)
  14. Rep. Robert Watson, R – East Greenwich    (12/31/12)
  15. Sen. David Bates, R – Barrington    (12/31/12)
  16. Sen. Marc Cote, D – Woonsocket (12/31/12)
  17. Sen. Walter Felag, D – Bristol    (12/31/12)
  18. Sen. Dawson Hodgson, R – North Kingstown    (12/31/12)
  19. Sen. Frank Lombardo, D – Johnston    (12/31/12)
  20. Sen. Francis Maher, R – Exeter    (12/31/12)
  21. Sen. Christopher Ottiano, R – Portsmouth    (12/31/12)
  22. Sen. Glenford Shibley, R – Coventry    (12/31/12)
  23. Sen. John Tassoni, D – Smithfield    (12/31/12)
  24. Sen.  William  Walaska, D – Warwick    (12/31/12)

Past members

  1. Sen. Daniel DaPonte, D – East Providence (12/31/10)
  2. Sen. Louis DiPalma, D – Newport   (12/31/10)
  3. Sen. James Doyle, D – Pawtucket    (12/31/10)
  4. Sen. Paul Fogarty, D – Burrillville   ( 12/31/10)
  5. Sen. Hanna Gallo, D – Cranston    (12/31/10)
  6. Sen. Maryellen Goodwin, D – Providence    (12/31/10)
  7. Sen. Paul Jabour, D – Providence    (12/31/10)
  8. Sen. Beatrice Lanzi, D – Cranston    (12/31/10)
  9. Sen. Michael McCaffrey, D – Warwick    (12/31/10)
  10. Sen. Harold  Metts, D – Providence    (12/31/10)
  11. Sen. Joshua Miller, D – Cranston    (12/31/10)
  12. Sen. Rhoda Perry, D – Providence    (12/31/10)
  13. Sen. Roger Picard, D – Woonsocket    (12/31/10)
  14. Sen.  V. Susan Sosnowski, D – South Kingstown    (12/31/10)