Income Taxes – RI Future

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.

One of the more reprehensible things that conservatives have come out with of late is the idea of the ‘lucky duckies.’

This is what the Wall St Journal’s op-ed page called those of our society who are ‘fortunate’ enough to make such a low salary that they don’t have to pay fed income taxes.

This is truly verging (has crossed into?) Newspeak. You know, 1984–war is peace, freedom is slavery etc…)

In most people’s minds, getting stuck in a job that makes you $20k a year is the opposite of ‘fortunate’. And if those WSJ writers think these folks are so lucky, all they have to do is quit their cushy office job and stand on their feet 8 hours a day flipping burgers.

Lucky duckies, indeed.

[ Pre-emptive strike: the idea is that these people have no ‘skin in the game’, so they don’t care about tax rates because it’s so hard to make ends meet on $250k per year, yadda yadda. Utter nonsense. Give me the $250k, I’ll pay the 39% tax rate from the Clinton years, and still be waaaaaaayyyyy ahead of where I am now. And so would most of you reading this. ]

So far, this has been standard class warfare stuff as waged by the 1%. True, people in the bottom half don’t make enough to pay fed taxes. Think about that: almost half the country, by conservatives own reckoning, don’t make enough to pay fed taxes. Is the problem that their a) tax rate is too low; or, b) that their salary is too low?

If you’re a conservative, the answer cannot be (a), because tax rates are NEVER low enough.

And yet, that’s what they’re saying. That tax rates on the bottom half of the country have to go UP. While tax rates on the top 1% have to go DOWN. Talk about internally inconsistent.

Or, it would be if they actually cared about being logical. Or consistent. They don’t. They only care about waging class warfare against everyone who’s not part of the 1%.

What truly takes this distortion to another level, and makes it reprehensible is the way it looks at a tiny sliver of the situation, cherry-picks what suits their cause, then ignores the rest.

The fact is, this lower 47% that pays no fed income tax, pays plenty of other taxes. Payroll tax, which is hugely regressive since it’s capped at around $100k (may be higher; it moves with inflation), sales taxes (also hugely regressive) excise taxes, state taxes, local taxes, and so on.

What happens when we factor all of these in?

Here’s the result:

This is a chart done by the Corporation for Enterprise Development. It shows what the total, overall tax rate is for all income quintiles by state. It shows how much of their income the poorest 20% pays, vs how much of their income the top 1% pays in each state, then shows the ratio between the two.

The median state is Mississippi. The poorest 20% pay about 10.8% of their total income in taxes. The top 1%, OTOH, only pay 5.5% of their income.

In other words, the effective tax rate of the bottom 20% is about twice as high as the tax rate for the top%–despite paying no fed taxes.

And how does RI stack up? We’re worse.

Here, the bottom 20% pays about 11.9%, while the top 1% pays 5.5%.

In other words, the bottom 20% pays a rate that is more than twice the rate paid by the top 1%.

And Mass is two spots worse, CT is one spot better, so spare me the “Oh, I could just move to Mass and save all this money” lie. And founder of a certain ‘alternative’ party, I’m looking at you.

What does this mean? The top end earners are not overtaxed. They have a great gig going. And if we elect someone named either Willard or Newt, it will only get better for them, and much, much worse for the rest of us.

Lucky duckies, indeed.

Tag: Income Taxes

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