Rhode Island Governor Cites Tax Foundation Research As He Signs Income Tax Reform Into Law

June 10, 2010

The Providence Journal reports on yesterday’s signing of Rhode Island’s modest first step at improving their state’s tax system:

Governor Carcieri signed the legislation, passed by the General Assembly last week, during a ceremony Wednesday afternoon at the State House, amid a large gathering of legislative and business leaders.

The new law, which goes into effect Jan. 1, eliminates the optional flat-tax method of preparing individual income taxes, reduces the number of tax brackets from five to three and lowers the highest marginal tax rate, bringing it down to 5.99 percent from 9.9 percent.[…]

The law does away with itemizing deductions. But it allows for increases in the standard deduction for single adults, up to $7,500 from $5,700, and for married couples, up to $15,000 from $9,500.

Peter Asen of Ocean State Action, a coalition of community organizations and unions criticized the law, saying it does not do enough to help taxpayers. He said that some of the credits being eliminated, such as the mortgage-interest deduction, may hurt middle-class families.

In signing the bill, Gov. Carcieri referenced our report that found that the changes would modestly improve the state’s tax system:

According to the Tax Foundation, Rhode Island’s tax competitiveness standing has continued to steadily improve since 2002, when the state was ranked 49th in the country. With these new reforms, the Tax Foundation ranks Rhode Island 41st. We are moving in the right direction, and we are setting a new course for a more robust economy and a stronger, more competitive Rhode Island for future generations to enjoy. We all know that when the economy rebounds, jobs and economic development will occur in states that are best positioned for it. With this legislation, we have positioned Rhode Island to benefit from the upswing in the economy.

Congrats are in order to the various individuals in Rhode Island (the proposal passed the legislature unanimously) that helped bring about this positive step. (I should note that at the last minute, the proposal was made revenue-neutral by phasing out the standard deduction for high-income earners, a tactic also used in Utah and Maine recently. This results in a higher marginal effective tax rate than the statutory rate, but on the whole the proposal was a net benefit even with this feature.)

For the next step, the state may consider looking at its position as tenth-highest in state-local tax burden, the seventh-highest state-local property tax collections, the fifth-highest state-local debt per capita, the high 9% corporate income tax rate, the high 7% sales tax, the highest cigarette tax in the country, and/or the heavy reliance on the usual corporate giveaways through the tax code (job credits, research-and-development credits, investment credits, film credits, etc.).

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