Paying for Sales Tax Repeal

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Throughout the autumn and winter, the Special Joint Legislative Commission to Study the Sales Tax Repeal has been investigating several aspects of the proposal submitted as legislation last session by Representative Jan Malik (D, Barrington, Warren).  Having addressed pros and cons of eliminating the sales tax, as well as estimates of its effects and alternative approaches, the commission arrives at the question of how the state could adjust its budget in order to implement the plan.

Ultimately, bare numbers will have to be hashed out as the Rhode Island House and Senate Finance Committees piece together a budget for fiscal year 2015.  But with a view toward developing a framework within which those numbers can be fit, the Rhode Island Center for Freedom and Prosperity proposes a strategy for considering the reform.

In this new brief, the Center also highlights some areas of budget savings and uses its RI-STAMP model to compare Governor Chafee’s proposed corporate-tax reduction and business energy sales tax exemption with other possible tax reforms, including the elimination of the sales tax and reduction of the sales tax rate to 3%, among others.

The Center estimates that the governor’s plan would produce 540 new private-sector jobs, at a cost in state government revenue of $143,352 each.  By comparison, a 0.0% sales tax rate would produce 25,426 jobs, at a cost of $12,298 each, and a reduction of the sales tax rate to 3% would produce $13,735 jobs, at a cost of $3,500 each.

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