Federal Tax Cut Windfall “Wasted” in Maintaining Status Quo

Lack of job-producing reforms demonstrates lack of vision for a better future for Rhode Islanders!

Providence, RI – Despite a large and unexpected revenue windfall and clear policy lesson, resulting from the recent federal tax and regulatory cuts, Rhode Island’s political leaders appear to have wasted an opportunity for reform and, instead, are seeking to maintain the status quo in the FY2019 Budget.

In lieu of returning tens of millions of windfall revenues to tax-paying families and businesses, the General Assembly’s proposed FY-2019 budget, released late Friday, actually increases spending and does nothing to improve the Ocean State’s dismal business climate. Given that even recent years’ budgets have attempted some minor tax relief, the Rhode Island Center for Freedom & Prosperity has graded the budget as a ‘D-minus’, the same grade it issued last year.

“The lack of vision, in failing to recognize this opportunity to improve our state’s competitive landscape, is disappointing,” exclaimed the Center’s CEO, Mike Stenhouse. “The money to cut taxes was there. Unfortunately, it will be wasted and spent, rather than reinvested in the people of Rhode Island so they can achieve a brighter future.”

Currently, Rhode Island ranks in the bottom-10 on three broad national indexes; overall business climate, the Family Prosperity Index (FPI), and the Jobs & Opportunity Index (JOI).

No pro-growth programs. According to the Center’s analysis there are no new, meaningful job-producing or pro-family tax reforms in the proposed budget.

Some transfer or neutral items. The continued phase-out of the hated car-tax for local taxpayers leads directly to offsetting higher tax burdens for families and businesses statewide. The elimination of the governor’s proposed cigarette tax hike, as well as most of her proposed agency “scoops”, are welcomed, but do not lead to any net economic benefit.

Multiple economy-busting items dominate the budget. While there are no major leaps backward, such as single-payer health insurance or a statewide carbon tax, the few positive or neutral items in the budget are more than offset by the many and more substantially negative items, including:

• Increased budget spending rate of 3.8% ($317 million) is far greater than the rate of inflation and population growth would otherwise suggest.
• Broadening of the sales tax into new business sectors. Last year it was Amazon and other Internet providers; this year it’s software as a service (SAS) and armored car services – each worsens RI’s overall business climate.
• $250 million school infrastructure bond – another bailout for municipalities. Once again the state will increase its already high debt burden to provide money to municipal school districts, which themselves have been negligent in managing the already high tax revenues they collect from local taxpayers, by failing to have adequately maintained school buildings.
• Corporate welfare spending is maintained. Money spent on corporate tax-credit incentives could be re-purposed to reduce corporate taxes, creating a more level playing field.
• Raises to state government workers, politically motivated in an election year, far exceeds inflation trend (7.5% compensation increase over next 3 years vs 3.5% inflation over past 3 years).
• Sin taxes becoming more prevalent. Projected sports gambling revenues, as well as dramatically increased medical marijuana dispensary fees, will make it more difficult in the future for the state to reverse policies that incentivize potentially unhealthy social behaviors.