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3.0% Sales Tax: Superior Reform than Car Tax Repeal or Free College Tuition?

Car Tax, Free Tuition Programs Could Mean Loss of Jobs and Lower Municipal Revenues

3.0% Sales Tax Adds Thousands of Jobs, Increases Local Revenues

OVERVIEW:

As taxpayers continue to be asked to fund generous corporate subsidy programs, lawmakers are now dueling over two new spending ideas – reimbursing localities to phase-out the car tax and public funding for free college tuition – each of which would likely further raise taxes and fees on Rhode Islanders.

But would these programs make Rhode Island a better state? Or would the more innovative and bold policy concept of cutting the state sales tax help families become more self-sufficient?

Neither the Speaker nor the Governor have offered research or economic projections on the impact of their respective ideas. The Center, conversely, offers well-researched projections from a credible economic modeling tool.

As will be clearly demonstrated, the Center’s previously proposed 3.0% sales tax reform would help working Rhode Islanders and businesses much more than would car tax repeal or free college tuition. A cut in the state sales tax rate to 3.0% from 7% would :

  • Keep significantly more money in the pockets of Rhode Island families and businesses
  • Produce thousands of new jobs, as opposed to potential job losses with car tax or tuition spending
  • Require lower budget cuts and/or corresponding tax increases than would car tax reform
  • Create a major revenue windfall for municipalities that could go a long way toward funding local “self” phase-out of the car tax, where car tax repeal could result in lower municipal revenues
  • Would allow every Rhode Island family to save for any college education

Funding? Elimination of corporate welfare subsidies and free college tuition funds could go a long way towards paying for the $82.3 million required to dynamically fund a 3.0% sales tax … vs the $229.7 required to dynamically fund car tax repeal.

Regressive? While many view the current car tax play as regressive, a revenue-neutral car tax repeal plan would be further so in that low-income individuals who do not own a car, or who own a car valued under existing exemption thresholds, would be indirectly funding property tax relief for wealthier people. A 3.0% sales tax would disproportionately help low-income families. Similarly the college tuition and corporate welfare plans require lower income families and businesses to pay for benefits that will go, in part, to the more wealthy.

Fairness? The car tax plan would inequitably distribute money to localities, and would reward those cities and towns that imposed excessively high car tax rates.

Business Climate Benefit? The sales tax is a tax on business. Collectively businesses pay almost half-of all sales taxes. A 3.0% sales tax would reduce such costs across the board and improve our state’s last place business climate ranking. Car tax repeal would only impact those businesses that have company owned vehicles.

Municipal Dependency? The car tax repeal plan would make municipalities even more dependent on state aid via its associated reimbursement mechanism. Depending how the policy is implemented, municipalities may simply increase regular property taxes to compensate for the car tax no longer collected, avoiding the state tax cap. A 3.0% sales tax would give new revenues to cities and towns to able to phase-out the car tax on their own, especially when in combination with other “tools”  that could free them from state mandates and regulations.

Ease of Implementation? The car tax plan would require negotiation with low car tax municipalities, given the varying rates and exemption limits set by each municipality. Sales tax reform could be easily and uniformly implemented across the board.

BACKGROUND: Why bold reform is required

Rhode Island is losing the competition to retain and attract families who want to make our state their home-of-choice, where they can work hard, earn a respectable living, and support their families. But many Rhode Islanders feel left out. They are fed up with the status quo of ever-increased spending on special interest causes … and the perpetually high taxes and red-tape that are driving others out of town.

Our state’s stagnant population growth will likely result in the loss of one of our two precious U.S. Congressional seats after the 2020 census. This net-migration problem can be attributed to concerns about present and future financial security. Factors that contribute to this problem are obvious: In 2016 Rhode Island ranked as the worst state business climate in America and ranked just 48th on the national Family Prosperity Index (FPI) and on the Jobs & Opportunity Index (JOI)

People want restored hope that government is working for them and to feel that they have not been forgotten. To accomplish this, a bold reform idea is clearly required.

The RI Center for Freedom & Prosperity agrees with the Speaker of the House and with the Governor that Rhode Island families should keep more of their hard-earned income via tax reductions and that a college education should be more affordable. Car and property taxes, as well as college tuitions, are indeed high; they are an irritating or unbearable cost for most families. However, directly confronting those issues, may not be the most prosperous path forward.

The Center also believes that the state needs to  relieve burdens on employers, increase  our state’s consumer and tax base, and create more opportunities for meaningful work for those who want to improve their quality of life.

As such, not all tax and spending programs are created equally, as adjustments to certain taxes and fees will have greater impact on job creation and can be more of an economic stimulus than others. Given our state’s dismal national status, it is vital that Rhode Island takes bold and well-researched reforms to maximize the impact of every budget dollar.

Years ago the Center researched and proposed major cuts to – even repeal of – the state’s nationally high,  job-killing sales tax. A complex economic modeling tool that has been used by dozens of states and major municipalities, STAMP (State Tax Analysis Modeling Program), showed that for the Ocean State, sales tax reform, among all taxes and fees considered, would produce the greatest and most beneficial dynamic* economic impact.

However, neither the House leadership at that time, nor the special commission that was created to study sales tax cuts, were interested in re-configuring the state’s budget to accommodate for the major economic growth projected by STAMP.

But now today, with House leadership and the Governor apparently appreciating that tax and fee cuts would keep more money in the pockets of Ocean Staters, the Center suggests, once again, that reform to the sales tax would produce more benefit to families and businesses than would the Speaker’s or the Governor’s plan.

Not only would sales tax reform keep more money in the pockets of every Rhode Island family, it would reduce costs for every Rhode Island business. It would also spur increased consumerism by both in-state and out-of-state shoppers, and; most importantly … it would create thousands of good, new job opportunities.

The Center further researched which level of cut to the sales tax would produce the most benefit. It was clearly demonstrated that a cut in the sales tax to 3.0% would produce the best value for taxpayers and for the budget by creating a high number of jobs at the lowest budget-cost per job created.

*Based on 2014 figures from STAMP (State Tax Analysis & Modeling Program) developed by the Beacon Hill Institute. Dynamic scoring impact takes into account the “ripple” impact of tax reforms by projecting increases or decreases to other tax revenues and fees.

BUDGET RECONCILIATION METHODS

There are two primary methods to accommodate the budget to account for the impact of any tax cut or new spending program:

  1. Revenue Neutral” approach by raising other taxes to make up for the anticipated lost revenues or higher spending
  2. Spending Cuts” to other budget items

Or, some combination of the two.

To date, neither the Speaker nor the Governor have identified how they will reconcile, or pay, for their respectively proposed programs.

Revenue Neutrality?

The Center maintains that Rhode Island spends too much taxpayer money for the state to quickly break-out of its economic stagnation. No matter how lawmakers slice and dice the many taxes and fees that are imposed on our citizenry, our high level of spending – and corresponding need for high taxation – creates a permanent negative drag on our state economy.

RI State Budget Versus Inflation and Population Growth and Personal Income Growth (2001 Baseline)

In the past two decades, Rhode Island’s spending trajectory has risen far faster than inflation, population growth, or personal income would otherwise dictate.

By comparison, New Hampshire, which consistently ranks near the top of most national rankings, spends almost 50% less per person than does Rhode Island.

In order for any public policy reform to achieve maximum economic impact, it is necessary that budget cuts – without offsetting tax increases – are used to pay for the reform. However, the reality and history of public policy in the Ocean State tells us that lawmakers will likely consider only “revenue-neutral” scenarios, where revenue losses due to cuts in one tax are offset by increased fees or taxes elsewhere. While this practice would minimize or – as we will show – potentially eliminate any economic benefits in some cases, a revenue-neutral policy is seen as the likely political solution … as economically-unsound as it may be.

To be clear, the Center contends, for a state struggling as much as is Rhode Island, that revenue neutrality should not be the goal of bold tax reform … and that both tax and budget cuts are required if we want to generate maximum stimulus to our state’s stagnant economy.

Found Revenues? It has also been suggested by both the Speaker and the Governor, that “newly found” revenues from debt restructuring, casinos, or other sources, might be used to fund their new proposed spending. It is the Center’s contention that such new revenues should be applied to help pay for sales tax cuts.

In order to set the outside parameters for economic impact, the Center created two tables? Each compares the long-term dynamic* scoring of the two tax reform concepts for Rhode Island: 1) phasing-out the car tax; and 2) phasing-down the sales tax to 3.0%:

  • TABLE-1 assumes “revenue neutrality,” with offsetting tax increases, to pay for each policy option
  • TABLE-2 assumes “spending cuts” to pay for each policy option

Any actual implementation of either of these programs would likely fall within these parameters.

Because the governor’s free college tuition plan and the state’s current corporate welfare strategy technically do not qualify as tax reforms, we are not able to effectively run them through the STAMP model. Their economic impact, based on the findings and theory of the model, is assumed and referred to separately.

FINDINGS

Taxpayer Savings and Increased Purchasing Power: The Speaker’s car tax plan would directly save taxpayers $215 million in property taxes, while a 3.0% sales tax would put $585 million back into the pockets of Rhode Island families and businesses, and eventually back into the economy. However, the net dynamic impact would be far less – or even entirely eliminated – if other taxes and fees are hiked under a revenue-neutral approach.

A 3.0% Sales Tax is is the most beneficial reform in terms of jobs, economic stimulus, business climate, and budget value … regardless of whether a revenue-neutral approach is adopted or not.

Car Tax Phase-Out Could Lead to LOSS of Jobs.  Car tax reform, on its own, is a minor economic stimulus at best, as it does little to improve the state’s dismal business climate.

A revenue-neutral car tax phase-out would necessarily increase statewide taxes and fees (relatively) – even while most car owners would pay lower local property taxes – and would lead to a net loss of jobs. This is because the negative economic impact of increased state-level taxes is significantly greater than the positive impact of lowered local taxes.

If a “spending cut” approach is taken, car tax repeal could spur the creation of a limited number of new statewide jobs, but at a significantly lower level, and with far more required budget cuts, than a 3.0% sales tax with spending cuts.

Free-College Tuition Could Also Lead to a LOSS of Jobs. Similarly, using the same STAMP theory, providing free-tuition  would also increase statewide taxes and fees (relatively) – even while some in-state families would have more disposable income due to lowered fees – and would lead to a net loss of jobs. Again, this is because the negative economic impact of broadly increased state-level taxes is greater than the positive impact of more disposable income for a more narrow base.

Under a ‘spending cut’ approach, free college tuition, as car tax repeal, might produce a limited number of new statewide jobs, but at a significantly higher cost per job, than a 3.0% sales tax with spending cuts.

Rhode Island’s Current Corporate Tax-Credit Economic Development Strategy is highly inefficient as it creates relatively few jobs at an extremely high cost per job to taxpayers. Using the same STAMP theory, the negative impact of requiring increased statewide taxes to pay for the credits is presumed to be greater than the positive impact of a few hundred more people working.

Further, this targeted ‘advanced industry’ approach does little if anything to improve the overall business climate, which is necessary if organic entrepreneurial growth is to occur on its own.

EXPLANATION OF S.T.A.M.P. PROJECTIONS (see Tables 1 & 2)

ECONOMIC EFFECTS

Private Employment (or Jobs). Both the Speaker and Governor claim that “jobs” is their top economic priority. Sales tax reform produces significantly more job-growth, regardless of revenue-neutrality, while car tax reform and, as explained above, free-college tuition could lead to a loss of jobs under a revenue-neutral approach.

Investment. The increase/decrease in capital invested in the state due to tax reforms. As with employment, sales tax reform always produces a positive investment, while revenue-neutral car tax and free-tuition programs could produce a negative impact and a reduced investment.

STATE REVENUES:

Sales Tax Revenue: Under a ‘revenue neutral car tax repeal scenario, to partially fund the state’s $215 million in “Transfer” (reimbursements) to municipalities, and in order set the worst-case economic impact parameter, we assume an increase in “Sales tax” revenues. However, because a sales tax hike will negatively impact commerce and the economy, it will dynamically result in less sales tax revenue than the straight-line (or static) calculation, therefore the “Policy target” for sales tax increases must be higher than the needed revenues.

Conversely, under either budget reconciliation method for a 3.0% sales tax phase-down plan, the straight-line (static) calculated sales tax “Policy target” revenue losses are greater than the actual (dynamic) “Sales tax” revenue loss, because the sales tax cuts will spur more sales tax transactions.

Under a ‘spending cut’ approach, car tax reform would produce a very limited increase in “Sales tax” revenues, because of greater disposable income across the state.

The difference between the static and dynamic sales tax revenue projections is portrayed as the “Dynamic difference”

Personal Income Tax Revenue: Similarly, increased “Personal income tax” revenues are also assumed to fund the rest of  revenue-neutral car tax plan. However, because negative dynamic impact will lessen such revenues, a higher income tax “Policy target” is required.

Under the 3.0% sales tax plan, because of the thousands of new jobs created, “Personal income tax” revenues are projected to dynamically rise by between $304 million to $468 million, regardless of which budget reconciliation process is utilized.

Corporate/Business Tax . As with sales and income taxes, the negative statewide impact of a  revenue-neutral car tax plan that includes other tax hikes, may produce lower “Corporate/business taxes”. Under all scenarios, a 3.0% sales tax will always produce positive and significantly higher “Corporate/business tax” revenues.

Cigarette Tax, Other Taxes & Other Sources.  As with the personal and income taxes, the negative statewide impact of a  revenue-neutral car tax plan, may reduce revenues from “Cigarette taxes”, “Other taxes” and “Other sources”. Under all scenarios, a 3.0% sales tax will produce positive and significantly more revenues in these areas.

MUNICIPAL REVENUES: Additional municipal benefits from sales tax cuts will result from the increased retail and overall economic activity .

Business Property Tax. The stimulus of sales tax cuts would see many existing businesses expand and many other new business established. Cities and towns will likely see an expansion of its local commercial property tax base and will result in increased “Business property tax” revenues. While municipalities must comply with a 4% annual tax-levy cap, this larger tax-base will allow localities to reduce property taxes in other areas, potentially including the car tax.

Conversely, under a revenue-neutral car tax repeal plan, municipalities could actually see reduced municipal “Business property tax” revenues, due to the more potent impact of statewide sales and income tax hikes as compared with local property tax cuts.

In fact, the potential new municipal revenues from a 3.0% sales tax – on their own – could fund over half of the cost of statewide car tax repeal.

Municipal Sales Tax, Other taxes and Other sources of revenues:  Similarly, under a car tax repeal plan, municipal revenues in other areas could increase or decrease in limited amounts. Conversely, under any 3.0% sales tax scenario, these revenue areas would increase, potentially in a significant way.

OpEd: Repeal or Roll-back Anti-growth Laws

OpEd by Mike Stenhouse, CEO, as it was published in the Providence Journal, 1/12/14

As the 2014 legislative session begins, the leaders of Rhode Island’s political class have signaled that they will not let themselves consider any big ideas to boost our state’s stagnant economy or to improve our dismal jobs outlook.

There has been much speculation about what issues the General Assembly will take up. Unfortunately, if recent history is our guide, legislators will do more harm than good, as they see it as the government’s duty to help those who they perceive are in need — those who are harmed by the very policies their predecessors have implemented over the years.

Click here for ProJo link, to view/post public comments

Indeed, public policy in the Ocean State is tearing families apart. We all know of a recent graduate, often one of our own children, who has left town to look for work in a more fertile state; one of our parents who has retired to a lower cost-of-living state; a prominent business or community leader who has fled to avoid taxes on his or her heirs; or a business owner or entire family that has simply uprooted and moved to regions that offer more opportunity.

The government of Rhode Island has implemented dozens of taxes and regulations that have proven harmful to economic growth and job creation. In far too many categories, Rhode Island ranks at or near the bottom — a last-place team.

Yet political leaders act as if they’re not allowed to do anything about it, rather than seeing the status quo as the enemy of our future.

Instead of creating new Band-Aid fix bills, maybe lawmakers should eliminate some of the statutes that have harmed our chances for prosperity in the first place. The most productive path for legislators in 2014 may be to wipe out destructive policies.

Perhaps the General Assembly should be judged this year not by how many new policies it creates, but by how many existing, anti-growth policies it repeals or rolls back.

For starters, we could repeal or roll back the state’s regressive sales tax; or the requirement that families have no choice on what schools best educate their children; or punitive estate taxes that drive wealthy people to other states; or restrictions on out-of-state companies to sell health insurance in Rhode Island; or the minimum franchise tax, which stifles entrepreneurship; or corporate welfare, to level the playing field; or even renewable energy mandates that drive up costs for every family and business. All of these policies have created a drag on our economy, reducing opportunities for those who wish to succeed.

We continue to inflict legislative wounds on ourselves. We are suffering death by a thousand cuts. Isn’t it time we reversed course and healed some of these wounds?

To do this, we would also have to roll back spending levels, the holy grail of the political class; spending levels that fabricated the very same onerous taxes and fees that are the root cause of our economic woes. This seems beyond the imagination of the political class. Yet, this is allowed. Other states are doing it. We are allowed to change course and create a brighter future for ourselves.

Rhode Island is not defined by its government or a budget number at the bottom of a spreadsheet. Rather, Rhode Island is about the hopes and dreams of real people and real families. We should no longer be held hostage by a failed budget. Should our lives and chances for prosperity be restricted by a number? Or, rather, should the budget be crafted to serve our needs? Which should be the higher priority: the well-being of real people or an arbitrary revenue figure? In Rhode Island, we have it precisely backwards.

If we can roll back certain taxes and spending levels, and if the political class can prioritize the well-being of its residents over its fixation on revenues, tens of thousands of new jobs could soon be created, along with a lower cost of living and renewed opportunities for all Ocean State families and businesses.

We must free ourselves from burdensome taxes and a culture of dependency, and be unleashed to improve our own lives and prosperity.

As an analogy, we don’t have to look any further than the 2012 Boston Red Sox, which, as a last-place team, fired its manager, traded away expensive, non-productive players, and brought in fresh talent. The Sox reinvented themselves, and became World Champions just one season later.

Rhode Island faces a similar situation: We must demand new leadership, repeal non-productive policies, and right-size spending. We can do this. It is allowed!

Media Release: Win-Win Policy Solutions for RI in 2013

Win-Win Policy Recommendations to keep families at home in RI!

FOR IMMEDIATE RELEASE  

January 23, 2013

After statewide political leaders failed to put forward any bold new policy reforms to grow the Ocean State’s struggling economy, the RI Center for Freedom & Prosperity published today its Legislative Solutions for 2013, a set of seven “win-win” policy solutions aimed at keeping families together in their Rhode Island homes.

With the worst jobs outlook in the entire nation, as one of the highest cost of living states, and suffering from a severe population and out-migration crisis, public policy in Rhode Island is tearing families apart by driving away loved family members.

With the goal of restoring competitiveness to the state, the Center’s proposed solutions will drive down the cost of living and conducting business in the state and will provide expanded options to parents of disadvantaged students.

“We have heard from the Governor, the House, the Senate, and others, yet no one is proposing any serious reforms”, said Mike Stenhouse, CEO for the Center. “The Political Class restricts itself with undue concern about how to fund such an obviously failed budget; a budget that has resulted in persistent misery and unemployment; a budget that has grown significantly faster than it need have. Can anyone seriously question whether or not this is a budget that deserves to be blown up? It’s time for a new game plan and to start playing to win around here”, he continued.

As the state with the highest level of ‘redistribution of income’, the Center asserts that Rhode Island is the most anti free-market state in the entire country. The dismal national rankings most Rhode Islanders have sadly become all too familiar with are a direct result of this futile approach.

“And all we hear from the progressive wing is even more of the same tired, unsubstantiated dribble about taxing the rich. Can’t we all see that it is indeed their approach that is now a well substantiated failure”, inquired Stenhouse. “That the left’s win-lose and lose-lose polices that seek to subsidize some, at the expense of others, is actually hurting all of us? We need to decrease the cost of living for low and middle income families and provide them with renewed job opportunities; and, yes, we also need to keep wealthy individuals here at home in Rhode Island.”

With these needs in mind, the RI Center for Freedom & Prosperity recommends the following win-win legislative items for 2013:

  • Repeal of the “Sales Tax”: would add tens of thousands of new private sector jobs and boost the state economy.
  • Repeal of the “Minimum Corporate Tax”: would remove barriers to new business start-ups and encourage entrepreneurism.
  • Repeal of the state “Estate Tax”: will help keep Rhode Island as home to business owners and wealthy citizens.
  • Expand “School Choice” Options: empower parents to decide which schools are in their children’s best interests.
  • Super Majority Tax Act: would require a two-thirds majority to pass any future tax increases.
  • “Pension Transparency” Act: ensure accurate accounting and reporting practices so that retirees and taxpayers know where they stand.
  • “Electricity Freedom” Act: repeal costly renewable portfolio mandates so that energy costs can be reduced for households and businesses.

The RI Center for Freedom & Prosperity previously published a long term legislative plan for the state, a Prosperity Agenda for Rhode Island, from which most its 2013 recommendations are derived.

 

The full report, with additional data, tables, analysis, and methodology can be found at:

http://www.rifreedom.org/2013/01/win-win-legislative-solutions-for-ri-in-2013/

The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank, is the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.

 

Media Contact:

Mike Stenhouse: 401.429.6115info@rifreedom.org

Win-Win Legislative Solutions for RI in 2013

Keeping Families at Home in Rhode Island

 

Families are being torn apart in the Ocean State, both geographically and financially.

With the worst jobs outlook in the entire nation, as one of the highest cost of living states, and suffering from a severe population and out-migration crisis, public policy in Rhode Island is driving away loved family members.

With our children having to flee the state to find a decent job; with our retired parents flocking to other states to begin a new chapter of their lives without us; and with many of our own friends and siblings having to uproot their families in search of a better future in a different part of the country … it is time for a winning game plan for Rhode Island.

As the state with the highest level of ‘redistribution of income’, the Center asserts that Rhode Island is the most anti free-market state in the country. The poor national rankings we are now sadly all too familiar with are a direct result of this failed class warfare approach.

Only a vibrant and thriving Rhode Island with a brighter future can provide the financial security and peace of mind that we all need to keep our families together in our Ocean State homes.

To make that happen, it’s time to quit tinkering around the edges and get serious about bold public policy reforms; it’s time for a cultural return to free-market principles and positive solutions that benefit all families, all individuals, and all businesses … and to reject the progressive agenda that is destroying our state.

Win-Win Solutions

All too often, public policy in Rhode Island has been implemented for political purposes, without regard to the unintended consequences for the general public or the economy.

For every spending program or regulation designed to support or protect a specified group of people, some business sector or some other group of people will usually suffer from the corresponding new taxes or hurdles to success: Not to mention the disincentive to work or to conduct business in a responsible manner that overly generous social services and corporate welfare programs have created.

Collectively, the long term negative effect of hundreds of such pieces of anti free-market legislation has been devastating to the state we call home.

This pattern of win-lose legislation, or even lose-lose legislation, must be reversed. We can do better. Instead we need to look toward win-win solutions that benefit the economy and general public as a whole and that provide incentives for individuals and businesses to utilize their natural drive and innovation to thrive on their own.

Flawed Political Approach Leads to a Failed Budget

The political budget approach that our state leaders have adopted over recent decades has failed to serve the best interests of those of us who call Rhode Island ‘home’.

A politically motivated welfare state & insider driven agenda implemented by the state’s Political Class has created a wide-range of self-inflicted economic and educational ailments that have caused Rhode Island families to give up hope in their home state.

Our state budget – a tangled mass of taxes, fees, regulations, and spending – has been driven by a flawed class warfare approach. Over the past dozen years, spending to support this philosophy has grown approximately 25% faster than the combined growth of inflation and population in Rhode Island.

This anti-free market budget approach has been an economic disaster for our state, resulting in:

  • The worst business climate in the entire nation
  • The worst jobs outlook in the entire nation
  • The worst population growth trend in the entire nation
  • Rampant fraud and waste in our social services programs
  • The $75 million 38-Studios debacle
  • Pension crisis at the state and municipal levels
  • State budget deficits for as far as the eye can see

These ailments are clearly the result of a failed budget and a failed culture of government. The RI Center for Freedom & Prosperity rejects the strategy of the Political Class to search for never-ending new revenues to support spending for such a dismal collection of public policies. The “balance this budget” mentality is precisely the opposite of the strategy  ur leaders should use.

Imagine the Boston Red Sox as a last place team; and then imagine that the team makes no plans to significantly restructure the roster in order to improve its competitiveness next season … but instead ownership proudly proclaims that they instead have a plan to balance their books! How far would that get them with Red Sox Nation? But yet, RI voterss do not demand more from our elected officials.

Win-Win Policy Solutions for 2013

To initiate a cultural move away from the win-lose, revenue driven budget approach that has so completely failed Rhode Island, the RI Center for Freedom & Prosperity recommends that a series of concrete, initial legislative steps be considered in 2013 in order to turn our state back toward a free-market economy and renewed economic growth.

Instead of a budget-centric approach, the Center recommends a growth-centric approach; with the goal of seeking to dramatically improve our state’s competitive standing in multiple areas that will provide a much needed, game-changing boost to our stagnant economy …

… with the budget then being adjusted to achieve these win-win objectives!

With jobs, economic growth, and faith in the industriousness of Rhode Islanders in mind, and with the goal of keeping families intact in our home state, the RI Center for Freedom & Prosperity recommends the following win-win legislative items be considered during the 2013 General Assembly session:

  • Repeal of the state “Sales Tax”: would add tens of thousands of new private sector jobs and provide a major economic boost to the Rhode Island economy by making our state a destination location for local and itinerant shoppers and would put almost $1 billion of our own money back in the hands of local shoppers.
  • Repeal of the “Minimum Corporate Tax”: would stop the current $500 per year minimum ‘fee’ from being a major disincentive for entrepreneurs to start up new ventures or to continue with young businesses. Rhode Island ranks poorly when it comes to new business start-ups.
  • Repeal of the state “Estate Tax”: will help keep Rhode Island as home to business owners and wealthy citizens and would strengthen our state’s overall tax base. Local charities and businesses will also benefit from their donations and spending.
  • Expand “School Choice” Options: would empower parents to decide which schools are in their children’s best interests so that no student is condemned to a failed school because of their zip code. Scholarships or an expanded tax credit program are recommended.
  • Super Majority Tax Act: would require a two-thirds majority in the General Assembly to pass any future tax and licensing fee impositions. If we begin down the path of lower taxes, this will help ensure that our state remains on that course.
  • Pension Transparency Act: would ensure that retirees and taxpayers know where they stand. This act would require state and local governments to provide more realistic projections of unfunded liabilities for both pension and other post-employment benefits (OPEB) based on both market-rate assumptions and the Government Accounting Standards Board (GASB).
  • Electricity Freedom Act: would ensure that energy costs can be reduced for households and businesses, and to promote a better jobs environment.  Our Center recommends repeal of costly state renewable energy mandates that require electric utility companies to provide a certain percentage of their electricity supplies from renewable sources according to a specified time schedule.
  • “Health Care Sharing Ministries” Protections (study to be released shortly): would provide real options for the tens of thousands of state residents who will fall through the cracks of the recently enacted national health care law, the state should enact:
    • ‘Safe Harbor’ legislation that confirms that health care sharing ministries are not insurance under Rhode Island’s law, and that they are exempt from all regulation that applies to insurance companies.
    • A ‘Freedom of Choice in Health Care Act’ would protect the rights of patients to pay for their medical services, either directly to their provider or via health care sharing ministries, and would prohibit penalties that otherwise would be levied on patients for failing to purchase health insurance.

While there are dozens of other policies that should be repealed, reformed, or newly enacted, our Center’s 2013 Legislative Agenda is an achievable set of common-sense initiatives that can start turning our state back toward a path of prosperity.

The RI Center for Freedom & Prosperity has also assembled a long term legislative plan for the state, the Prosperity Agenda for Rhode Island, from which most our 2013 recommendations derive.

 

ZERO.ZERO % Sale Tax Too Much for the Imagination of the Political Class

Imagine tens of thousands more people employed in Rhode Island.

Imagine new retail and construction jobs to support an economic growth spurt.

Based on a 2012 policy recommendation by our Center, some members in our General Assembly actually think we can make these things happen in our state.

Yet, as we close out the year with reports of even more dismal national rankings for our Ocean State, the Political Class is looking to kill this policy idea from our Center that some believe could make those imaginations happen in 2013; an idea that is clearly ‘out of the box’; but sadly, an idea that those who defend the status quo cannot even begin to comprehend.

Rhode Island desperately needs a number of game-changing policy reforms to gain a competitive advantage over our neighboring states and to provide much needed economic opportunities for workers; the elimination or phase-out of the state sales tax is a policy reform idea that offers the most immediate jobs dividend.

In June our Center published a report detailing the positive jobs and economic benefits Rhode Island would realize if we were to reduce or eliminate the state sales tax. Just this week, a front-page story in the Providence Journal discussed how some members in the House are considering this strategy, making reference to our Center’s report.

But – per a recent ProJo article about related legislation – to hear members of the Political Class reject this notion out-of-hand is an indictment of their lack of leadership and imagination. How can we afford not to have this important debate?

Our Center produces credible information and it’s unfortunate that we have to find a way around so many with closed minds. Our Center is an idea factory … and one such idea was put forth in our Zero.Zero report; a well-researched study that projected the benefits of sales tax reductions: A report that reviewed how this policy has been successful in other states; a policy that is consistent with a free-market economic philosophy. Yet the Political Class still cannot comprehend … and they choose to stick their collective heads in the sand and say “it isn’t so”.

The problem is that they are fixated on “balancing the budget” … a budget that has clearly failed our state. Balancing the budget – especially this budget – is not an economic policy and it should not be the Holy Grail for our public officials … making our state more competitive and creating jobs should be the goal!

The budget, then, should be crafted to support that more worthy goal; a budget that will likely be significantly smaller so that we can reduce taxes on citizens and businesses in order to create a positive business climate … scandalous!

But those without imagination; those who are not prepared to lead; and those who are afraid of upsetting the apple-cart find it all too easy to hide behind the limitations of our existing job-killing budget, to impose a few new taxes on someone else to raise a few more dollars, and then wash their hands and say “we did good”.

This failure of leadership and this culture of failure is what we voters have continually put in place over the recent decades … so that now, any bold, new idea is systematically rejected by the establishment.

This will happen with our innovative sales tax idea unless you, and thousands of citizens like you, are willing to stand-up, speak-out and demand that our state rigorously debate the pros and cons of a policy concept that could reduce our state’s chronically high unemployment rate by about one-third!

Forward this email, make your calls, talk to your family and friends … but do not complain about our state if you are not willing to stand up to the Political Class. They will listen if you and I speak loud and often enough!

In 2013, I look forward to working with anyone with an open mind to advance the bold policy reforms that our state so badly needs.

by Mike Stenhouse, CEO

 

 

“Get Government Out of the Way”: a free-market solution for the RI economy

Related Links: Oct 11 Press Conference Event & CEO Stenhouse Extended Remarks, Prosperity Agenda for RI,
Podcast: ALEC's Jonathan Williams discusses with Dan Yorke on 630WPRO
Video: Mike Stenhouse remarks at Press Conference

Adherence to  Free-Enterprise Principles can Revive the Ocean State’s Economy

The state of Rhode Island requires significant public policy reform to unleash a private-sector economic engine fueled by the creativity, investment, and energy of businesses and individuals. What is not needed are more of the same subjective and politicized tactics that benefit chosen business sectors, favored political constituencies, limited geographical regions, or specific business ventures.

Rhode Island does not have to reinvent the wheel. Three proven steps are required to embark on a new path to improve Rhode Island’s economic fortunes:

1. Embrace the free-enterprise system as the means to restore prosperity

2. Follow and learn from successful economic policies implemented in other states

3. Design and implement public policy reforms reflective of the above, applied evenly and universally

In seeking to provide assistance to too many people, in caving to special-interest-group concerns, and by doling out special favors to the well connected, the state of Rhode Island has created dozens upon dozens of legislative barriers to success. These barriers have restricted economic and individual opportunities and incentives, resulting in the worst business climate in the country, loss of out-migrating taxpayers, a slew of Fs and Ds on the state’s Competitiveness Report Card, and the most dismal jobs outlook of any state in the nation. Prosperity can only be achieved if those barriers are systematically torn down and we move decisively on a new economic path.

That proven economic path is the free-enterprise system. Even President Obama calls it the ‘genius of America’, yet Rhode Island has sharply departed from its principles. Free-market concepts must be re-embraced and recognized as the economic engine that has proven to be the most effective machine ever devised to raise people out of economic misery and into a higher standard of living. This means our state must enact policies that lower taxes, reduce regulations, and cut spending. The benefit will be increased economic activity, more jobs, and positive state-to-state net migration. In contrast, government redistribution polices have failed the very citizens they intend to help.

Before we undertake the task of implementing specific policy reforms that dramatically roll back laws that hinder economic growth, a long-term commitment to economic freedom must be established. Removing certain barriers while erecting others will get us nowhere. Adherence to free-market principles is required. But, as a state, we must also be willing to work through our political and cultural differences.

Contrary to our popular notion of polarized politics, the free-enterprise system is not a political philosophy. It is a well-delineated economic philosophy predicated on a culture of success. As a people, we must overcome our disdain of the successful and resist the temptation for government to serve as referee in tilting calls to favor groups it perceives to be in need. This is not the proper role of our uniquely American form of government; it interferes with the efficient mechanics of the free-market system and it provides disincentives to achieve and prosper.

We must accept that a paycheck is better than a welfare check and recognize that a growing economy that provides job opportunities is far more desirable than a stagnant economy that breeds dependency on government services and impedes upward mobility. We cannot have it both ways. We must also understand that it is a morally preferable that free people should strive to be self-sufficient and maintain the rewards of their own hard work. Government policies should create incentives for the pursuit of individual happiness, not hinder that pursuit.

The main strategy to unleash Rhode Island’s economic revival should be to learn from and follow the successful policy reforms enacted in other states; namely, creating an attractive business climate, with free competition, so that all laborers, entrepreneurs, and businesses can have more opportunities to work, to innovate, to grow, and to prosper.

Our RI Center for Freedom & Prosperity has researched and developed an initial set of policy reforms that are consistent with these goals – our Prosperity Agenda for Rhode Island: a set of taxpayer-friendly, worker-friendly, and business-friendly reforms that reduce burdens on employers and provide more freedom of choice for individuals; proven reforms, successfully implemented in other states, that will start to move the Ocean State down a new path towards economic growth.

MEDIA

Cranston Herald: Study shows free-market enterprise is path to prosperity in RI

Policy Reform: Enact Collective Bargaining Reforms

Up to $250 million per year can be saved in RI

 

 

Collective Bargaining Costs

All workers deserve  fair compensation. However, it is not fair that taxpayers, struggling in a poor state economy, must also be forced to pay for excessively high compensation packages for unionized government workers. With reforms to collective bargaining, undue union influence and election cronyism can be reduced.

The ever-increasing total cost of employment for unionized government labor — annual  compensation plus benefits — is a cost item we simply can no longer afford.

It’s time to face the facts: public-sector unions drain precious resources away from Rhode Island’s sick, elderly, youth, and poor.

See “Collective Bargaining Reform” policy brief …

 

 

 

 

 

Policy Reform: Require Accuracy In Pension Accounting

 

Municipalities are understating the true cost of unfunded pension liabilities

Government employees need to properly plan for their retirements. Municipal officials need to have predictable budgets from which to provide quality education and city services. Taxpayers need to know that budget shortfalls will not raise their property taxes. Before local pension funding formulas can be effectively developed, it is essential that Accuracy in Pension Accounting be required of all municipalities.

The assumed rate of return that most government entities have traditionally used to estimate pension liabilities has been widely discredited as overly optimistic. A more conservative market rate, similar to what is used in the private sector, is generally seen as a more accurate measurement.

When a private company, like Enron, used improper accounting practices, the wrong-doers ended up in jail. When our local governments understate pension liabilities, retirement plans are put at risk, our schools suffer, local services are cut, and taxpayers pay more from their pockets.

At an October 2012 pension forum state and local officials openly admitted that it would be politically inconvenient to disclose the true scope of the problem to their constituencies.

This can all change with accurate accounting.

Read more about our “Truth in Pension Accounting” movement here … 

 

Policy Reform: Reduce State Minimum Wage to Federal Level

Teen Employment and Weekly Hours worked are steadily dropping in RI

 

Minimum wage increases helping to sink teen employment in the Ocean State

As teens transition into adulthood and self-reliance, the likelihood of developing crucial career skills, of building their personal networks and résumés, and of earning valuable spending money is diminishing in Rhode Island. Moreover, a higher minimum wage is drag on jobs development for everyone looking for entry-level work.

See our “Teen Employment” policy brief here … 

 

 

Policy Reform: Enact Changes to Civil Justice Laws

Legal Sharks in the Ocean State

Do state laws attract shark activity in the Ocean State?

An important part of creating a better and less risky business climate in Rhode Island is to lessen the threat of litigation for legitimate business practices. Doing so would lower the cost of liability insurance for most businesses, reduce consumer costs for many products and services, and free up businesses to become more creative and innovative in developing new concepts.

Specific Recommendations:

 A) Medical malpractice and product liability reform: Enact laws that limit the amount of non-economic and punitive damages that judges and juries may award to injured people (policy brief TBD).

 B) Implement “criminal intent” provision: Enact a law that protects citizens against prosecution for non-criminal or non-intentional activities … as dozens of other states have done.

See ‘Criminal Intent’ policy brief here …