Many myths exist about Minimum Wage

MINIMUM WAGE TESTIMONY: Misperceptions & Myths; EITC Recommended by the Center

March 30, 2017  FOR IMMEDIATE RELEASE

Providence, RI – The RI Center for Freedom & Prosperity published the full written testimony its CEO will submit to the House Committees on Finance and Labor, the latter of which will today hear multiple bills seeking to raise the state’s minimum wage rate.

“Every Rhode Islander who strives to work hard should be able to earn enough income to support themselves and their families,” writes Mike Stenhouse, who holds an Economics degree from Harvard University. “Yet lawmakers must act on the facts and not on the many myths that cloud this emotional topic.”

After pointing out many of the Ocean State’s poor business and family prosperity rankings, Stenhouse’s testimony cites research and raises concerns about a number of issues, including:

  • Job losses for many of the same people the legislation is intended to help
  • Myth about who is and who is not the typical minimum wage worker
  • Myth about a wage hike keeping our state competitive with our neighbors
  • Myths about increased minimum wages stimulating jobs and economic growth
  • The “wage-differential” factor that will harm employers who do not employ minimum wage workers

Union angle? The testimony also raises questions about a little-discussed issue … how special interest unions might benefit from a minimum wage hike.

Finally, the testimony makes a recommendation on behalf of the Center … that expanding the state’s EITC (Earned Income Tax Credit) is a superior alternative to hiking the minimum wage. “Directly assisting low-income families without risking job losses and without further burdening business owners is a much better path for our state,” concluded Stenhouse.

The fact that the sales tax is regressive (disproportionately affecting poorer people) is uncontroversial, but reform is also a question of tax fairness.

3.0% Sales Tax, a Matter of Fairness

Stating his rationale for eliminating the state’s car tax (as his campaign for reelection puffed toward the election day finish line), Rhode Island Speaker of the House Nicholas Mattiello (D, Cranston) told reporters that the tax is “regressive” and “unfair.” The same can be said of the sales tax, which the RI Center for Freedom & Prosperity believes should be reduced to a rate of 3.0%.

That the sales tax is regressive — meaning that it disproportionately affects poorer people — is so uncontroversial that the point needn’t be argued, so here are four reasons the sales tax is unfair, too.

The Sales Tax Was Implemented for Specific Purposes… and Failed

When the General Assembly imposed the sales tax on Rhode Islanders for the first time in 1947 and revised its rationale in 1956 and 1988, legislators emphasized an “obligation to grant pay increases for teachers” and a dire need to provide more state money to “the several cities and towns now confronted with financial crisis.”

As Rhode Islanders continue to face high levels of taxation with no reduction in teachers’ claim to deserve higher pay or municipalities’ insistence that their finances are threatened without help from the state (even with the looming pension calamity having gone dormant for the time being), nobody can plausibly claim that the sales tax solved the problem that it was implemented to solve.

To the extent that the state’s tax burden drives Rhode Islanders out of the state to shop, to live, and to start businesses, thus harming the revenue of the state and its municipalities, the tax is actually undermining the very purpose for which it was implemented.

The 7% Rate Was Supposed to Be Temporary

Faced with a banking crisis in the early ’90s, the people of Rhode Island accepted a higher rate on the sales tax. As the New York Times reported in 1992, “To provide [the Rhode Island Depositors Economic Protection Corporation (Depco)] with money to repay the bonds, the state raised the sales tax to 7 percent from 6 percent, with six-tenths of 1 percent, or $31.8 million in 1992, earmarked for Depco.”

The expectation was that the increase was temporary, but that turned out to be yet another broken promise from the state government.

The Rate Is Supposed to Go Down with Internet Sales

Similarly, when legislators wanted to sell voters on the idea of taxing online sales, as through Amazon.com, they put a provision into the law to drop the 7% rate down to 6.5% “upon passage of any federal law that authorizes states to require remote sellers to collect and remit sales and use taxes.” Well, the federal government never passed such a law, but over the years, the state has cracked down on online retailers in a variety of ways.

Just this year, as part of her budget proposal, Democrat Governor Gina Raimondo has suggested a Remote Seller Sales Tax Collection program that would increase the reporting requirements on online retailers and pressure Rhode Islanders to pay the use tax. Her budget assumes $34,715,462 from the tightening of the taxation screws. Since the budget’s release, Amazon has stated that it will voluntarily begin collecting sales taxes for Rhode Island.

No elected officials have even hinted that the sales tax rate might go down accordingly.

Use Tax Crackdown Could Double-Tax Purchases

One of the measures the state recently implemented in order to impose a de facto online sales tax was, essentially, a minimum tax for purchases the government assumes people make online or out of state.

Under state law, Rhode Islanders are supposed to pay a “use tax” equaling the sales tax they avoided on any purchase from a non–Rhode Island retailer. As part of the fiscal 2015 budget, the state began requiring people filing their income tax returns to either catalog their out-of-state and online purchases and pay the appropriate use tax or to pay a minimum of $8 use tax for every $10,000 in income. In effect, that assumes that a household with income of $50,000 spent around $571 on purchases without paying a sales tax. (Naturally, the state set the minimum to go up with inflation every year.)

At the time this minimum use tax was implemented, the state budget experts estimated that the new requirement would raise about $2.2 million in revenue.

The combination of this minimum use tax with the new online retail program and Amazon sales tax collections means that many Rhode Islanders will surely be double-taxed on their online purchases. The budget does not change the calculation of the minimum, meaning that it still assumes online purchases, so any taxpayers who do not begin keeping records of all purchases — online, in Rhode Island, and elsewhere — and sorting through their receipts while filling out their income tax forms will by default pay a use tax on Internet purchases that were already taxed.

Indeed, the state seems to be relying on this double-taxation, because the budget documents do not change the use tax law (to account for online sales tax collections). Moreover, use tax estimates for the upcoming year do not appear to have been reduced as they would have to be if Rhode Islanders were to begin itemizing online purchases.

Rage Against the Unfair Sales Tax

In summary, Rhode Island’s sales tax — the highest in New England and 30th out of 50 in the country — was first implemented to solve a problem that it did not solve, has been increased with the promise of reductions that never happened, and is leading to a stealth double tax.

Not only is it unfair and regressive, but the Ocean State’s high sales tax confiscates resources Rhode Islanders could better spend elsewhere and acts as a drag on the economy and a job killer. The least the state can do is to drop the rate to 3.0%, which ultimately wouldn’t lose the government much more revenue than it expects to gain from online sales and would cost much less than the car tax elimination.

Click HERE To Expand To See The Press Release

FOR IMMEDIATE RELEASE: March 29, 2017

Rep. Nardolillo Submits Bill to Reduce Sales Tax to 3.0%
As a Matter of Fairness, Rate Reductions Owed to Rhode Islanders

Providence, RI – The State of Rhode Island has broken its promises and unfairly has denied its residents a cut to its nationally high state sales tax rate. Representative Robert Nardolillo III (R, D28, Coventry) is attempting to exceed those promises by submitting legislation (H6105) that would reduce the rate to 3.0%, from its current 7.0% level.

In a new policy brief published today, the nonpartisan RI Center for Freedom & Prosperity discusses a “stealth triple sales tax burden” currently imposed on Rhode Islanders:

-Rhode Island’s state sales tax, among the highest rates in the nation, was originally implemented for a specific municipal purpose, while subsequent increases were supposed to be temporary. In both cases, the regressive tax has remained a costly burden on Ocean State families and businesses.
-The sales tax rate was supposed to be reduced following the implementation of a national Internet sales tax. New Internet taxes are now being collected in the state, yet there is no discussion of rate reductions.
-A minimum “use tax” was recently imposed on Rhode Islanders who file a state an income tax return. This estimated tax was designed to account for purchases made online or out of state. Again, with Internet taxes now being directly collected, there is no discussion to reduce or eliminate this “use tax.”

In summary, the sales tax is being used by lawmakers to stealthily take more money out of the pockets of Rhode Islanders in three unfair way ways … and breaking promises made to the people.

Last week the Center published detailed economic modeling projections and analysis, demonstrating that a cut in the state sales tax to 3.0% would produce far more statewide and municipal economic benefit than would repeal of the car tax, as proposed by the Speaker of the House, or would free college tuition, as proposed by the Governor.

The complete analysis, which can be found on the Center’s website, includes discussion of:

-Why bold tax reform is needed
-Budget reconciliation options
-State spending chart
-General findings
-Two tables with multiple and detailed projections of private employment impact and of various “state” and “municipal” revenues

In 2012 and 2013, the Center proposed two major options for sales tax reform, as the most effective and highest value method for creating jobs and boosting the state’s stagnant economy: full repeal of the sales tax; or cutting the sales tax to 3.0%. Links to this expansive past research can be found at RIFreedom.org/SalesTax.

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The Jobs & Opportunity Index provides state lawmakers with a more comprehensive view of the larger state economic picture.

Jobs & Opportunity Index (JOI), February 2017: Little Change as RI Tax Revenue Slips Slightly

The annual revisions of the federal Bureau of Labor Statistics (BLS) usually mean that the data for February follows closely on that for January, leaving little change in the RI Center for Freedom & Prosperity’s Jobs & Opportunity Index (JOI) report. This year, updated data for SNAP and state and local taxes is also available, although the changes were so minimal as to cause not change for the Ocean State.

Five of the 13 datapoints used for the index have been newly updated. Employment was up a significant 2,415 from the previously recorded number, while labor force rose 1,269, although it isn’t unusual for the state to see a surge in these numbers early in the year, with the revision erasing the gains a year later. RI-based jobs increased by 2,500. (Note that these are calculated with pre-revision data for the prior month.) Meanwhile, SNAP enrollment decreased slightly, by 222. State and local taxes, per the U.S. Census, were down $5.2 million, which are a positive in the index, but which may indicate that the extra tax revenue on which lawmakers are depending for tax reforms may not materialize.

The first chart shows Rhode Island still in the last position in New England, at 48th in the country. The only New England state to see movement in its rank was Connecticut, which stepped forward one slot to 33rd, now two ahead of Massachusetts at 34th. New Hampshire continued in the 1st spot, nationally, while Maine held steady at 18th. Vermont’s 21st placement was also unchanged.

NE-JOIrace-0217

The second chart shows the gap between Rhode Island and New England and the United States on JOI. The Ocean State made up a little ground against both averages.

RINEUS-JOI-2005-0217 RINEUS-unemployment-2005-0217

Rhode Island also made up ground on the gaps for unemployment rate (third chart). Results for the three underlying JOI factors were:

  • Job Outlook Factor (measuring optimism that adequate work is available): RI held at 35th.
  • Freedom Factor (measuring the level of work against reliance on welfare programs): RI held at 41st.
  • Prosperity Factor (measuring the financial motivation of income versus taxes): RI held at 46th.
Hair Braider Freedom

Center Supports Cape Verdean Woman, Others, in Quest for Hair Braiding Freedom. Hearing Today

Regulations Inhibit Many From Pursuing Financial Freedom
Joceyln DoCouto Cannot Afford Onerous Licensing Requirements

Providence, RI — Hair braiding is a cultural and practical art-form for Jocelyn DoCouto and her family, which hails from Senegal and Cape Verde. Yet, unable to afford the burdensome levels of fees and training required to receive permission from the government to legally work in a field that presents no safety risks, Jocelyn, as well as other would-be entrepreneurs, are not able to turn this generationally-developed natural hair practice into a legitimate business that would provide them with hope for financial independence.

With a hearing scheduled for this afternoon, the RI Center for Freedom & Prosperity today joins with the RI Families Coalition in support of regulatory reforms that would free natural hair braiders from the occupational licensing mandates currently imposed on the harmless practice. Across the country, recognizing the need to encourage honest work, conservatives and liberals are banding together to advance related reforms.

Legislation sponsored by Representative Anastasia Williams (H5436) would allow natural hair braiders to engage in legal work without the mandate to obtain the same permission from the government that is required of cosmeticians and hairdressers.

“This licensing burden is especially harmful to many people who would prefer to start new careers and earn paychecks instead of receiving welfare checks,” commented Mike Stenhouse, CEO for the Center, who also plans to tesitfy today. In 2016 Rhode Island ranked a dismal 44th in ‘entrepreneurship’ according to the national Family Prosperity Index. “Unfair and unreasonable occupational licensing restrictions must be repealed if we want more Rhode Islanders to have a chance to improve their quality of life and engage in entrepreneurial commerce.”

Anti Free-Market, Protectionist Policies? It is a common scheme for advocates of certain industries to lobby government to impose strict licensing requirements in order to create barriers to competition. According to a 2012 report by the Center, many such occupational licensing mandates have a disproportionate and negative impact on low-income workers, who often can’t afford the time or money to meet the sometimes onerous and unnecessary requirements.

Further, the Institute for Justice, in 2016, reported that there were 16 states in the United States that required hair braiders to get a “cosmetology” license, which could involve spending hundreds or thousands of hours in training and hundred or thousands of dollars on tuition or fees. In these cosmetology classes, students have to learn how to use chemical treatments and how to cut hair – tasks that have nothing to do with braiding hair.

Additionally, 14 states, along with the District of Columbia, require hair braiders to acquire a specialized license. In Mississippi and Iowa, hair braiders have to register with the state. Specialty licenses require 600 hours of classes and can cost thousands of dollars.

However, in recent years, many states, understanding the anti-commerce nature of such “protectionist” policies, have moved to reverse similar anti-jobs mandates. With regard to providing hair braiders the freedom to work, the states of Indiana, South Dakota, Iowa among others have considered licensing repeals for this specific vocation.

Congress

Center Responds to Governor Raimondo’s Federal Healthcare News Conference

FOR IMMEDIATE RELEASE: March 23, 2017
Governor Does Not Understand Goal of Federal Reforms

Fear-mongering not helpful to legitimate debate

Providence, RI – Mike Stenhouse, CEO for the nonpartisan Rhode Island Center for Freedom & Prosperity issued a statement, following a news conference today by Governor Gina Raimondo about her concerns about the proposed federal American Healthcare Act (AHA), which is being advanced in Washington, D.C.

“In conference calls over the past few weeks, I have had the opportunity to speak directly with members of the US Congress who are crafting the new federal healthcare reforms. Unfortunately, the Governor and others on the left do not understand the goals of these reforms; they see government-run Medicaid as the end-all, be-all when it comes to health insurance coverage; and they are spreading unnecessary fears about the proposed federal reforms. Even though Medicaid is a taxpayer-costly, low-quality insurance option, no one will be thrown off or defunded from the system.

The American Healthcare Act seeks to responsibly provide more US citizens with higher-quality, more cost-effective private insurance. This will be achieved through a generous new program of tax-credits and/or payroll deductions that will give Rhode Islanders more choices and multiple new options when it comes to purchasing an insurance plan that best fits their needs. This as opposed to the one-sized-fits-all government mandated coverage that American are now forced to purchase.

Further, the state block-grant aspect of the AHA, will give the Governor, other lawmakers, and health care officials tremendous new flexibility to innovate when it comes to utilizing federal funds in a manner that best suits our state.”

Sales Tax Reform

A 3.0% Sales Tax: A Superior Economic Stimulus Than Car Tax Repeal or Free College Tuition

FOR IMMEDIATE RELEASE: March 20, 2017

Plans by Speaker and Governor Could Cost Jobs and Municipal Revenue Losses
Sales Tax Cuts Would Increase Jobs and Could Pay for Car Tax Reforms

Providence, RI – The nonpartisan Rhode Island Center for Freedom & Prosperity today published detailed economic modeling projections and analysis, demonstrating that a cut in the state sales tax to 3.0% would produce far more statewide and municipal economic benefit than would repeal of the car tax, as proposed by the Speaker of the House, or would free college tuition, as proposed by the Governor.

Among the takeaways of the analysis, which projected the impact of both the car tax and sales tax reform ideas, shows that a 3.0% sales tax would:

  • Keep significantly more money in the pockets of Rhode Island families and businesses ($585 million vs $215 million)
  • 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 (depending on how it is paid for) could result in lower municipal revenues
  • Would allow every Rhode Island family to save for any college education

“We appreciate that the Speaker and Governor both want see more Rhode Island families keep more of their hard-earned money. However, if we want to maximize the positive economic benefit for the people, we must conduct the proper due diligence and research to determine which course of action is most beneficial,” advised Mike Stenhouse, CEO for the Center. “Today, the Center offers well-researched projections from a credible economic modeling tool to add a third concept into this important debate. Any objective analysis of this data shows that sales tax cuts are the superior approach.”

The complete analysis, which can be found on the Center’s website, includes discussion of:

  • Why bold tax reform is needed
  • Budget reconciliation options
  • State spending chart
  • General findings
  • Two tables with multiple and detailed projections of private employment impact and of various “state” and “municipal” revenues

In 2012 and 2013, the Center proposed two major options for sales tax reform, as the most effective and highest value method for creating jobs and boosting the state’s stagnant economy: full repeal of the sales tax; or cutting the sales tax to 3.0%. Links to this expansive past research can be found at RIFreedom.org/SalesTax.

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.

The Providence Journal and RI progressives are doing a disservice to Rhode Islanders by advancing a biased perspective on the healthcare reform debate.

The “Real” News About Healthcare Reform

The Providence Journal and Rhode Island progressives are doing a disservice to the people of our state by advancing a biased and non-realistic perspective on the federal healthcare reform debate.

There are few issues that are more personal or important than planning for the care that can preserve the health of ourselves and our families. But what governmental approach best helps us accomplish this?

Currently, our state is following the federal Obamacare approach of seeking to insure more people with government-run Medicaid or with a one-size-fits-all government-mandated private insurance plan. This approach is in a death-spiral. In Rhode Island and across the nation, premiums and deductibles have risen beyond affordability; costs to taxpayers have exploded; the supply of doctors, insurance plan choices, and the availability of actual care are all plummeting.This is an unsustainable trajectory.

The U.S. Congress proposed reforms take an opposite approach. The goal of the reforms is NOT to force more people to buy or enroll in expensive government-approved insurance. Rather, the goal is to offer citizens more and lower-priced private insurance options and to let them choose whether or not they want to have health insurance … and what type and level of insurance they believe is best for them.

Compassion should not be measured by how many people are covered by inefficient government insurance or by how much money we throw at the problem. This is the biased, government-centric lens through which the left and the ProJo view the proposed reforms.

As Congress recognizes, there are a number of patient-centric reforms that could significantly reduce premium and out-of-pocket costs, even while expanding consumer choice and improving the quality of care: reducing mandates for services that patients do not want or will never need; allowing inter-state health insurance competition; allowing group purchasing; or encouraging expanded Health Savings Account (HSA) and other payroll deduction programs.

Medicaid, is perhaps the most contentious and misunderstood issue. Medicaid insurance is not necessarily good insurance and it does not always lead to good health care. With many doctors leaving the program because of its stingy payouts, and with enrollment levels continually on the rise, many Medicaid patients cannot get an appointment with a doctor in a timely manner, and when they do, suffer from substandard care.

Again, the new Medicaid reforms seek to reverse these trends. What will not happen is that people will be thrown off the system. What will happen is that Medicaid will be returned towards its original mission of providing health insurance for the neediest Americans; poor children, pregnant women, and the disabled elderly. In recent decades, and especially under Obamacare, eligibility standards have been dramatically expanded to include single and working individuals and families far above the poverty line. Medicaid was not originally intended to be an entitlement for able-bodied, working Americans.

All the while, taxpayers have been asked to bear the burden of this increasingly expensive, expansive, and ineffective Medicaid system.

First, the new reforms would cut the rate of enrollment in Medicaid by tightening the eligibility requirements to serve only the neediest among us. Under these new guidelines, while no one will be thrown off, it is through attrition, as people’s financial circumstances improve, that many will naturally leave the system.

Second, Medicaid reform will protect taxpaying families and businesses from never-ending increases; in effect, putting the system on a much-need budget. This will save money for federal and state taxpayers.

Third, the reforms will give states unparalleled flexibility, via a capped, block-grant type arrangement. With limited funds, based on population, states will be free to innovate and to decide how federal funds can best serve its low-income and disabled populations. For example, not only could enrollment parameters be customized by state, but states may be able to opt for a work-requirement or a co-pay for those above poverty levels. There is even some discussion of a voucher, whereby recipients could have public Medicaid funds instead follow them to a private insurer of their choice. Rhode Island, the trail-blazer when it comes to Medicaid block-grants, should embrace this option.

In summary, the concept of a government-run health insurance market has failed. Rhode Islanders will be better served when they have expanded options to purchase or enroll in one of the many new plans that will best meet their needs at the lowest possible price, and at quality levels.

Levels of money and government-mandated insurance enrollment are not the only standards by which the media, the public, and lawmakers should judge the federal reforms about to be implemented. Freedom of choice, affordability, and quality of care should be the primary metrics.

Trump Was Right. Unemployment Rate Masks RI’s Deteriorating Employment Market. Real Unemployment Rate 12.4%?

FOR IMMEDIATE RELEASE: March 15, 2017

Unemployment Rate Would be 12.4% if Labor Force Matched Nation

Inadequacy of Unemployment Rate Clouding Political Discourse
Deteriorating Labor Force Produces Positive Rate?

Providence, RI — Donald Trump may have been correct in his skepticism of apparently positive national unemployment rate news during the 2016 Presidential Campaign. As the RI Center for Freedom & Prosperity has long argued, and once again backed by the latest employment data, negative declines in the state’s labor force have led to positive improvements in Rhode Island’s official unemployment rate. Yet, a broader look employment actually shows that the Ocean State remains mired as the third-worst state nationally on the Center’s January Jobs & Opportunity Index (JOI).

Labor Force Change RIDespite boasts of a strengthening state economy based on its January unemployment rate of 4.7%, a closer look at the data reveals a major underlying problem that is often overlooked: Since 2007 U.S. employment and labor force participation has risen by 4-5%, while Rhode Island saw an opposite decrease by 4-5% in these same categories over the same time period.

“It is not a positive when our state’s decreased unemployment rate is almost entirely due to policies that are driving our labor force out of state,” warned Justin Katz, research director for the Center. “If our state’s labor force instead had increased at the same rate as the nation, our unemployment rate would be a whopping 12.4%.”

JOI takes a broader look at employment and prosperity than does the narrowly-defined unemployment rate. JOI makes it clear that meaningful long-term work and high-paying jobs, which are vital to individual dignity and family self-sufficiency, are not in high supply in Rhode Island as compared with other states. A more detailed analysis of the January data by Katz, specifically on employment and jobs, can be found on The Ocean State Current, the Center’s journalism and blog website.

Despite its weak national ranking remaining unchanged, the state’s raw JOI score improved slightly in January to 19.0 on a scale of 0-100 from its December score of 17.9. Findings from another national study, the Family Prosperity Index (FPI), where Rhode Island ranked 43rd overall in “economics” and 44th and last in New England in “entrepreneurship”, tend support JOI’s stagnant rankings as opposed to the unemployment rate rank.

Of the three factors that make up the January JOI, the Ocean State ranks:

  • 35th on the Job Outlook Factor (measuring optimism that adequate work is available): UP four slots from last month’s rankings
  • 41st on the Freedom Factor (measuring the level of work against reliance on welfare programs): DOWN two slots from last month
  • 46th Prosperity Factor (measuring the financial motivation of income versus taxes): NO CHANGE from last month

Rhode Island’s poor JOI and FPI rankings are personified by Robert Martinez, a US Navy veteran, who fought a losing battle against oppressive local government regulations and a statewide hostile business climate that has derailed his dream of forging a better quality of life for himself by developing a successful mobile food vendor business.

The Center’s monthly JOI report is based on state and local tax collection data from a a variety of federal agencies including the U.S. Census and on income data from the Bureau of Economic Analysis (BEA).

Rhode Island has not gained ground on the national JOI metric, remaining – as it has for years – in the bottom five among all states. JOI is a broader and more accurate measure of employment and well-being than the traditionally cited and highly narrow unemployment rate, which has fluctuated more dramatically in recent years for Rhode Island, but which is not an accurate barometer of economic growth or family prosperity.

Supporting the findings of the JOI metric, Rhode Island also ranks 48th in 2016 the Family Prosperity Index, the broadest national measure of family well-being.

For the JOI homepage, click here.
For a description of JOI and its three sub-factors, click here.

The first Jobs & Opportunity Index (JOI) January 2017 finds the Ocean State slipping on the Freedom Factor, measuring welfare dependency vs. employment.

Jobs & Opportunity Index (JOI), January 2017: Rhode Islanders Less Free from Government Dependency

The RI Center for Freedom & Prosperity’s first Jobs & Opportunity Index (JOI) report for 2017 finds the Ocean State slipping on the Freedom Factor, measuring welfare dependency versus employment. The Bureau of Labor Statistics (BLS) revised employment down for Rhode Island, reducing the state’s employment health, and more Rhode Islanders slipped into dependence on Medicaid and SNAP (food stamps).

Eight of the 13 datapoints used for the index have been newly updated. Employment was down 653 from the previously recorded number, while labor force fell 2,358. On the positive side, RI-based jobs increased by 600. (Note that these are calculated with pre-revision data for the prior month.) Perhaps beginning to show the UHIP-enabled expansion of welfare programs, Medicaid enrollment numbers increased by 3,455, and SNAP enrollment increased by 5,187. Quarterly data for additional employment measures were also released, with 1,400 fewer people long-term unemployed and 300 fewer part-time against their will; marginally attached workers remained exactly the same.

The first chart shows Rhode Island still in the last position in New England, at 48th in the country. Once again, the only two New England states to move in the rankings were Maine (now 18th) and Connecticut, although the latter changed direction, lost two spaces, and, at 34th, is now just one space ahead of Masaschusetts, at 35th. New Hampshire remained 1st in the nation, and Vermont held at 21st.

NE-JOIrace-0117

The second chart shows the gap between Rhode Island and New England and the United States on JOI. The Ocean State made up a little ground against both averages. Rhode Island also made up ground on the gaps for unemployment rate (third chart).

RINEUS-JOI-2005-0117 RINEUS-unemployment-2005-0117

Results for the three underlying JOI factors were:

  • Job Outlook Factor (measuring optimism that adequate work is available): RI moved up four spots to 35th.
  • Freedom Factor (measuring the level of work against reliance on welfare programs): RI fell two to 41st.
  • Prosperity Factor (measuring the financial motivation of income versus taxes): RI held at 46th.