STATEMENT on FY15 BUDGET: Middle Class to Pay for Corporate & Estate Tax Reforms

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June 6, 2013
Sales Tax Cut Would Have Larger & More Immediate Impact
Pointing to new broad-based taxes and fees that will especially harm the middle-class, that will also help pay for planned cuts for corporations and high-income individuals, the RI Center for Freedom and Prosperity sees little in the budget that cleared the House Finance Committee yesterday that will aid struggling families and small businesses, in a statement released today.
The Center further urges lawmakers to modify the budget so as to make a more immediate and larger impact on job creation. While noting a that a few items in the proposed budget are a small step in the right direction, the Center notes that the budget also takes backwards steps, and argues that much more needs to be done to boost the state’s struggling economy.

“While the modest corporate and estate tax reforms will be helpful over the long term for those constituencies, we then simultaneously turn-around and add to the plight of the average guy, asking them to pay for those reforms by imposing new vehicle fees and gas and use taxes,” said Mike Stenhouse, CEO for the Center. “Nor does this budget have any bold jobs creation plan. If we also cut the sales tax, we can put money back in the pocket of every Rhode Island family and business, and create thousands of new jobs right away.”

The proposed new gas taxes and fees on vehicle inspections and on good-drivers seeking to clear their traffic records, along with the $2+ million in new sales taxes, will be a direct hit on middle and low income families. The deceptively named “Safe Harbor” for the use tax would impose a new default of 0.08% of adjusted gross income tax on residents’ assumed purchases outside of the state.

The Center does note it as a positive step that the proposed budget did make some cuts that were recommended in its April Spotlight on $pending report, namely: suspension of the historic tax credit program and holding the line on state personnel costs.

The $48 million to pay for a reduction in the sales tax to 3%, that would produce about 13,000 jobs, can be made by eliminating the $12 million payment of the 38 Studio bond, by eliminating the $15 million to the HealthSourceRI UHIP project, by eliminating $11 million in General Assembly legislative and community service grants, and by cutting $19 million in excessive overtime payments, all were recommended cuts in the Center’s spending report.

OTHER NEW TAXES & FEES:

* Article 12 of the budget increases the real estate conveyance tax that a seller of a home or other real estate must pay at the time of transfer.    The current tax is $4.00 per $1000 of the sale price;  the FY2015 budget would increase this tax by 15% and would become $4.60 per $1000 in Rhode Island, higher than Massachusetts tax of $4.56 per $1,000.

THEY KNEW! 2009 Brief Advised Against Healthcare Exchange for RI

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They Knew!

Ignoring the advice of her own specially convened study process, Lt. Gov. Elizabeth Roberts became one of the leading figures in promoting a complex, costly health insurance exchange for Rhode Island. Further,

HealthSourceRI officials and supporters continue to tout a cost containment goal that the process advised is not achievable according to a little known 2009 Issue Brief provide to Ms. Roberts and other state officials! Our Center’s analysis of this Brief can be downloaded by clicking the button below:

Analysis: They Knew in 2009!

TheyKnew

MEDIA RELEASE, June 3, 2014: Specifically advised “Do not pursue” in 2009 by her own specially convened study group, regarding formation of a state-based health insurance exchange, as it would not be fiscally viable and would not meet its primary objective of cost containment, Lieutenant Governor Elizabeth Roberts of Rhode Island nevertheless pressed for the formation of a state-run ACA exchange and has remained one of its most outspoken advocates. This according to the Rhode Island Center for Freedom and Prosperity, a nonpartisan think tank, which today published an analysis of a little known Issues Brief funded by the Robert Wood Johnson Foundation and presented to state officials years ago. 
 
“There has never been a rigorous public debate about the pros and cons of a state-funded exchange for the Ocean State. With tens of millions of dollars now at stake, we need a renewed discussion today,” commented Mike Stenhouse, CEO for the Center, referring to the abbreviated process that saw related legislation fail in the General Assembly in the spring of 2011, only to have the exchange authorized without advance public scrutiny later that fall by Executive Order of the Governor. “Revelation of this Brief raises many questions. Why was this information not brought to light in 2011? Why do State and HealthSourceRI officials continue to tout claims that their own study advised are not feasible? We must have answers to these questions before we spend $15 million in next year’s budget.” 
 
The findings in the Brief validate many of the specific concerns raised by the Center in recent reports. In additional to clearly indicating that the study group’s number one preferred objective – to drive down healthcare costs – was not achievable via a state exchange, the 2009 document also advised that Rhode Island’s economy was not strong enough, that there was not a large enough insured population, nor was their a complex enough insurance provider/product market that required coordination, to justify the “establishment of a new administrative structure” to operate an exchange. Further, the Brief advised that because of these characteristics a “health insurance exchange may not generate sufficient volume to be cost-effective.”
 
“As a state, we are now facing the precise sustainability problems that our Center projected two years ago, that this Brief advised against five years ago, and that has been empirically supported by results from Massachusetts for the past six years,” added Stenhouse. “The small business sector in our state has been deceived into supporting a massive bureaucracy that, sadly, will not reduce their health insurance costs.”
 
Links to other related information about this issue, including two reports by the Center and a Forbes.com analysis, can be found on the Center’s home page for the health exchange issue at RIFreedom.org/Exchange. 

Center’s Testimony Shoots Down HealthSourceRI’s Major Claims to Justify Continued State Operations

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CEO Mike Stenhouse’s full written testimony can be viewed here.

 

 

Following a House Finance Committee hearing Wednesday on H7817 that would send the state’s health insurance exchange to the federal government, Mike Stenhouse, CEO for the RI Center for Freedom and Prosperity, commented that “virtually every major claim made by HealthSourceRI in defense of its own costly existence was shot down by well-researched testimony.”

State Funds on the Hook? HealthSourceRI officials claimed that no local funds would be required for FY2015: the Center countered that $15 million is indeed allocated in the Governor’s proposed budget for the closely related UHIP project, an expense that would be eliminated by passage of the bill.

Federal Fee Exaggeration. They previously claimed that a transfer to the federal government would cost Ocean State policyholders $17.3 million in federal fees: testimony by both the Center and by the House Fiscal Advisory Staff put the actual figure under $5 million. The Center further noted that the costs of maintaining operation of the exchange in Rhode Island would be significantly higher, and that it is disingenuous to talk about only one side of the coin.

A True Success Story? They also claimed that theirs is one of the most successful state-based exchanges in the nation: the Center questioned whether it truly should be considered a success when HealthSourceRI has met less than one-third of its original enrollment projections; has see abysmal business sector participation; has no sustainability funding plan; and will cost the state an additional $50 million per year in higher Medicaid costs.

Health Insurance Premiums kept rising, even after Massachusetts passed its exchange law in 2006. Why would anyone think that RI's exchange could do better?

Health Insurance Premiums kept rising, even after Massachusetts passed its exchange law in 2006. Why would anyone think that RI’s exchange could do better?

Local Control to Reduce Costs? They further claimed that loss of local control would inhibit the likelihood of reducing healthcare costs in the state: however testimony from Josh Archambault of the Foundation for Government Accountability, a national healthcare think tank, noted that after seven years of operating its own exchange, the cost curve has not been bent-down in Massachusetts, which had similar cost-reduction hopes, and that HealthsourceRI’s claims to be able to accomplish this may be over-played. (See “They Knew in 2009” analysis)

Illegal Use of Funds? HealthSourceRI official also proclaimed that the federal government, in reaction to recent news coverage, expressed a willingness to work with HealthSourceRI to help fund its ongoing operations: the Center testified that such use of federal funds may be illegal, being specifically prohibited both by the ACA law and Governor Chafee’s executive order that established the exchange in 2011.

“HealthSourceRI officials all but admitted that they have no idea how to pay for the high expense of the exchange in future years. The fact that the federal government called local officials to try to save the exchange, shows that even its own advocates here and in DC understand the challenge of justifying its continued costly existence, and that they are willing to violate their own law,” concluded Stenhouse. “It is an obvious choice to let the federal government pay for its own federal mandate; a choice that other states are making, and a choice that will not adversely affect any current or future policyholder in Rhode Island.”

Stenhouse’s full written testimony can be viewed here.

In the past week the Center has published two reports supporting the transfer of the state’s costly health insurance exchange to the federal government; $38 million or Zero? and Moving HealthSourceRI Forward to the Feds. Each of these reports, as well as links to other related information about this issue,can be found on the Center’s home page for the health exchange issue at RIFreedom.org/Exchange.

Related News Stories:

Associated Press – http://apnews.com/ap/db_268748/contentdetail.htm?contentguid=x4SpOIdE

$38 million or Zero? Why RI should transfer its Exchange to the Feds

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TWO NEW REPORTS by the Center and a recent Forbes.com analysis re. why the Ocean State cannot support its costly health benefits exchange.

[button url=”http://www.rifreedom.org/exchange/” target=”_self” size=”medium” style=”royalblue” ] Report: $38 million or Zero?[/button] [button url=”http://www.rifreedom.org/exchange/” target=”_self” size=”medium” style=”royalblue” ] Report: No Legal Barriers[/button]

Rhode Island Employment Snapshot, April 2014: Increasingly Hard to Believe

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Rhode Island’s unemployment rate took another large leap downward, to 8.3%.  The bad news is that the same is true across most of the country, so the Ocean State is still last.  The worse news is that there still doesn’t seem to be much by way of alternative evidence of this boom.

The first chart below illustrates why some healthy skepticism continues to be in order. After many years of general stagnation, February through April 2014 arrive as a sudden ramp, both in employment and in labor force.

The second chart provides a longer-term sense of the results. Rhode Island is still below its employment level just before the jobs-crash of the recession and still lags both of its neighbors dramatically when it comes to reclaiming jobs.  Indeed, Massachusetts is now beyond where it was in January 2007, and almost at its pre-recession peak, which it hit a few months later.

The third chart compares Rhode Island’s unemployment rate with what it would have been if the state’s labor force had held steady. It shows that unemployment never got as low as Rhode Island officials had claimed, and the growth in the gap between the two lines is steadier and more dramatic, with the exception of the peculiar results these past three months.

The chart makes clear that the Ocean State’s unemployment rate would have been much higher, over the past few years, had people not given up looking for work… almost reaching 14% in 2011. It also emphasizes the disturbing trend that the only reason the unemployment rate seems to have been stagnant, rather than increasing, throughout 2013 is that fewer Rhode Islanders are counted at all.

RI-laborforceandemp-0107-0414

 

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OPINION. The RI “left” refuses to debate: What are they afraid of?

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Opinion by Mike Stenhouse as appeared in the Providence Journal (May 9, 2014)

Mike Stenhouse: Left won’t defend failed R.I. policies

‘The price of freedom is eternal vigilance,” is a sentiment many have shared. Engaging in a spirited public debate is one form of such vigilance — a debate such as the Rhode Island Center for Freedom and Prosperity conducted in late April. The core question was: Would we be better off with more government in our lives, or less?

Based on the reaction we received from audience participants, our debate offered a fresh, new discussion about public policy; conversations that are not normally held by politicians or in the media. “When is the next debate? We can’t wait!” we were told, as well as, “If only our lawmakers could have heard this.”

However, the experience of organizing and running the debate ended up being as educational for me as it was for audience attendees. The audience learned about core philosophical policy differences. I learned about a revealing tactic of the left.

Ocean State “progressives” appear to have little interest in an open and honest debate about public policy. Either they don’t want to consider questions about whether their liberal agenda has been serving the well-being of our state’s residents, or they don’t want to admit that it is their big-government ideas that have, indeed, failed our families and businesses.

In seeking participants for the debate, I quickly became aware that the Rhode Island left hopes to avoid talk about connecting their policies to the wreckage we have seen across our state — either by refusing to debate in the first place, or by claiming that Rhode Island’s overall public policy culture is not liberal.

In reaching out to local groups to try to assemble a balanced slate of debaters, no fewer than four local left-leaning organizations, plus one other, refused our invitation to participate in the event: the Economic Progress Institute, the Latino Policy Institute, the Rhode Island Council of Churches, RIFuture.org and the Rhode Island Urban Debate League.

Stated reasons ranged from not wanting to be identified with or seen as supporting our center, to disingenuous questions about the debate’s funding sources, to a general sentiment that nothing would be gained from being involved in such an event. In one case, one of these groups was actually warned by another that we might be calling, and was armed with a ready excuse to turn us down.

What were they afraid of?

We are thankful that two local individuals — Tom Sgouros and Samuel Bell — agreed to participate and represent views from the left. However, their debate tactic was to run away from their own policies, by claiming that Rhode Island is much more conservative than most might think, that conservative tax cuts for the rich are partially to blame, and that there must be factors other than public policy behind our state’s failings. These assertions drew repeated chuckles from the audience.

Could these men be serious? With our heavy tax burden and poor economic rankings, how many Rhode Islanders honestly believe the state is struggling as a result of too-conservative policies?

It’s actually a very clever tactic to blame the other guy, or to avoid debate altogether. There is no doubt in my mind that a liberal-progressive agenda dominates Rhode Island — and, if I were them, I wouldn’t want to be held accountable for that agenda’s failures either. But it is a blatantly transparent tactic, with zero credibility.

Over the decades, a big-government, liberal and special-interest-oriented agenda has been systematically implemented in the Ocean State. As a result, we have seen dismal state performance in far too many important national indexes. Ranking last, or nearly last, in business climate, unemployment rate and population growth, Rhode Island simultaneously ranks near the top when it comes to redistribution of wealth, or income transfer, policies.

Yet the left refuses to even discuss whether or not there is a correlation. I believe there is a direct causation. This was the premise of our debate.

Nor do our elected officials or local media seem to want to encourage such discussion. I noted only one lawmaker, Sen. Lou Raptakis (D-Coventry), in attendance. Further, even with national headliners such as Stephen Moore from the Heritage Foundation and Fox News, and Rich Benjamin from Demos and MSNBC, not one local news organization covered this important debate, except GoLocalProv.com, our media partner. Why not?

If people on the left truly believe that their ideas are best for our society, their advocates should proudly stand up and fight for them — not run away and blame others. Sticking our heads in the sand and refusing to engage in rigorous public debate does not serve any democracy’s best interests. What are they afraid of?

Mike Stenhouse is CEO of the Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy research and advocacy organization.

Statement on 3% Sales Tax Hearings

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May 8, 2014 — OFFICIAL STATEMENT re. the May 7 House Finance Committee hearing on H8039 to lower the state sales tax to 3%. 

The Center’s testimony regarding a proposed sales tax cut to 3%, yesterday, appeared to generate interest from of a number of House Finance Committee members with the presentation of its “complete solution“, including a fiscal note about the anticipated dynamic revenue increases, which would lower the net impact on the state budget to as little as $47 million, in exchange for a potential increase in jobs of over 13,000. The Center then also showed how to find budget savings for this remainder (Spotlight on $pending report) without cutting any essential programs or services.

It appears that, legislatively, sales tax cuts are being considered along with corporate tax and estate tax cuts in 2014. While the Center supports all three reforms, research indicates that sales tax cuts will produce the largest economic boost and create significantly more jobs, at a lower cost per job, than any other tax reform.

The Center is puzzled by the position taken by the RI Hospitality Association, which testified against the 3% bill. It is almost certain that such reform would significantly increase consumer demand throughout the industry (diners, overnight guests, vendor services), perhaps as much as 20%, create more jobs, and lower the cost of conducting business for each of the Association’s member organizations. In 2012 RIHA actively mobilized support to stop a proposed 2% percentage-point increase in industry sales taxes, yet now is working against a sales tax cut of twice that size. The Center questions if RIHA members are aware of or support this position?

Testimony was also heard on bill to decrease the sales tax to 6% on a reduced number of industry sectors. Again, while a small step in the right direction, this reform would produce only one-sixth as many jobs, at just less than half the cost to the state budget, as compared with the 3% plan.

completesolution-explanation

Managing a Phase-In of Major Sales Tax Reform

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The state budget is like a talisman that government officials and special interests raise to ward off the evil spirits of tax reform.  Anything that promises not to raise taxes, or at least not to be “revenue neutral,” is said to be entirely unworkable — destined to eliminate every valued program of government.  And when they’re really stuck, budget protectionists will claim that even a reform that they ought to support for every economic and humanitarian reason is impossible because the budget couldn’t absorb the shock of the first year.  The withdrawals of revenue dependency might kill the junkie.

When it comes to dropping Rhode Island’s state sales tax to 3%, as RI House bill 8039 and Senate bill 2919 would do, the problem is not so dramatic.  To begin with, the companion bills would implement the change at the beginning of 2015, which maintains the higher tax rate through the summer tourist season and the holiday shopping season.  (The latter period on the calendar might also help to reduce the likelihood that people would hold off on purchases in the months leading up to the tax reduction, while also producing a boost during a slower time of the year.)

The following chart, part of the RI Center for Freedom & Prosperity’s “complete solution,” shows the RI Center for Freedom & Prosperity’s suggested approach to managing the implementation of this unprecedented tax reform, taking advantage of the state government’s access to two respected economic modeling tools:  the RI-STAMP model used by the Center and the REMI PI+ model used by the state’s Office of Revenue Analysis.

ricfp-salestax-genrev-3percentplan-web

The total height of the column is the governor’s recommended general fund (state) revenue for the next fiscal year.

  • The dark gray block at the bottom is the $3.054 billion that would be under no risk at all, even if the state dropped its sales tax rate from 7% to 3% for the entire year and the reform had no dynamic effect increasing tax revenue somewhat by improving the economy.
  • The silver block is the $134.25 million that the state secures by starting the reform halfway through the fiscal year plus the dynamic revenue that the REMI PI+ model projects for the reform.  (For a variety of reasons, the Center believes these results to be overly pessimistic.  One very substantial reason is that the Office of Revenue Analysis assumed across-the-board cuts to make up for the reduced revenue, which bit into areas of spending that, they claim, have a strong benefit for the local economy and, therefore, the dynamic effects of the reform.)
  • The red block shows the portion of the revenue for which the state should have some plans to reduce spending if REMI’s pessimism turns out not to have been unreasonable.  The top of this block is the budget that the Center recommends that the General Assembly actually pass.
  • The green block represents the added revenue that RI-STAMP projects the state will realize above the Center’s recommended budget.  If legislators wish to minimize the effects of the reform, they can plan for spending and program increases that would go into effect as this revenue actually comes in.
  • The sliver of blue at the top of the column is the $28.9 million that the Center expects the state to have to trim from the governor’s recommended budget as an investment in the 3% sales tax reform.

The light-green block to the left represents the $224.5 million in savings that the Center’s Spotlight on Spending report identified in the governor’s proposed budget (spanning both his suggested revision for FY14 and spending for FY15).  As the chart shows, these potential savings cover all but the most pessimistic $43 million at the bottom of the red block.

The next chart zooms in on the upper part of the column, with some explanation.  Basically, the strategy calls for the state to pass an initial budget (of $3.3 billion in general revenue spending) and then follow the monthly cash flow reports from the Office of Revenue Analysis.  If the dynamic effects of the more optimistic RI-STAMP model are proving to be the case, nice-to-have spending like grants and pilot programs can be phased in.  If the pessimism of the REMI model is proving to be the case, reductions of a more fundamental (but still non-essential) nature can be phased in.

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Click here for a PDF of these two charts and the full table of Spotlight on Spending recommendations.

“How Money Walks” out of the Ocean State

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Rhode Island needs a major economic boost through a tax cut like reducing the sales tax to 3%!

How Money Walks author, Travis Brown, interviews the Center’s CEO, Mike Stenhouse about how the Center’s sales tax plan might stop the destructive out-migration trend in RI:

According to IRS data compiled by HowMoneyWalks.com:

Between 1992 and 2011:

  • Rhode Island lost over $1.8 billion in ANNUAL adjusted gross income due to out-migration
  • Providence County alone lost over $1.9 billion in AGI
  • Kent and Bristol counties were a minor losers, while Washington and Newport Counties saw gains

Between 1985 and 2011

  • the State lost over 43,314 from state-state out-migration

A 3% State Sales Tax: Updated 2014 Projections

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Based on an updated 2014 version of the Center’s RI-STAMP economic modeling tool, new jobs and revenue projections are projected for a proposed across-the-board cut to the state sales tax to 3%, from its current 7% level.

The 2014 projections, based on updated Rhode Island data, show very similar results to the 2013 projections: over 13,000 jobs and over $450 million in new state revenues. plus over $100 million in new municipal revenues are projected to be created from the massive dynamic economic impact that would result; leaving the state with less than $50 million in budget savings to be identified.

The 2014 projections also include:

  • Multi-year projections for the 3% scenario
  • Near-term jobs and revenue projections for modified 1% sales tax scenario (proposed by 3rd party and also under consideration in 2014)

2014 Projections for a 3% Sales Tax

To see the complete 3% sales tax solution, go to our Sales Tax home page at RIFreedom.org/SalesTax .