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



Rhode Island Employment Snapshot, November 2012

Rhode Island’s unemployment rate stopped its incremental improvement in November, marking the first month since April that it didn’t fall.  However, for most of that period, the drop was attributable to the fact that more people were leaving the labor force than losing their employment.  In November, by contrast, the steady rate results from a labor force increase that was nearly as large as the employment increase.

That said, the first chart that follows shows that the unusually large gains by both metrics — which placed Rhode Island inexplicably at the head of the nation for employment gains —lost steam in November.  Meanwhile, the Ocean State remains well behind its January 2007 numbers — still significantly behind both Massachusetts and Connecticut, despite several months of employment free fall in Connecticut.

Nationwide, Rhode Island is one of the two remaining states with unemployment rates above 10%, with the other, Nevada, rapidly making up the ground between them.

Rhode Island Labor Force and Employment, January 2007 to November 2012

RI, MA, and CT Labor Force and Employment, November 2012 Percentage of January 2007

RI Only State Losing Population Two Years in a Row

Quick Links: see larger out-migration report here

Since the U.S. Census department released its latest state-by-state population estimates, it has been widely reported that Rhode Island was one of only two states to lose population from 2011 to 2012.  The other was Vermont.

However, as with the RI Center for Freedom & Prosperity’s findings in September, looking more deeply reveals that the headlines actually understate Rhode Island’s poor position.

In total, Rhode Island lost 354 people, or 0.03% of the 1,050,646 estimated to have lived here in 2011. As bad as that is, it looks preferable to the 581 whom Vermont lost, which was 0.09% of that state’s population. Two considerations smudge that silver lining.

As a percentage of population, most of the difference was in the higher number of births in Rhode Island: 1.02% of population versus 0.92% in Vermont.  To some extent, that’s a positive finding, but it’s only significant because Rhode Island offset more of the residents who moved to other states (0.51% of population, to VT’s 0.28%) with higher immigration from other countries (0.34%, to VT’s 0.10%).

The second smudge is that this year is Rhode Island’s second on the population-loss list.  Last year, its company wasn’t Vermont, but Michigan.  Over the two-year span, from 2010 to 2012, Vermont’s population has grown; over the last year, Michigan made up most of its loss from the year before.

Uniquely, Rhode Island is still slipping, with a two-year net loss of 2,275 people.  Of course, international immigration and a natural increase (with births outnumbering deaths) soften the blow. Since 2010, 1.26% of Rhode Island’s population — 13,259 people — have left for other states. As with the other numbers presented, here, that’s a net number, meaning it’s the number of Rhode Islanders who left above and beyond the number of people who moved here.

It’s true that Rhode Island is the second most densely populated state in the nation, after New Jersey, so a rapidly growing population might be problematic in the long term.  Be that as it may, multi-year trends of losing population — especially losing established Rhode Islanders to other states — is a symptom of a state in need of dramatic turnaround.

Projo Omits the Real Story of Health Benefit Exchanges

The Providence Journal’s article checking in on the progress of Rhode Island’s ObamaCare health benefits exchange ignores the major policy questions and potential objections that have made the exchanges a subject of controversy across the country.  With the exchange’s executive director, Christine Ferguson, as its only source, the article is little more than a preview press release for an expensive government service that is of dubious origin, questionable promise, and dangerous potential.

Here is a mere sampling of the conspicuous omissions:

  • The article ignores the controversy of more states’ refusing to set up exchanges than agreeing to do so. Oklahoma is leading the way in a lawsuit challenging the authority of the Internal Revenue Service (IRS) to impose a fee on medium-sized and large employers that do not offer healthcare benefits in states that will have federally run exchanges.
  • The article glosses over the distortion of the employment market caused by the employer mandate. With the threshold of 50 full-time employees before businesses are required by the law to offer healthcare benefits or pay the IRS penalty, the law is creating perverse incentives that are leading employers nationwide to limit workers to part-time status and potentially not to hire them at all.
  • The costs of the exchange and the Medicaid expansion to the state are not mentioned. The initiation of ObamaCare in Rhode Island looks like a windfall of federal dollars for the state, but within a few years, the additional local costs will add strain to the state’s annual struggle to balance its budget. With data from the Kaiser Family Foundation, the RI Center for Freedom & Prospeity estimates that the cost of the Medicaid expansion to Rhode Island taxpayers will be approximately $50 million per year.  When it comes to paying for the exchange itself, Rhode Island may follow Massachusetts’ strategy of charging a 3% fee on top of premiums.
  • The planned expansion of the exchange as a “unified infrastructure” is nowhere to be found. The officials behind Rhode Island’s health benefits exchange are also planning to integrate it with other state subsidies and services, such as welfare and food stamps. The Center has dubbed this strategy a “dependency portal,” because it would potentially create an automatic “on ramp” to dependence on government handouts.
  • The article also ignores the interests on the exchange’s board. In populating the governing board of the exchange, Governor Lincoln Chafee paved the way for expansion of services supplied through the exchange, without appointing any board members who might act as a counterweight to the special interests around the table.

Rhode Islanders deserve a government that treads cautiously when dabbling in such costly and radical changes to the critical services of the health care marketplace.  And they definitely deserve a state-level press corps that exposes government inadequacies and the risks and costs that it incurs.

Press Release: Public vs. Private Sector Compensation in RI

Press Release
Public vs Private Sector Compensation in RI

High-Pay Government Workers Supported by Low-Pay Private Workers


November 28, 2012

Government workers in the Ocean State collect significantly higher compensation than their private sector counterparts – across the board – according to data recently compiled as part of national study for the RI Center for Freedom & Prosperity, a non-partisan local think tank.
Among the findings in the report published today by the Center, Ocean State public sector employees enjoy compensation levels that are 26.5% higher than their private sector counterparts; a rate 41% higher than the New England average and 78% higher than the national norm. These results were calculated via a statistical regression analysis after controlling for factors such as education and experience. On average RI government workers receive 58% more in ‘benefits’ than private workers in RI.

Further, within the New England region, RI public employees: are unique in collecting a higher “base” pay than private employees; work the fewest total hours; receive a higher paid time off value than in the private sector; and benefit from a 41% higher total compensation premium than the regional average.
“Rhode Islanders want a government that works for all citizens. But it may not be so much that state and municipal employees are grossly overpaid, but more that our state’s private sector has such shockingly low compensation levels,” said Mike Stenhouse, CEO for the Center. “This is yet another clear indication of how public policy in the Ocean State has favored certain groups while severely harming our economy and our business sector.”
According to the study conducted by economists William Even, of Miami University, and David Macpherson, of Trinity University, government workers in RI, on average, collect $100,217 in total compensation as compared with $83,419 for private employees. Respectively, base-pay breaks out to $61,046 vs $58,664, with benefits at $39,171 vs $24,755. A preliminary review of the effects of the state’s 2011 pension reform showed its effect to be negligible on these comparisons.
The data raises serious questions about the sustainability of a system where a low-pay private sector is supporting a high-pay public sector. “Are we heading towards a Central Falls type situation where pension benefits have to be cut dramatically, or even worse, a Scranton, PA situation where city worker pay was cut to minimum wage”, inquired Stenhouse. “It is evident that new policies that promote economic growth and increase our tax base are the best way to ensure that we can afford to maintain current public employee compensation levels”, concluded Stenhouse.
The full report, with additional data, tables, analysis, and methodology can be found at
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: 401.429.6115,

Commentary: Sakonnet Bridge Toll – We All Sleep in the Beds we Make

December 6, 2012

We all sleep in the beds we make. Legislators and citizens alike.

After decades of negligence by the Political Class in mismanaging one of the appropriate roles of government – infrastructure development – Rhode Island ranks last or next to last in multiple major national highway, bridge and general infrastructure indexes.

And now, with tolls planned for the Sakonnet River Bride, the state faces a lose-lose situation; where local residents will face a punishing new ‘tax’ and where the local and state economy will continue to be harmed as a result. Are tolls the only course we should have considered? Will anyone even end up being held accountable for this debacle?

Our elected officials, including those few who are now speaking out against the toll, have systematically ignored our state’s bridges and highways and have continually prioritized spending in other areas where a more tangible political quid-pro-quo can be realized. This total failure of government has brought us to the point where the knee-jerk reaction to impose new taxes and fees on our people was sadly predictable.

But the blame does not reside solely on Smith Hill. Where were those people last spring when the budget and this toll were being contemplated? Where was the East Bay citizenry then that should have been pressuring their own locally elected officials to run around the state capitol to try to kill this toll? It may be too little, too late now.

These citizenship and legislative failures are yet more examples of what can happen when the great responsibility our Constitution places on citizens to remain vigilant and to control the workings of our government is abandoned, leaving a void for special interest groups to eagerly slop up any taxpayer dollars left in the trough.

When will we ever learn?

Back to the matter at hand, according to the Federal Highway Administration, more state and local governments are relying on tolls to build and repair roads, bridges and tunnels as traditional local revenue sources and one-time stimulus funds dry up. But is this the only practical approach? No.

There are alternative solutions we might have considered to fund these much needed upgrades. In order of preference, they are (were):

A) Re-allocation of existing funds: without raising taxes, fees, or tolls – this approach would force officials to make difficult funding priority decisions, and decrease tax and fee burdens on the Rhode Island economy. But who in the Political Class is brave enough to do this?

B) Cut taxes elsewhere, even as we implement the new tolls: this would lessen the negative economic impact on Rhode Island drivers who are tolled as well as on our overall economy. This we can still do.

C) Privatize the upgrades and maintenance: many states are contracting with private entities to maintain infrastructure, collect the tolls, and take the financial and legal risk. The private sector can manage projects such as these at a lower cost and can also provide maintenance and toll-collection services more efficiently. Privatization would also ensure that the tolls are never mingled with the state’s General Funds and re-allocated for whatever new emergency may arise. Further, a private entity can be sued if they fail to meet the terms of their contract in maintaining a bridge or highway. Under a government run system, who can be or will be held accountable? This is where we could have been.

D) Government-run upgrades and maintenance funded by tolls: the big government default mode, which would likely result in higher tolls than the privatization route. This is where we are.

E) Raise general taxes: this approach would affect a broader range of Rhode Island residents, and would have the largest impact on the state’s already fragile economy. Only the most radical socialists would think that this is feasible in Rhode Island at this time.

For failing in their duty to the people by not considering some of these other options, some legislators should lose their jobs.

For failing to remain vigilant in exercising their right of citizenship, it looks like many Rhode Islanders will now pay a dear price.

Mike Stenhouse is CEO for the Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank and 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.