Legislation to Avoid SALT Cap Named Bad Bill of the Week

Rhode Island lawmakers continue to stick their heads in the sand when it comes to the stagnant Rhode Island economy and weakening jobs market. Instead of directly addressing the core issues that are producing these negative outcomes, which run counter to positive national trends, the political class prefers to divert attention to band-aid policies that perpetuate the problem.

It is for this reason that H5576, the so-called Business Corporation Tax legislation, has been named the Bad Bill of the Week by the RI Center for Freedom & Prosperity. The legislation seeks to provide small business owners with a dubious option to avoid the $10,000 SALT (State And Local Tax) cap, defined in the 2017 federal tax reforms.

Even the highly respected and nonpartisan Tax Foundation in Washington, DC, wrote a post on the wrong-headedness of this legislation, which seeks to circumvent federal tax laws.

Ignoring the fact that state and local taxes are too high in Rhode Island, driving many people and businesses out of state, the legislation instead seeks to help small business owners by reducing the their federal tax burden; in essence, denying the federal government its lawful share of pass-through revenues that are usually associated with S-corporations, limited partnerships, and sole proprietorships.

State lawmakers should not seek to blame the federal government for the high state and local taxes that they, themselves, have imposed on the private sector. Further, the IRS has publicly signaled that it will not take kindly to state-based efforts to interfere with taxes owed to the federal government.

To encourage entrepreneurship, pass-through entities were created to relieve small business investors of the burden of double-taxation, both at the corporate level and then again upon distribution of profits at the individual level. Instead, profits under a pass-through structure flow entirely to its investors, to be taxed only once at the individual level – both federally and by states.

The 2017 Tax Cuts and Jobs Act limited the amount of SALT deductions allowed on federal tax returns. In high tax states, such as Rhode Island, this means that certain people may not be able to federally deduct all of the taxes they are charged by their state and localities.

The proposed legislation in Rhode Island would allow pass-through businesses to pay “state” taxes on its profits at the ‘entity’ level (instead of passed-through to individuals). This scheme would effectively transpose a potentially non-deductible SALT tax into a fully-deductible business expense. A revenue-neutral policy at the state level, this entity level tax scheme will almost certainly be challenged by the IRS in that it would reduce federal tax receipts.

The proposed legislation in Rhode Island would allow pass-through businesses to pay “state” taxes on its profits at the ‘entity’ level (instead of passed-through to individuals). This scheme would effectively transpose a potentially non-deductible SALT tax into a fully-deductible business expense. A revenue-neutral policy at the state level, this entity level tax scheme will almost certainly be challenged by the IRS in that it would reduce federal tax receipts.

This legislation is objectionable for two main reasons. First, the IRS is unlikely to allow this sleight-of-hand to circumvent existing tax law. Second, and more importantly, the legislation avoids the actual core problem – high state and local taxes in Rhode Island.

As long as lawmakers refuse to deal with the real problems that plague our state, Rhode Island’s economy and the standard of living for its residents will continue to lag behind the rest of the country.

As the Tax Foundation concludes, and as the Center has long maintained, “States would be better off using their creative energy to reform their tax codes and alleviate the overall burden on taxpayers.”

Jobs & Opportunity Index (JOI), February 2019: Employment and Jobs Turn Down

Given the short time between reports, only three of the 12 datapoints of the RI Center for Freedom & Prosperity’s Jobs & Opportunity Index (JOI) have changed for February, but the changes are important. After a disappointing downward revision of Rhode Island’s employment data from the Bureau of Labor Statistics (BLS) wiped away most of the employment progress Rhode Islanders had made in 2018, February showed an additional downturn. That downturn didn’t change the index ranking or the subrankings, so the Ocean State is still 47th in the country.

Employment was down another 570 people from the first-reported number for January, and the labor force dropped 951. An additional 1,400 jobs based within the state joined the 9,000 that disappeared the month before.

The first chart shows RI remaining last in New England on JOI. Although underlying scores moved, the three measures that changed did not cause any variation in rank from the month before across the country.

In New England, New Hampshire leads the region, in 3rd place, nationally. Vermont remained in 12th place, and Maine in 18th. Massachusetts is still 36th, and Connecticut stands at 42nd.

New England Jobs February 2019 Race To First Place

The second chart shows the gaps between RI and New England and the United States on JOI, both staying about the same. That was true of the third chart, also, which shows the gaps in the official unemployment rate.

United States Jobs February 2019 Scores
Unemployment Rate Rhode Island Jobs February 2019

Results for the three underlying JOI factors were:

  • Job Outlook Factor (optimism that adequate work is available): RI remained 24th.
  • Freedom Factor (the level of work against reliance on welfare programs): RI remained 42nd.
  • Prosperity Factor (the financial motivation of income versus taxes): RI remained 47th.

See here for the corresponding post focusing on employment from the Ocean State Current.

This week’s “Progressive Land of Make Believe Bad Bills of the Week” are the so-called Fair Employment Practices legislation; House bill 7427 and Senate bill 2475. The legislation that could impose the most extreme employment burdens on Rhode Island businesses than in any other state in the nation.

March, 2019 – the Bad Bill of the Week: So-Called Fair Employment Practices Legislation is Immoral

Once again, politically correct legislation is being advanced in the General Assembly based on a progressive-contrived myth; legislation (H5659 and S0509) that could impose the most extreme employment burdens on Rhode Island businesses than in any other state in the nation – all for an imagined problem that does not exist!

Mandating equal income outcomes by advancing political inequality is immoral and un-American. Watch this video for more discussion and why this legislation is also not necessary:

Progressive lawmakers and activists pretend that a multitude of state and federal protections against wage discrimination, enforced by the federal Equal Employment Opportunity Commission (EEOC), do not already exist.

Currently, Rhode Island law clearly prohibits wage discrimination for “equal work” on “the same operations”. Who can disagree with this? However, the proposed legislation would blur this clear language and change the standard to “comparable work” under “similar working conditions”.

These fuzzy and divisive new regulations would be harmful to businesses, leading to frivolous complaint after frivolous complaint filed by employees against employers. Already with one of the most hostile business climates in America, Rhode Island should not impose more burdens on its valued job-producers.

Without documenting any evidence of systematic discrimination, not covered by existing law, this #Unfair2Employers legislation would set new, highly subjective wage-discrimination standards that are wholly unfair to job-producers. With ridiculous new definitions of acceptable wage determination practices, severe employer penalties will be devised and meted out by unelected government bureaucrats at the Department of Labor and Training.

Supporters of the legislation also pretends this is a “women’s rights” issue, when in fact a whole litany of politically-correct groups, favored by progressive politicians, are included in the new definitions. Existing laws cover these groups as well.

In the real world Rhode Island does not need more job-killing regulation … we simply need more education and better enforcement of existing laws.

Similarly, earlier versions of the bill in 2018 were named “Progressive Land of Make Believe Bad Bills of the Week” are the so-called Fair Employment Practices legislation; House bill 7427 and Senate bill 2475.

The Rhode Island business community is comprised not just of good business people, but also generous and fair employers. However, in the progressive land of make believe, Ocean State employers regularly practice discriminatory and bigoted compensatory practices against women and other politically-protected groups.

Suffering from retail store closings and low job numbers, Rhode Island could get a boost from an 'already-pulled' new trigger to reduce to 6.5% sales tax.

Legislation Pulls the Trigger on Sales Tax Cut to 6.5%

Bill Re-Defines Trigger to Statutorily Cut the State Sales Tax Already Pulled??

Providence, RI — Suffering from a slate of retail store closings and far fewer in-state jobs than the government once estimated, Rhode Island could get an economic boost from legislation that creates an ‘already-pulled’ new trigger to reduce the state sales tax. The bill was submitted by freshman Representative George Nardone (R, Coventry) one week after the Rhode Island Center for Freedom & Prosperity issued a policy brief calling for the state to comply with The Half-Percent Promise, its own statutory requirement to lower the state sales tax to 6.5% from its current level of 7.0%. 

To create the new trigger, the legislation (H5854) simply adds three words to existing state law (General Law 44-18-18) that mandates a cu to the sales tax rate, to read “upon passage of any federal law or court decision that authorizes states to require remote sellers to collect and remit sales and use taxes …”

“The newly defined trigger in this bill has clearly been met via a 2018 US Supreme Court decision,” said Mike Stenhouse, CEO for the Center. “However, this legislation should not even be necessary, as both the Governor and the Speaker were already given the authority in by the General Assembly 2014 to fulfill the government’s promise to the people. They can comply with state law simply by inserting the reduced sales tax rate into one of their budget lines.”

To create the new trigger, the legislation (H5854) simply adds three words to existing state law (General Law 44-18-18) that mandates a cu to the sales tax rate, to read “upon passage of any federal law or court decision that authorizes states to require remote sellers to collect and remit sales and use taxes …”

“The newly defined trigger in this bill has clearly been met via a 2018 US Supreme Court decision,” said Mike Stenhouse, CEO for the Center. “However, this legislation should not even be necessary, as both the Governor and the Speaker were already given the authority in by the General Assembly 2014 to fulfill the government’s promise to the people. They can comply with state law simply by inserting the reduced sales tax rate into one of their budget lines.”

The rationale for this law was to relieve Rhode Islanders of the additional burden of imposing a sales tax on a broader range of purchased goods, by easing the tax rate. The Center, in its 6.5% Sales Tax policy brief argued, while no actual federal law had been passed, that the original trigger threshold had effectively been met by the continued expansion of the sales tax, including remote sellers.

Doomed to lose a prized US Congressional seat because of its relative population loss,the Center’s larger “Freedom Agenda“, designed to attract more families and business to the Ocean State, stands in direct contrast to the regressive policies put forth by progressive-Democrats earlier this month. The Center’s agenda calls for specific tax and regulatory cuts, more healthcare choices, and protection of constitutional rights. A policy brief on raising the state Estate Tax exemption is expected soon.

In its Zero.Zero report many years ago, the Center’s extensive research and economic modeling calling for a full repeal, or reduction to 3.0%, of the state sales tax, as the most effective way to grow jobs, gained significant legislative interest.

We have named three extreme abortion bills as the “Bad Bills of the Week,” and encourages both pro-life and pro-choice advocates who oppose unrestricted abortions to attend a statehouse rally on Tuesday afternoon.

Bad Bills Of The Week: Unrestricted Abortions Not What Rhode Islanders Want

The Rhode Island Center for Freedom & Prosperity today named three extreme abortion bills as the “Bad Bills of the Week,” and encourages both pro-life and pro-choice advocates who oppose unrestricted abortions to attend a statehouse rally on Tuesday afternoon. 

The progressive-left legislation (H5125, H5127, S0152), which would allow abortions up until the birth of the baby, virtually without restriction, is also dishonestly being positioned as nothing more than codification of existing law. 

However, the question of “choice” vs “life” is not what is central to this specific policy debate. Instead, because the legislation would dramatically expand the definition of what constitutes a legal abortion in the state, the actual question at hand is one of “restricted” vs “unrestricted abortions.”

In summary, according to a detailed legal analysis, the legislation would:

  • Eliminate all legal restrictions on late-term abortions
  • Eliminate all restrictions on methods of abortion
  • Eliminate any penalties for experimenting on human fetuses
  • Undermine the authority of the State from adopting any restrictions on the performance of abortions
  • Require taxpayers to fund any abortion sought by a Medicaid enrollee
  • Remove “human-ness” from an unborn baby, by making its murder no longer a crime
  • Infringe on parental rights, by abrogating the “parental consent” statute from minors seeking an abortion

It is ironic and disturbing that many of the same lawmakers that have voted to systematically over-regulate legitimate businesses and industries, are the same lawmakers who want this controversial industry to be allowed to operate without any oversight or impunity.

The dishonesty arises because a recent poll clearly showed that an overwhelming majority of Rhode Islanders oppose unrestricted abortions; yet proponents of the legislation claim the public strongly supports the legislation. 

This disconnect can be explained because abortion proponents believe that current law already essentially allows for anytime-anywhere abortions; and despite the legal analysis described above, that the legislation merely codifies what already exists.

But don’t tell that to Rhode Islanders who obviously believe that existing laws do impose common-sense restrictions, while banning such brutal practices as late-term and partial-birth abortions.

“Only the most extreme radicals could possibly think that a butcher like Kermit Gosnell should be able to act with impunity in our state,” said Mike Stenhouse, the Center’s CEO. In 2013 Gosnell, a Pennsylvania abortionist, was convicted of murdering three infants who were born alive during attempted abortion procedures, and was also convicted of 21 felony counts of illegal late-term abortions and 211 counts of violating the 24-hour informed consent law.

On Tuesday, February 26, opponents of the legislation are hosting a rally at the State House for a “Day of Action” from 3:00 pm to 5:00 pm. Pre-event registration is encouraged here. Further, you can contact your local state Rep or Senator here

Governor Raimondo’s proposed "Medicaid Employer Assessment” is a new tax designed to force businesses to pay for the state’s decision to expand Medicaid.

Governor’s Proposed Medicaid Employer Assessment Tax Will cause the Same Hardship as seen in MA.

Starbucks could be driven out of Rhode Island … another step down the Rhode to Serfdom!

Progressives in the Raimondo Administration are once again seeking to punish employers for not operating their private businesses the way this government wants them to. Governor Raimondo’s proposed “Medicaid Employer Assessment” is a new tax designed to force private sector businesses to pay for the state’s costly decision to expand Medicaid earlier this decade.

In a state struggling to attract business and families; a state tragically destined to lose a prized US Congressional seat because of its relative loss of population; and a state already with a bottom-5 ranked business climate … this new business tax would make matters worse.

And if Massachusetts is our guide … much worse. Ironically, because the Bay State imposed its own “MassHealth Tax” a few years ago, proponents of this blatant money grab now say the Ocean State should follow suit. What we should all know, however, is that this corporate Medicaid tax has proven to be an “absolute disaster” for Massachusetts, harming small and large businesses alike, according to the National Federation of Independent Businesses (NFIB).

Under this proposed new tax in Rhode Island, employers would receive a bill from the government, up to $1500 for each employee who chose to opt-in to the government’s own push to increase enrollment in Medicaid. The Governor’s misguided theory is that if employees are not covered by their employer’s insurance plan, full or part time, and instead have chosen to enroll in Medicaid, then the business should be punished. Unfortunately, in many such instances, it is out of the employer’s control.

Keep in mind that an employer cannot force an employee to accept their business-offered health insurance, because in America, people (for the time being) still have some choice to choose. In many cases, the employer likely does not know which of their employees may be enrolled in Medicaid

Further, it is not the responsibility of job-producers to pay for government’s bad decisions of the past. Regardless, the government is looking for money, and once again it is blaming job-producers … the lifeblood of our economy. Even more outrageous, some members of the RI business community, who are insider cronies of the Governor, have apparently endorsed this anti-jobs tax.

As our Center predicted six years ago, when Rhode Island opted to expand Medicaid under Obamacare provisions, the massive increased costs to our state would be unaffordable, without contriving some new scheme to extract more money from taxpayers or businesses. And now, here we are.

The negative impact has been so severe for some Massachusetts’ businesses, that:

  • State lawmakers had to scramble to implement a “hardship waiver” to save them from closing their doors or moving out of state.
  • For certain high-turnover industries, with a high-proportion of part-time workers, the MassHealth Tax has been devastating. Temp agencies and large company-owned restaurant and grocery chains (like Starbucks, Chipoltle, Cracker Barrel, Dave’s, and Stop & Shop) would be especially hard hit.
  • Several MA lawmakers have filed bills to immediately repeal the MassHealth Tax even before the December 31, 2019 sunset date, because its negative impacts have been so severe for some.
  • Seasonal job-providers in MA were less likely to hire workers during the summer months and holiday season in fear of triggering the new tax

Does RI really want to risk large employers not hiring lower income individuals in search of work because they may trigger this new tax?

The proposed Rhode Island Medicaid tax is different from the Massachusetts version in two important ways:

  • Rhode Island’s Medicaid tax would initially apply only to businesses with 300 or more employees, while the MassHealth Tax would apply to large and small businesses.
  • Unlike the temporary MassHealth Tax which had a two-year sunset period, Rhode Island’s Medicaid tax would presumably go on forever … with no sunset provision. This is especially dangerous because over time, and as is the case with virtually all taxes, it is likely that this unfair tax would be extended to include more and more businesses with lower numbers of employees

In summary, this Medicaid tax has been a nightmare for employers in Massachusetts.

But in following down this same failed path, Rhode Island would put more and more Ocean Staters on the Rhode to Serfdom.

***

Related excerpts from the Governors proposed 2020 budget:

Pg. 4. Medicaid Employer Assessment: Too many Rhode Islanders are working multiple jobs without the benefit of health insurance through an employer. Medicaid is their only path to health care, placing the cost burden on taxpayers alone. The Medicaid Employer Assessment Fee charges large, for-profit employers with at least 300 employees an assessment for each employee they have on Medicaid, creating a shared investment in the health of Rhode Islanders. This is projected to generate about $14.5 million in general revenue.

Pg 15. Medicaid Employer Assessment: Too many Rhode Islanders are working multiple jobs without the benefit of health insurance through an employer. Medicaid is their only path to health care, placing the cost burden on taxpayers alone. The Governor recommends that for-profit employers of 300 employees or greater be assessed for each non-fully-disabled employee receiving Medicaid, so that these employers share the costs of Medicaid with Rhode Island taxpayers. The quarterly assessment would be 10% of those employees’ wages, capped at $1,500. This assessment, effective October 1, 2019, is expected to increase revenues by $15.6 million.

H5137, the Fair Housing Practices bill, is unfair to landlords. Under the bill, Section-8 applicants must be accepted or be victims of discrimination.

Unnecessary “Fair Housing” Bill is Unfair to Landlords!

Photo by Russ Hendricks

House bill 5137, deceptively named the Fair Housing Practices bill, which mirrors leftist-inspired legislation introduced in other states, is completely unfair to landlords. The legislation claims it seeks to end discriminatory housing practices because in the progressives’ land of social-equity, making a legitimate business decision should be a crime. Under the proposed law, any Section-8 lessee applicant (those whose rents are subsidized by the federal government) who are not accepted as a tenant, must have been discriminated against, and the landlord must be punished.

We all agree that if such discrimination were to be practiced … it would be wrong. However, this legislation is not necessary, as there already exists multiple state and federal laws that protect against discrimination. Additionally, there are multiple legitimate reasons for making certain business decisions.

The legislation would make it illegal for a landlord to inquire about a potential tenant’s source of income, or even whether they are an adult over the age of 18.

According to federal guidelines, acceptance of Section-8 vouchers is supposed be voluntary. Yet this Fair Housing Practices bill would unfairly impose a defacto state mandate on landlords to accept any Section-8 application they receive. Even if the landlord makes a legitimate and nondiscriminatory business decision otherwise, they would be at legal risk of being prosecuted for discriminatory racial actions.

Further, this legislation is a back-door RhodeMap RI type scheme to advance a social equity agenda that will only tear at the fabric of our society … by making innocent private property owners appear to be bigots.

Yes, once again, after failing in 2018, the social equity extremists are back; those who believe that their views of society should prohibit the free-choice and rights of property owners to make business decisions that are in their own best interests. Once again, RhodeMap Rhode Island and HUD (the federal department of Housing and Urban Development), and its local surrogate, the RI Housing authority, are at it again..

According to progressive logic, since people receiving Section-8 vouchers are typically low-income; and because many low-income individuals and families are minorities, then saying ‘no’ to a Section-8 applicant must be because of racism, and therefore must be discriminatory. The actual effect of this legislation, which seeks to extend government control into even more aspects of our personal and business lives, would be to subject landlords to lawsuits or other penalties by automatically assuming that discrimination was the motivating factor.

Based on conversations with landlords I know, there is a major, legitimate, and non-racial reason why some business prefer not to accept clients subsidized by public money and all the red-tape they would have to go through. In this case, once a landlord accepts a federally subsidized Section-8 tenant, that business is now subject to a whole new array of mandates, red tape, and risks that otherwise, it would not have to worry about.

Under this legislative mandate, landlords would be subject to unfair rules by HUD, which we know from the RhodeMap RI debate years ago, does not care about private property rights. HUD has corrupted its mission of putting low-income people into appropriate housing to the point where it routinely tramples on the rights of other private property owners.

Landlords would be forced to endure annual state inspections, they otherwise would not be subject to, and could even be at potential criminal risk if they did not appropriately “police” their own tenants and report to the state any potential violations Section-8 eligibility guidelines.

This legislation, avidly supported by Rhode Island Housing is a clear extension of the HUD and RhodeMap RI anti property-owner agenda.

Consider that this legislation automatically presumes that our neighborhood brothers and sisters are guilty of discrimination. Last year, our Center hosted a luncheon where the nationally acclaimed Arthur Brooks, President of the American Enterprise Institute, spoke of the “solidarity of brotherhood”, where we should work together to help “start up” the lives of those in our community. But how can it possibly be “solidarity” to automatically and divisively claim that legitimate business decisions by business owners in our community are based on bigotry?

Private business owners should be free to make the business decisions that they feel are best for them – and none should be forced to comply with onerous federal regulations, if they are allowed to choose not to. Just because the progressive-left see inequities in every aspect of our society, does not mean that government should be stepping-in to tell people how to run their businesses.

Already suffering from one of the most hostile business and legal climates in the country, Rhode Island would become an even more dangerous place to operate as a landlord. Small ‘rental property’ business owners could be forced to spend money unnecessarily to become lawyered-up like a major corporation if they were to be sued … an expense and time most cannot possibly afford. In other states where similar legislation has already been enacted, property owners are indeed being sued, and they are routinely losing in court battles, even though they may have committed no wrong.

Our state would suffer greatly if the unintended consequences of this legislation might drive some landlords out of business, or out of state, and lead to fewer available housing units.

Once again, we ask lawmakers to consider the moral and real-world impacts of such presumptive and intrusive legislation, and to understand that the issue is not a real major problem – at least not for the stated discriminatory reasons.