Center Defends Zero.Zero Report at Commission Hearing

A employee of the RI Department of Revenue, also a member of the Special Joint Legislative Commission to Study Repeal of the State Sales Tax, provided lengthy testimony at the December 3 hearing that questioned the Center’s Zero.Zero report and the modeling tool the Center utilized (STAMP) in making its jobs and revenue projections.

CEO Mike Stenhouse provided a rebuttal and also introduced a 3% sales tax scenario during his testimony.

* Read Stenhouse’s prepared remarks here …

* Watch the Capitol TV video here … Stenhouse testimony begins at the (115:45) mark. Note if link takes you to a generic page, find video in the menu from 12/3/2013.

– At the (134:20) mark the state employee says that … “It’s not a question of are we doing the right thing, or how’s that worked so far, etc …”. Really?

Zero.Zero and the Municipal Property Tax Cap

At last night’s meeting of the Special Joint Legislative Commission to Study the Sales Tax Repeal Act of 2013, Director of Revenue Analysis in the Rhode Island Department of Revenue Paul Dion stated that municipalities would be prevented from realizing the increase in local revenue that the RI Center for Freedom & Prosperity’s RI-STAMP model projects by the cap that state law places on local property tax levies.*  This is an issue that the Center investigated for our testimony on the bill, last legislative session.

The most important point in response is that Dion’s insistence that municipalities would have to forgo revenue “under current law” is largely irrelevant.  Under current law, businesses must collect a 7% sales tax.  In other words, an unprecedentedly large shift in current law would be necessary in order for municipalities to see those increases, anyway.  A relatively minor addendum to allow expansion beyond the tax cap would be a simple adjustment after the fact.

The General Assembly could make that adjustment as part of the law, creating a one-time waiver of the cap for economic reasons, or it could make the adjustment during the next legislative session, when municipalities have had a chance to review their numbers for the next year’s budget.  The legislators could also develop different language depending on their priorities.  Requiring cities and towns to seek dedicated legislation for each increase would provide the greatest protection for taxpayers; allowing the Division of Municipal Finance greater leeway in granting waivers would provide significantly less protection for taxpayers, but place less burden on local officials.

Beyond the possibility of new legislation, however, Dion’s objection made no reference to the different sources of local revenue or to the allowances already in the law for exceeding the tax cap.

According to the regulations that the state Division of Municipal Finance has implemented, the tax cap applies only to the property tax levy.  Regulation 2.08 explicitly excludes “licenses and fees” and “other miscellaneous municipal revenue” from that calculation.  Removing such items from the RI-STAMP projection leaves $117.96 million of the projected increase that would actually be subject to the cap.

The same regulation also lists the various sources of state revenue that should not be counted under the cap, which includes “meals and beverage tax distributions” (representing a sales tax).  Combined with state General Law 44-5-2(d)(1), which allows a municipality to exceed the cap if it “forecasts or experiences a loss in total non-property tax revenues,” this means that the cities and towns could exceed the cap by any amount that the state reduces aid directly because of the eliminated sales tax, or any other amount that the state determines to be advisable as part of the tax reform.

RI-STAMP estimates the direct loss in sales tax revenue to municipalities at $14.41 million, which would bring the amount of the overall projected increase subject to the cap down to $103.55 million.

Additionally, under General Law 44-5-2(d)(4), a city or town can exceed the tax cap if it experiences “substantial growth in its tax base” that necessitates new or additional municipal services.  There would be some nuance, here, depending on the degree to which the growth is related to new construction, but there would likely be significant room to maneuver in the budget.

Finally, municipalities could choose, rather than exceed the cap, to pass on the benefit to residents in the form of property tax relief.  Put in budgetary terms, the cities and towns would be making tax revenue expenditures that are not subject to the tax cap, because they reduce the tax levy, rather than expand it.

Putting some numbers to the analysis, data on the Municipal Affairs Web site (collected last spring for the purposes of the Center’s testimony**) projected FY12 property tax revenue for all cities and towns at $2.1 billion.  Applying the STAMP increase that is subject to the cap to that amount suggests an increase of 5.58%.  (That’s a high estimate, because levies have grown since then.)  Assuming all cities and towns exceed the cap by the lost sales-tax revenue, the increase would be 4.90%.

The Center’s recommended approach would therefore be for Rhode Island’s cities and towns to take the windfall of a one-year increase of property taxes at the state cap, plus the amount needed to adjust for lost sales tax revenue, and then to reduce their property tax rates in order to provide the remaining $19.02 million dollars as tax relief for residents, who are still struggling to recover from the recession and subsequent lack of growth.


* These calculations assume instant implementation of Zero.Zero with the new fiscal year in July. The actual legislation submitted last year put implementation off until October, which would likely reduce the first-year property tax levy increase.

** A quick review this morning did not confirm this number, but it is presented here for illustrative purposes only.

3% Sales Tax Rate May Provide Best Value

Would other sales tax reduction scenarios be more politically viable? Read our new report, which shows that a 3% sales tax rate produces the most jobs at the lowest budget investment per job.

[button url=”″ target=”_self” size=”medium” style=”royalblue” ]Report: Alternative Sales Tax Cut Scenarios[/button]

Alternative Sales Tax Reduction Scenarios

Download report (PDF)


In November 2013, members of the Joint Legislative Commission to Study Repeal of the Rhode Island State Sales Tax requested that the Center summarize sales tax reduction scenarios, compared with the Zero.Zero plan under review.

Compliance costs for businesses, it is important to note, are not eliminated in any scenarios that do not eliminate the sales tax. The unfunded mandate of identifying, calculating, charging, collecting, reporting, and remitting sales tax revenue to the state, as well as costs for bookkeeping, accounting, and legal services, would remain.

Compliance costs would theoretically be the same with a 1% or a 7% sales tax. Furthermore, businesses would still be subject to penalty and interest charges on any past due taxes owed, maintaining an obstacle to keeping their doors open.


The charts and table in this report display some of the more critical aspects of alternative sales tax reform scenarios. Significant findings include:

  • Sales tax reductions create the most jobs and the lowest budget “investment per job” compared with income and corporate tax reforms.
  • In all sales tax reduction scenarios except full repeal, the state will directly realize a dynamic revenue boost from increased sales volume.
  • A 0.0% sales tax rate creates the most jobs but requires the largest overall budget investment.
  • A 3.0% sales tax rate yields the most value, with the lowest state-budget investment per job and a net revenue gain, with municipalities included.
  • Phasing out the sales tax produces a similar number of jobs, but suppresses the dynamic increase in other tax revenue.

Media Release: December 2, 2013

Providence, RI — The Rhode Island Center for Freedom and Prosperity published today a new report – detailing alternative sales tax reduction scenarios – in advance of Tuesday’s hearing of the Special Joint Legislative Commission that will meet for the sixth time at the State House to evaluate repeal of the state sales tax. At the request of the Commission, the Center analyzed a number of sales tax cut options, to be compared with its original Zero.Zero plan to bring the sales tax to 0.0%. All sales tax cut scenarios will have the effect of saving money for every family and business in the state and will create thousands or tens of thousands of new jobs.

In the new report, alternative sales tax rates and phase-out options are explored; and the effect of sales tax reform is compared with other tax reforms; also. The report shows that a 3% sales tax rate would produce up to 14,000 new jobs, about 11,000 less than if the tax was eliminated, but would do so with the lowest budget investment per job.

“Because we need the jobs, our Center is still recommending complete repeal. However, the 3% scenario may be a good compromise for those concerned with the state budget”, said Mike Stenhouse, CEO for the nonpartisan Center. “Importantly, though, any partial sales tax cut scenario does not lower the cost of compliance for this unfunded mandate on the business sector”.

The report includes multiple charts and tables of the various scenarios, including a detailed jobs and revenue projection of the 3% scenario as compared with the Zero.Zero plan. Stenhouse will provide further details about the report’s findings at tomorrow’s Commission hearing.

Download report (PDF)

Center Testifies at Sales Tax Repeal Commission Hearings

Below are copies of remarks from CEO Mike Stenhouse at the Joint Legislative Commission Hearings that began in September of 2013:

October 29 Hearing:  2013-Oct29-Stenhouse-CommissionTestimony3

    • Don Russell “Must See” Video below: how an over punitive sales tax penalty process shut his business down

October 21 Hearing:  2013-Oct21-Stenhouse-CommissionTestimony2

September 29:  2013-Stenhouse-CommissionTestimony1

0.0% Sales Tax States: How Do They Do It?

See Testimony at Special Joint Legislative Commission to study repeal:

Download Full Report (PDF)


  • Non-sales-tax states have higher revenue per capita than Rhode Island in certain key areas, without necessarily taxing at a higher rate.
  • The overall tax structures of non-sales-tax states do not rely on high rates in multiple categories.
  • Despite Rhode Island’s high taxation in all available categories, revenue in non-sales-tax states proved more resilient than in RI during the economic crisis, falling less and recovering more quickly, at and above the national average.
  • Non-sales-tax states manage to spend more per capita on critical government activities than RI, such as infrastructure and education.
  • The exception, where non-sales-tax states reduce their spending relative to Rhode Island, is in social welfare/wealth redistribution.
  • Non-sales-tax states have all seen net taxpayer migration from other states to them; Rhode Island has gone the other way.
  • The employment situation is healthier in non-sales-tax states than in Rhode Island.
  • Studies show residents will cross borders to shop in states without sales taxes.
  • The high population density across Rhode Island’s borders is likely to amplify the benefit to the state.

Center Assembles Expert Panel for Sales Tax Hearing


Providence, RI — Hailed as the largest tax cut and economic stimulus plan the state of Rhode Island has ever considered, an expert panel has been assembled by the RI Center for Freedom & Prosperity to testify at Wednesday’s hearing of the “Sales Tax Repeal Act of 2013” (H-5365) in front of the RI House Finance Committee on May 15, at 1:00 pm in Room 35 at the RI State House.

The panel is comprised of: Scott Moody, the national economist who authored the original Zero.Zero Sales Tax report in 2012, which inspired the bill sponsored by Rep. Jan Mailik (D-67); Paul Bachman, from the Beacon Hill Institute, which developed the STAMP modeling program that produced the job and revenue projections used in the Zero.Zero reports; the Center’s CEO, Mike Stenhouse; and the Center’s research director, Justin Katz.

The updated 2013 Zero.Zero report showed that as little as $105 million in budget savings could put the Ocean State on the path towards 25,000 new jobs and a re-invigorated economy, if the state were to repeal its onerous sales and meals tax.

“This is the only game-changing reform idea out there for a state economy that desperately needs a game-changing idea”, said Stenhouse. “This is a reform that would immediately save money for every family and business, and that would attract out-of-state shoppers to our state. Because of the regressive nature of the sales tax – and eliminating it would help low-income families most – we are seeing support from across the political spectrum. We invite all members of the public to attend the hearing and see how this plan can put Rhode Islanders back to work.”

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.

Zero. Zero 2013

Eliminate the state sales tax to create jobs. The Rhode Island Center for Freedom & Prosperity proposes the elimination of Rhode Island’s sales tax as a means of high-impact economic development.

[button url=”” target=”_self” size=”small” style=”royalblue” ]Read More…[/button]

Zero.Zero 2013

ELIMINATE THE STATE SALES TAX TO CREATE JOBS: The RI Center for Freedom & Prosperity proposes the elimination of Rhode Island’s sales tax as a means of high-impact economic development. Our RI-STAMP economic model suggests that the loss in state revenue would not be as large as static projections might suggest and would be well worth the boon to Rhode Islanders across the state.

A 0.0% sales tax would bring an economic boom to RI

Zero.Zero 2012

Related Links: view complete Zero.Zero brief as a PDF; view economic and revenue projections here; view Zero.Zero Executive Summary here; view Zero.Zero media release here; go to Zero.Zero home page; Report Card on RI Competitiveness


In January of 2013,  Massachusett’s Governor, Deval Patrick, proposed cutting the Bay State sales tax from 6.5% to 4.5%. This could be a devastating blow to Rhode Island’s already fragile economy.

Competition among states is real, and it is clear that the Ocean State is losing its bid for people, money, businesses, and jobs. Public policy is not enacted in a vacuum; when a state makes changes to its policies — whether dealing with taxes or regulations — its overall image and competitiveness are affected.

In order to generate money to pay for Rhode Island’s growing appetite for public spending, the state has been forced to acquire new sources of revenue via tax and fee increases. This failed culture of trying to tax our way to a better future has steadily degraded the state’s ability to maintain and attract the critical human and capital resources required to grow its economy.

The RI Center for Freedom & Prosperity’s recently released Report Card on Rhode Island Competitiveness demonstrates how the state’s burdensome tax structure has weakened its competitive status versus other states in securing the necessary building blocks for a vibrant economy. The report card grades both the state’s overall tax burden and its business climate as Fs. In fact, 27 of 49 areas are graded F. With proposals to raise taxes even higher, fiscal irresponsibility and fears of a double-dip recession in the state persist.

Rhode Island needs a reboot. Our state must reverse course and embark on a different path that will restore prosperity, beginning with a firm statement of its future intentions. A new culture must take root — one that appreciates the power of unleashing, rather than restricting, the great potential of individuals and businesses.

Many states across the country have embarked on aggressive tax-reform paths designed to foster economic growth. States with no income tax outperform their high-tax counterparts across the board — in gross state product growth, population growth, job growth, and, perhaps shockingly, even tax-receipt growth. Over the last decade, on net, more than 4.2 million individuals have moved out of the ten states with the highest state and local tax burdens (measured as a percentage of personal income). Conversely, more than 2.8 million Americans migrated to the ten states with the lowest tax burdens.

Our New England sister, New Hampshire, has a significantly higher-performing economy as a result of its dramatically lower overall tax burden, providing the Ocean State with ample empirical evidence. If Rhode Island is to keep pace, it too must embrace market-driven policies that acknowledge the importance of incentives and disincentives as well as the reality of taxpayer mobility.

In short, Rhode Islanders must decide whether they want to stay on their current path and simply hope for change or should boldly shift gears and move toward a new path of fiscal sustainability.

Policy Proposition: Eliminate the State Sales Tax

In seeking the single most-effective tax reform providing the most-immediate impact to the most-pressing problem in the Ocean State — jobs — the Center for Freedom & Prosperity determined that the state sales tax would be an auspicious place to start. Mainly, the more mobile the factors being taxed, the larger and more immediate the response to tax rate changes. Consumer shopping habits are highly mobile, and cross-border shopping is especially convenient for Rhode Islanders and their neighbors.

While Rhode Island requires broad reform, making tax policy more efficient across multiple categories, our Center simulated and projected the economic effect if Rhode Island were to follow New Hampshire’s proven path and completely eliminate the state sales tax. With any significant reduction in the state sales tax, a few important benefits would arise for the Ocean State:

  1. Hundreds of millions of dollars would be put back into the state economy.
  2. Tens of thousands of jobs would be created.
  3. Municipalities would collectively realize a windfall of tens or hundreds of millions of dollars.
  4. Gross domestic (state) product would increase by billions of dollars.
  5. State population, and the state tax base, would increase by thousands of people.
  6. State revenue losses would be less than static expectations because of the positive and “dynamic” economic effects that would be realized.

In short, Rhode Islanders’ decision is whether or not increased jobs, increased GDP, economic growth, and increased revenue for our cities and towns are worth some reduction in state spending.


Problems with the Retail Sales Tax

Unfortunately, there are so many problems with Rhode Island’s tax code that it is almost impossible to know where to begin correcting them. There are simply too many high taxes in the Ocean State.

As an overriding goal, Rhode Island needs to start pruning the tax tree, and the best starting point is the single tax that, in the aggregate, is the most damaging to Rhode Island’s overall economy: the retail sales tax. There are several reasons that the sales tax is especially troublesome.

1. The general assumption that broadening the sales tax base is always a good idea is flawed.

The retail sales tax in the United States arose in response to the economic damage created by the gross receipts tax (GRT), which was more prevalent a century ago. The tax base of the GRT is the total receipts of a business, which maximizes the economically destructive “tax pyramiding” through the entire production structure of the economy.

To fix this problem, exemptions were created to transform the GRT into a retail sales tax that more resembled a consumption tax. However, due to the problem of “dual use,” whereby a good or service can be used for either business or personal reasons, exemptions have proven to be a crude and often ineffective way to create a pure consumption tax. Simply eliminating exemptions, especially on services, would only serve to rebuild the GRT Frankenstein piece by piece.

A study by the Council on State Taxation explains, “The current state and local sales tax differs from a true or ideal retail sales tax. A true retail sales tax would impose a uniform tax only on consumption — all goods and services sold to households — but would not impose any tax on business purchases of intermediate goods and services. The current sales tax system imposes over $100 billion of taxes on business purchases of business inputs and investments. This type of tax has significant adverse state economic development implications.”

The study found that 49.2 percent of Rhode Island’s sales tax is paid by businesses — higher than the national average of 42.8 percent.

2. The sales tax is a tax on investment.

Since the retail sales tax can never be fully eliminated on business inputs, the sales tax is ultimately a tax on investment. It is especially detrimental to the manufacturing and construction industries when their materials costs are subject to the sales tax. That raises the cost not only to the final consumer, but also to the companies themselves, since their suppliers are subject to the same tax on their materials. The end result is less money available for future investments, compounding over time.

In fact, Dr. Mark Crain, using a rigorous econometric analysis, found that “states suffer a substantial penalty for levying a marginal sales tax rate that is high in relation to other states. Of course, the reverse also applies. Substantial economic benefits redound to states with relatively low marginal sales tax rates … intuitively, the impact of the sales tax is analogous to a general, broad-based increase in the cost of production.”

3. The sales tax promotes consumer mobility.

Another negative aspect of the sales tax is that consumers are mobile and can easily shop online or in lower-tax jurisdictions — especially in Rhode Island, which not only is the smallest geographic state in the country, but also has the highest sales tax in the region. As a result, cross-border and Internet shopping are undermining the viability of the sales tax.

Studies show that New Hampshire, which does not have a sales tax, economically benefits from cross-border shopping from neighboring Maine and Vermont. In Maine, retail sales could be as much as $2.2 billion higher per year along the border if Maine had the same level of retail sales as New Hampshire. In Vermont, retail sales could be as much as $540 million higher per year, with an additional 3,000 more retail jobs.

Dr. Roger E. Brinner and Dr. Joyce Brinner find that sales tax–induced cross-border shopping can have broad negative effects: “a 1% point increase in the sales tax rate can cut about 2.6% from state output growth over a decade … consumers choose their buying locations to find relative bargains; if they can escape a tax by hopping across a nearby border to buy goods with lower excise or sales taxes, they will do so. Many other studies have found strong evidence of cross-border retail impacts, and these simple regressions confirm the statewide damage than can be caused.”

For these reasons, elimination of Rhode Island’s sales tax can be supported as a solid public policy option. However, it is important to note (given that Rhode Island’s overall tax burden grade is an F) that there are other tax changes that must be considered as part of a larger tax reform policy for the Ocean State.

Positive Economic Impact

If the state retail sales tax were to be eliminated, the Ocean State would realize multiple economic benefits before the new economic equilibrium has been reached. As projected by RI-STAMP, our economic modeling tool, Rhode Island would see the following:

  • Over 21,000 new private sector jobs, reducing unemployment by over three points
  • Up to $160 million in additional annual tax revenue to cities and towns
  • An additional $1 billion available to spend in the state’s economy
  • An increase of over $500 million in tax receipts
  • Almost $500 million in new capital investment in the state

Is the Tax Cut Revenue Neutral?

Not quite. The state of Rhode Island would indeed see lower net receipts from elimination of or reductions in the state sales tax. However, net losses would not be as much as most would anticipate using a static (straight-line) calculation. There are three primary reasons that the dynamic effect would greatly mitigate actual revenue losses:

  • A lower retail sales tax would spur additional retail sales. With increased in-state and cross-border shopping as a result, the state would be taking a smaller sales tax slice, but from a bigger pie. Under a four-year phase-out of the sales tax, this new revenue would pay for about 20% of the anticipated sales tax losses in the first three years.
  • Increased receipts from other taxes. With the personal and business tax base expanded because of the new job creation, and with increased levels of economic activity in the state, receipts from other taxes and fees would pay for over 50% of the anticipated sales tax losses. Such receipts would come from projected increases in receipts from personal income taxes, corporate taxes, cigarette taxes, and others.
  • Administrative costs. The state bears the full cost of enforcing the sales tax. If the state sales tax is completely eliminated, several dozens of state jobs dealing with collection and enforcement of the sales tax could be eliminated each year during the phase-out period. With 207 full-time equivalents (FTEs) currently proposed for fiscal 2013 and a total budget of about $21.3 million, the state’s Division of Taxation may eventually be able to reduce its budget by approximately one-third. These personnel savings would compensate for an additional 5–6% of the revenue losses in the first three years. It is also anticipated that these jobs could be absorbed into the new growth economy.

Other Benefits to the Economy and Implementation

Separate from the question of state revenue, the issue of sales tax compliance costs is a serious one for most businesses. Sales taxes are particularly onerous, since the taxability of goods and services can vary greatly — even within a single business establishment — and virtually all businesses would save administrative and/or service costs by not having to categorize, collect, track, and remit sales tax revenue to the state. These savings are not estimated in this report but represent a benefit in addition to those conveyed in the RI-STAMP projections.

The Center for Freedom & Prosperity makes no specific recommendation as to how to implement elimination of the state sales tax. (See Attachment A for a schedule of projected revenue and economic impact measurements.) Rather, the primary goal is to demonstrate that cutting taxes provides an alternative path when considering how to put Rhode Island’s economy back onto a solid competitive footing.

Actual implementation of this plan will depend largely on the political willpower of public officials and citizens, and their willingness to embrace a new culture that seeks to enhance the state’s competitiveness instead of seeking to perpetuate the status quo. Options for implementation include:

  1. Four-year phase out of the state sales tax. Pros to this approach include less-dramatic year-to-year revenue losses and associated budget cuts. Cons include “cold feet syndrome,” whereby legislators may reverse course at some point during the phase-out period (as they have done with the planned car tax phase-out, not to mention income tax reforms like the flat tax) and the opportunity for neighboring states to respond before the full effects of the sales tax elimination actually take place.
  2. Immediate elimination of the state sales tax. Pros to this approach include a more immediate economic impact and realization of new jobs, with less chance for competing states to react. Cons include the need for larger near-term budget cuts and the difficulty of projecting actual revenue one, two, and three years out.

Balancing the Budget

It is expected that the four-year phase-out would be the most politically viable option. With the sales tax elimination potentially paying for up to 75% of itself in the early years, the important question becomes how to budget for the loss of the remaining 25% in order to balance the state budget on an ongoing basis.

Some combination of the following budget items could make up for much of this difference:

  • Control budget growth. The least painful option would be to control budget growth during the phase-out years. As Figure 1 illustrates, a four-year phase-out of Rhode Island’s sales tax would be no more dramatic than the adjustments that the state government has been making to its enacted budgets year after year.

Figure 1. Sales Tax Phase Out Effect in Context of Historical Actual Adjustments to Enacted Budgets

  • Furthermore, the state’s budget has been growing so much more quickly than inflation and population changes alone would justify that the General Assembly’s proposed 2013 budget is 26.24% larger than it would be using a 2001 baseline. Figure 2 shows that even immediate full elimination of the sales tax would represent a relatively minor adjustment toward that level of spending, returning state government to a budget a little below its 2011 level. Once again, New Hampshire provides an example — that government growth can reverse — with actual policy changes implementing over $600 million in cuts to its 2013 budget.

Figure 2. Actual Budgets Versus Inflation and Population (2001 Baseline)

  • Eliminate corporate welfare. Eliminating approximately $50 million per year in systematized corporate handouts, in addition to slush funds like the $125 million in loan guarantees RIEDC was authorized to risk on special cronyism deals with connected companies, would also go a long way toward mitigating any remaining budget cuts that may be necessary to pay for elimination of the state sales tax.
  • Apply the FY12 $81.4 million budget surplus. If we are serious about revitalizing our state in the manner described in this brief, we must immediately prioritize spending and revenue toward this end. There is no time like the present. This $81.4 million would cover over one year of the budget cuts necessary to pay for elimination of the sales tax.
  • Reduction in government jobs. The administrative savings of 75 jobs, or about $7 million per year as described previously, can also help pay for some of the cost. As collection and enforcement of the current state sales tax will eventually no longer be needed, certain savings in this area can be realized.


Recent performance indexes make it clear that Rhode Island is on the wrong path, and only dramatic reform can produce dramatic results. While a broad package of tax and regulatory reform is required, the elimination of the state sales tax would mark a bold — yet viable — change of course.

When presented with the dire economic circumstances currently facing the Ocean State, all legitimate options to improve our state must be considered. While the elimination of a tax that provides approximately $1 billion in revenue to the state each year may seem extreme at first glance, legislators and the general public should seriously consider the facts, projections, and theories discussed in this report.


Economic Modeling: There is a common and fundamental miscalculation when it comes to projecting the effects of tax policy on tax receipts. Too often, the more short-sighted and simplistic static (straight-line) calculation is utilized, when in reality the more complex dynamic impact should be evaluated. The downstream ripple effects of tax policy on various aspects of the economy and upon other tax receipts and fees are rarely discussed or attempted to be quantified, either at the state or municipal level. RI-STAMP seeks to fill this gap.

Developed by the Beacon Hill Institute at Suffolk University, RI-STAMP is a customized, comprehensive model of the RI state economy, designed to capture the principal effects of city tax changes on that economy. In general STAMP is a five-year dynamic computable general equilibrium (CGE) tax model. As such, it provides a mathematical description of the economic relationships among producers, households, government and the rest of the world. It is general in the sense that it takes all the important markets and flows into account. It is an equilibrium model because it assumes that demand equals supply in every market (goods and services, labor and capital); this is achieved by allowing prices to adjust within the model (i.e., prices are endogenous). The model is computable because it can be used to generate numeric solutions to concrete policy and tax changes. And it is a tax model because it pays particular attention to identifying the role played by different taxes.

RI-STAMP has been accurate in projecting the effects of recent changes to tax policy in Massachusetts and New York City, among other locales.