PROVIDENCE — Governor Carcieri told a radio talk show audience yesterday that he would “love to find a way” to eliminate the state income tax.
But he stopped short of saying he will ask the General Assembly to eliminate a tax that provides a third of the state’s general revenue — more than $1.1 billion, at a time when the state is already struggling to pay its bills amid plunging tax receipts, a mounting deficit and the highest unemployment rate in the nation.
Asked in a later interview if what he said on radio — a week before Election Day — amounted to a pledge to seek repeal of the tax, Carcieri said: “No. It’s not going to happen in the year that begins January 1. OK? What I am trying to do is precipitate a conversation about tax policy... [because] we are where we are right now because of bad tax policy.
“We’ve made some changes,” he said in reference to recent moves to cap year-to-year property tax increases, reduce the state’s capital gains tax and provide a flat-tax option that cuts the income tax rate for the state’s wealthiest taxpayers. “But clearly they are not having an impact fast enough … We’ve got to do more dramatic things from a tax policy standpoint to hang out the sign that we’re open for business … because we’ve got to grow jobs.”
In response to Republican Carcieri’s on-air comments, Democratic House Speaker William J. Murphy said: “Given a choice, all Rhode Islanders would prefer not to pay taxes.”
But, “again, one week before the election, the governor has a sound bite, not a sound plan. Where is the governor going to find the $1.1 billion that Rhode Island would lose in general revenue?” Murphy said.
Carcieri had no immediate answer though he said he did not assume Rhode Island government would make do without the money. He said he would rather tax “consumption,” than income, and anxiously awaits a recommendation he expects next month from a tax-policy study group to “reform and completely change in some dramatic ways our tax structure.”
As an example, he said: “It’s what you tax … Don’t tax income. Allow people to make it, companies to make all that they can make and you don’t tax it, let them keep everything. You get your revenue when they spend it … the sales tax, the gross receipts tax. There’s all kinds of things you can do … but we haven’t even got that far.”
Rhode Island is one of 42 states with a personal income tax. Those without — or with virtually no — income tax include New Hampshire (which taxes investment interest and dividends only), Tennessee, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
In general, the calculation of Rhode Island income tax begins with federal adjusted gross income, a figure found on the front page of the federal income-tax return. After claiming deductions and other items, you arrive at Rhode Island taxable income, which is taxed at rates that range from 3.75 percent to 9.9 percent of Rhode Island taxable income. Taxpayers can opt for a flat-tax alternative: 7 percent of federal adjusted gross income, with no exemptions or deductions, but that primarily benefits people making more than $250,000 a year.
This year alone, the state’s income tax is expected to generate $1,124,235,000 for the state and the corporate income tax $161 million. The relative weight of Rhode Island’s tax burden has been described in different ways. According to a group that Carcieri cites often, the Washington-based Tax Foundation, Rhode Island has dropped from 4th-highest to 10th-highest in the nation in per capita state and local taxes, including property taxes.
Rhode Island’s Department of Revenue ranked the tax burden, as a percentage of personal income, as 11th-highest, with Connecticut in 20th place and Massachusetts in 37th. But this view of Rhode Island includes the property tax. Looked at piece by piece, Rhode Island ranks 24th-highest in the percentage of personal income gobbled up by personal income taxes and by the same measure, 28th-highest in corporate income taxes and 38th in sales taxes.
Carcieri began his day with WPRO talk show host John DePetro saying: “Let people keep the income. I would love to find a way to eliminate the income tax and let people keep whatever they make and then let them decide you know how they are going to spend … [and then] take the revenue that we need to support the things that we want to do when people spend the money.”
Carcieri said his on-air statements were prompted by a recent story in The New York Times about Rhode Island’s highest-in-the-nation unemployment rate and the “not very nice” statements that former General Electric CEO Jack Welch said about Rhode Island’s history of “driving away” business with high tax rates in a interview last weekend on ABC with George Stephanopoulos.
Carcieri said he didn’t like what he heard, but couldn’t argue: “We’ve had tax policies in my judgment that have driven away business, driven away people who have done well. They all leave when they retire and go to Florida and other jurisdictions … We need to be in a more competitive position.”
With his comments, Carcieri said he hoped to “flag up a discussion that needs to take place in the next session. That’s what I am trying to set the stage for.”
