VIDEO: Rhode Island is No Longer Tax Hell, Says Sasse

Tuesday, December 18, 2018

 

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Gary Sasse, heads the Hassenfeld Institute at Bryant University

In his 2009 State of the State Address Governor Donald Carcieri told the General Assembly, "I am tired of people writing stories that Rhode Island is tax hell." Perceptions linger, but today it is inaccurate to characterize the Ocean State as a non-competitive tax outlier, much less tax hell.

Interstate tax rankings are imperfect. Results may vary based upon the measurements employed. Commonly used rankings of interstate tax burdens include; per capita tax collections, tax collections per $1,000 of personal income, representative taxpayer models, effective tax rates, and business tax climate and costs.

Per capita tax collections are frequently used to rank interstate tax burdens, and are the least meaningful.  Such rankings are questionable because similar tax collections can show lower per capita tax burdens in densely populated states. Also, this measurement does not consider taxes paid by non-residents or the unique characteristics of a state’s economy.

Total per capita tax collections can also result in specious ranking conclusions. Rhode Island’s aggregate per capita tax collections are the 12th highest among the states---11.8 percent above the national average.  Looking at the major tax sources a different picture emerges. Rhode Island’s per capita sales tax collections rank 36th, 21. 5 percent below the national average. Individual income tax collections are marginally less than the U.S. average and ranked 19th.

Gary Sasse and Josh Fenton discuss RI tax structure on GoLocal LIVE 

Conversely, per capita property tax collections are off the charts. The Ocean State’s per capita property tax collections are 54 percent higher than the U.S. average. As James Carville might have opined, “It’s the property tax stupid.”

Relating tax collection to an economic variable more accurately measures state tax burdens.  A prevalent way to do this is to consider state and local tax collections as a percentage of personal income.

Rhode Island ranked 7th nationally in tax paid per $1,000 of personal income. This ranking was driven by high property taxes. The State ranked 27th in individual income tax paid per $1,000 of income, 38th in sales taxes, and 26th for all other taxes. As with most things the devil is in the details.

Per capita tax collections and taxes paid per $1,000 of personal income shed limited light on who is actually paying taxes. A low tax state might place a high burden on low and middle-income taxpayers or may disproportionately tax business.

The liberal Institute on Taxation and Economic Policy does a distributional analysis of all state tax systems. In its October 2018 report ""Who Pays?” Rhode Island was found to have the 19th most equitable tax system.   This finding is another indication that Rhode Island can hardly be described as a tax hell and is competitive from an equity perspective.

Another way to gauge interstate tax rankings is to calculate the tax burdens of typical taxpayers and households. The District of Columbia prepared such a report by estimating the consumption patterns, housing costs, income sources and family size for households in the largest city in each of the 50 states. The District then ranks tax burden by income groups. In 2016 a Providence family earning $50,000 ranked 16th highest, and a family with a $100,000 income 14th.  Providence ranking was as close to the middle as the bottom.

Over the past decade, Rhode Island’s business taxes have become significantly more competitive. The conservative Tax Foundation annually publishes a business tax climate index. In 2008 the Ocean State’s business tax climate was the worst among the 50 states. The Foundation’s 2019 ranking had Rhode Island at 37th, no longer in the “terrible ten”.

The job of improving Rhode Island’s tax system is always a work in progress. Additional initiatives should be considered to improve tax efficiency, fairness and competitiveness. This is particularly the case with property taxes.

While Rhode Island is not a low tax state, the perception that it is a high tax state should be reconsidered. It is unlikely that a future governor will come before the legislature and say, “I am tired of Rhode Island being called a tax hell.”

Gary Sasse heads the Hassenfeld Institute at Bryant University

 
 

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