Current and Former RIPEC Heads at Odds: One Says Tax Rhode Island Rich More, Other Says Don't

Current and Former RIPEC Heads at Odds: One Says Tax Rhode Island Rich More, Other Says Don't

The current and former Presidents of the Rhode Island Public Expenditure Council are at odds about how to improve Rhode Island's economic standing. 

On Tuesday, following Rhode Island's ranking of 37th for "business tax climate" by the Washington, D.C. Tax Foundation, RIPEC put forth suggestions (see more below), to improve the state's position. 

Number one? Don't further tax "high wage" earners. 

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In November, however, former RIPEC Executive Director Gary Sasse urged the RI General Assembly to "add a bracket to the state’s individual income tax for those earning over $400,000 at a tax rate of seven percent provided the proceeds are earmarked for educational enhancements."

"In my opinion, enacting a new tax bracket for personal income exceeding $400,000 at a seven percent rate should not have a negative impact on economic competitiveness," said Sasse, adding "provided that the proceeds are earmarked to enhance educational opportunities for kids to succeed in the 21St Century post-pandemic economy."

Rhode Island's latest ranking of 37 is an improvement of two positions over 2020. 
 
“As the state faces a more challenging economic environment as a result of the pandemic, policymakers need to be even more vigilant to protect the progress we have made over the years and to continue to improve the competitiveness of our broad-based taxes," said RIPEC President and CEO Michael DiBiase on Tuesday. 

RIPEC's Recommendations

RIPEC issued the following recommendations on Tuesday.

1. Resist current proposals to increase individual income tax rates for high wage earners. The great majority of businesses in Rhode Island are organized as S corporations, sole proprietorships, and partnerships, and report their profits through the individual income tax. Rhode Island’s ranking of 29th for this Index category is already in the bottom half of states, and is considerably less competitive than Massachusetts (ranked 11th). 

2. Explore changes to make the corporate income tax more favorable to business. Despite improving its ranking for this category from 39th in 2015 to 30th in 2018, Rhode Island’s rating has slipped back to 39th in the most recent Index, largely because of decisions to forego state tax law changes consistent with the federal Tax Cuts and Jobs Act (TCJA) of 2017. 

3. Continue to improve its ranking in the category of property taxes. While the Ocean State has moved from a ranking of 47th in 2016 to 42nd in the most current Index and is ranked more favorably than both Massachusetts and Connecticut, this tax category continues to deserve greater focus from policymakers. 

4. Unemployment insurance taxes in Rhode Island remain an area for potential improvement. UI taxes have taken on greater importance given the COVID-19 pandemic and the unemployment crisis, which has significantly drained Rhode Island’s UI trust fund reserves and will necessitate future UI tax increases for employers.

RIPEC’s full analysis is available here.