Gary Sasse: Small Wins Strategy—A Case for Business Tax Reform

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Wednesday, April 09, 2014

Gary Sasse, GoLocalProv MINDSETTER

Once a small win has been realized, forces are unleashed that favors another small win, believes Gary Sasse.

The March employment report shows that U.S. businesses finally added enough jobs to replace the 8.8 million that were lost during the Great Recession. While making gains, Rhode Island has only made-up about one-half of the jobs it saw disappear during the recession.

While the Rhode Island Foundation’s “Make It Happen” initiative has been aimed at jump-starting the economy, the efforts by the State’s public policy makers has not been outstanding.

On a positive note, a Rhode Island Senate report “Rhode To Work’ has focused on several programs to help get Rhode Islanders back to work and prepare them for a changing workplace. For this program to achieve meaningful results it should be funded at scale and be user–friendly. Also the recently elected Speaker has proclaimed the House’s top priority this year would be jobs and the economy.

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Last year the General Assembly gave priority to legislation reorganizing the state’s economic development structure. The legislature did not target “bread and butter’ programs to improve the overall business climate. While reorganization was needed, its success is always dependent upon a committed and enthusiastic chief executive. Therefore, it should be no surprise that the majority of organizational modifications were not scheduled to go into effect until the next gubernatorial term. Given the Ocean State’s tepid economic recovery, 2013 may have been a year of lost opportunity.

Small wins strategy

What is urgently needed is a small but significant win that will help reduce the cost of doing business and improve the productivity of the Rhode Island economy. In the classic article Small Wins-Redefining the Scale of Social Problems organizational theorist Karl E. Weick defines a small win “as a concrete, complete, implemented outcome of moderate importance.” Weick goes on to point-out that “Small wins are controllable opportunities to produce visible results.”

Small wins have been designed and implemented in different situations. A struggling football team’s small win of an initial first down has changed the momentum of games and entire seasons. The goal of Alcoholics Anonymous is to stay sober one day at a time. One of the best examples of a leader using a small wins strategy was President Dwight Eisenhower’s approach to building a consensus and reaching a final agreement for the D-Day Invasion.

Small wins strategy works because it produces a consistent pattern of winning. Once a small win has been realized, forces are unleashed that favors another small win. As Coach Paul “Bear” Bryant said; “Winning isn’t everything, but it beats anything that comes in second.” To succeed a small wins strategy must be specific, doable, and have an immediate impact.

Improving RI’s business tax structure

There are several challenges that the General Assembly can address in the coming weeks that can result in small but concrete economic development wins for Rhode Island families and businesses. One of these would be to take meaningful steps to improve Rhode Island’s business tax structure.

Rhode Island’s corporate income tax rate is one of the highest in the nation and the highest in New England. The Tax Foundation’s “Business Tax Climate Index” ranked the Ocean State’s corporate income tax 43^rd. A rank of “one” is assigned to the state tax that is the most favorable.

The Rhode Island Division recently issued a study of the state’s corporate income tax structure. Based on tax year 2012 this report found that if the corporate tax used a technique known as combined reporting it could yield somewhere between $20 and $44 million. The exact amount would depend on several factors including the method by which a corporation’s tax liability was calculated.

The current corporate income tax system allows multi-state corporations the ability to shift income out of state to other portions of their operations in states where there is less or no corporate tax. Combined reporting requires that a corporation account for their taxes as single business with the activity of all units counted together. Rhode Island would then use a formula to apportion the amount of the combined income to Rhode Island for tax purposes.

Appointment formula

Rhode Island’s apportionment formula includes three factor—sales, property and payroll. While the apportionment formulas vary among the states, most states use a single sales factor. Analysis indicates that four out of five corporations would either experience no change or a decrease in their tax liability under combined reporting. However, it is particularly important to understand the potential impact of combined reporting and alternative apportionment options on major employers like Amgen and CVS.

If combined reporting is enacted the resulting windfall could be used to reduce the corporate income tax rate from nine percent to either six or seven percent and possibly increase the estate tax exemption.

The future is now

Corporate tax reform is not the only reform needed to enhance Rhode Island’s competitiveness. However, it may be the type of substantive small win that can ignite an economic revival. If the General Assembly means business there is no reason why a decision on business tax reform cannot be made during this legislative session.

Rhode Island’s economic future is now.

Gary Sasse is Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University. He is the former Executive Director Rhode Island Public Expenditure and Director of the Departments of Administration and Revenue.

Smallest + Largest Tax Increases in RI

#39

Pawtucket

FY 2013 to FY 2014 Tax Increase: -0.68%

Rank: 39

FY 2013 Tax Levy: $100,068,109

FY 2014 Tax Levy: $99,386,793

Amount of Increase: -$681,316

#38

Hopkinton

FY 2013 to FY 2014 Tax Increase: -0.40%

Rank: 38

FY 2013 Tax Levy: $18,300,511

FY 2014 Tax Levy: $18,228,199

Amount of Increase: -$72,312

Note: Has an independent fire district. Levy for fire districts not included.

#37

Cranston

FY 2013 to FY 2014 Tax Increase: 0.12%

Rank: 37

FY 2013 Tax Levy: $181,367,888

FY 2014 Tax Levy: $181,591,060

Amount of Increase: $223,172

#36

Jamestown

FY 2013 to FY 2014 Tax Increase: 0.37%

Rank: 36

FY 2013 Tax Levy: $19,089,398

FY 2014 Tax Levy: $19,160,796

Amount of Increase: $71,398

#35

North Providence

FY 2013 to FY 2014 Tax Increase: 0.40%

Rank: 35

FY 2013 Tax Levy: $67,468,778

FY 2014 Tax Levy: $67,737,041

Amount of Increase: $268,263

#34

Glocester

FY 2013 to FY 2014 Tax Increase: 0.41%

Rank: 34

FY 2013 Tax Levy: $20,666,156

FY 2014 Tax Levy: $20,750,248

Amount of Increase: $84,092

Note: Has an independent fire district. Levy for fire districts not included.

#33

West Greenwich

FY 2013 to FY 2014 Tax Increase: 0.42%

Rank: 33

FY 2013 Tax Levy: $17,700,512

FY 2014 Tax Levy: $17,775,266

Amount of Increase: $74,754

#32

Foster

FY 2013 to FY 2014 Tax Increase: 0.56%

Rank: 32

FY 2013 Tax Levy: $11,206,523

FY 2014 Tax Levy: $11,269,380

Amount of Increase: $62,857

#31

Warren

FY 2013 to FY 2014 Tax Increase: 0.57%

Rank: 31

FY 2013 Tax Levy: $21,962,605

FY 2014 Tax Levy: $22,087,246

Amount of Increase: $124,641

#30

Barrington

FY 2013 to FY 2014 Tax Increase: 0.66%

Rank: 30

FY 2013 Tax Levy: $55,757,749

FY 2014 Tax Levy: $56,127,312

Amount of Increase: $369,563

#29

South Kingstown

FY 2013 to FY 2014 Tax Increase: 1.03%

Rank: 29

FY 2013 Tax Levy: $66,399,782

FY 2014 Tax Levy: $67,082,117

Amount of Increase: $682,335

#28

Lincoln

FY 2013 to FY 2014 Tax Increase: 1.08%

Rank: 28

FY 2013 Tax Levy: $51,933,416

FY 2014 Tax Levy: $52,492,287

Amount of Increase: $558,871

Note: Has an independent fire district. Levy for fire districts not included.

#27

North Kingstown

FY 2013 to FY 2014 Tax Increase: 1.37%

Rank: 27

FY 2013 Tax Levy: $69,092,073

FY 2014 Tax Levy: $70,035,857

Amount of Increase: $943,784

#26

Cumberland

FY 2013 to FY 2014 Tax Increase: 1.53%

Rank: 26

FY 2013 Tax Levy: $59,560,610

FY 2014 Tax Levy: $60,472,810

Amount of Increase: $912,200

Note: Has an independent fire district. Levy for fire districts not included. Cumberland actual amount is an estimate reported by the town. Final levy will be set in May 2014

#25

Warwick

FY 2013 to FY 2014 Tax Increase: 1.57%

Rank: 25

FY 2013 Tax Levy: $220,300,865

FY 2014 Tax Levy: $223,763,444

Amount of Increase: $3,462,579

#24

Little Compton

FY 2013 to FY 2014 Tax Increase: 1.74%

Rank: 24

FY 2013 Tax Levy: $10,153,215

FY 2014 Tax Levy: $10,329,739

Amount of Increase: $176,524

#23

East Providence

FY 2013 to FY 2014 Tax Increase: 1.91%

Rank: 23

FY 2013 Tax Levy: $101,738,436

FY 2014 Tax Levy: $103,679,393

Amount of Increase: $1,940,957

Note: East Providence fiscal year is Nov. 1 to Oct. 31. Figures represent an state estimate which will be finalized in spring 2014.

#22

Westerly

FY 2013 to FY 2014 Tax Increase: 1.93%

Rank: 22

FY 2013 Tax Levy: $64,073,479

FY 2014 Tax Levy: $65,309,605

Amount of Increase: $1,236,126

Note: Has an independent fire district. Levy for fire districts not included.

#21

Middletown

FY 2013 to FY 2014 Tax Increase: 1.95%

Rank: 21

FY 2013 Tax Levy: $42,569,846

FY 2014 Tax Levy: $43,400,329

Amount of Increase: $830,483

#20

Charlestown

FY 2013 to FY 2014 Tax Increase: 1.95%

Rank: 20

FY 2013 Tax Levy: $22,244,817

FY 2014 Tax Levy: $22,679,022

Amount of Increase: $434,205

Note: Has an independent fire district. Levy for fire districts not included.

#19

Tiverton

FY 2013 to FY 2014 Tax Increase: 2.22%

Rank: 19

FY 2013 Tax Levy: $36,705,787

FY 2014 Tax Levy: $37,519,924

Amount of Increase: $814,137

Note: Has an independent fire district. Levy for fire districts not included.

#18

Narragansett

FY 2013 to FY 2014 Tax Increase: 2.25%

Rank: 18

FY 2013 Tax Levy: $45,045,014

FY 2014 Tax Levy: $46,060,213

Amount of Increase: $1,015,199

Note: Has an independent fire district. Levy for fire districts not included.

#17

Portsmouth

FY 2013 to FY 2014 Tax Increase: 2.41%

Rank: 17

FY 2013 Tax Levy: $46,892,274

FY 2014 Tax Levy: $48,021,889

Amount of Increase: $1,129,615

Note: Has an independent fire district. Levy for fire districts not included.

#16

Providence

FY 2013 to FY 2014 Tax Increase: 2.42%

Rank: 16

FY 2013 Tax Levy: $332,768,119

FY 2014 Tax Levy: $340,814,523

Amount of Increase: $8,046,404

Photo: Flickr/thurdl01

#15

Smithfield

FY 2013 to FY 2014 Tax Increase: 2.43%

Rank: 15

FY 2013 Tax Levy: $50,485,821

FY 2014 Tax Levy: $51,713,919

Amount of Increase: $1,228,098

#14

Scituate

FY 2013 to FY 2014 Tax Increase: 2.63%

Rank: 14

FY 2013 Tax Levy: $25,737,325

FY 2014 Tax Levy: $26,415,040

Amount of Increase: $677,715

Note: Scituate fiscal year is April 1 to March 31.

#13

Johnston

FY 2013 to FY 2014 Tax Increase: 2.73%

Rank: 13

FY 2013 Tax Levy: $68,325,207

FY 2014 Tax Levy: $70,191,873

Amount of Increase: $1,866,666

#12

Exeter

FY 2013 to FY 2014 Tax Increase: 2.76%

Rank: 12

FY 2013 Tax Levy: $12,699,098

FY 2014 Tax Levy: $13,048,989

Amount of Increase: $349,891

Note: Has an independent fire district. Levy for fire districts not included.

#11

Bristol

FY 2013 to FY 2014 Tax Increase: 3.20%

Rank: 11

FY 2013 Tax Levy: $35,907,363

FY 2014 Tax Levy: $37,055,367

Amount of Increase: $1,148,004

#10

Richmond

FY 2013 to FY 2014 Tax Increase: 3.39%

Rank: 10

FY 2013 Tax Levy: $16,192,073

FY 2014 Tax Levy: $16,740,541

Amount of Increase: $548,468

Photo: Flickr/peppergrasss

#9

Newport

FY 2013 to FY 2014 Tax Increase: 3.49%

Rank: 9

FY 2013 Tax Levy: $65,177,966

FY 2014 Tax Levy: $67,451,455

Amount of Increase: $2,273,489

Photo: Flickr/Jasperdo

#8

Coventry

FY 2013 to FY 2014 Tax Increase: 3.56%

Rank: 8

FY 2013 Tax Levy: $62,327,613

FY 2014 Tax Levy: $64,549,069

Amount of Increase: $2,221,455

Note: Has an independent fire district. Levy for fire districts not included.

#7

Burrillville

FY 2013 to FY 2014 Tax Increase: 3.63%

Rank: 7

FY 2013 Tax Levy: $27,830,582

FY 2014 Tax Levy: $28,840,267

Amount of Increase: $1,009,685

Note: Has an independent fire district. Levy for fire districts not included.

#6

North Smithfield

FY 2013 to FY 2014 Tax Increase: 3.82%

Rank: 6

FY 2013 Tax Levy: $28,611,366

FY 2014 Tax Levy: $29,705,309

Amount of Increase: $1,093,943

#5

New Shoreham

FY 2013 to FY 2014 Tax Increase: 3.85%

Rank: 5

FY 2013 Tax Levy: $8,400,360

FY 2014 Tax Levy: $8,723,934

Amount of Increase: $323,574

#4

West Warwick

FY 2013 to FY 2014 Tax Increase: 3.89%

Rank: 4

FY 2013 Tax Levy: $54,252,606

FY 2014 Tax Levy: $56,363,626

Amount of Increase: $2,111,020

#3

East Greenwich

FY 2013 to FY 2014 Tax Increase: 3.91%

Rank: 3

FY 2013 Tax Levy: $49,896,853

FY 2014 Tax Levy: $51,845,789

Amount of Increase: $1,948,936

Note: East Greenwich fiscal year 2013 & 2014 levies reflect the towns merger with the fire district in June 2013.

Photo: Flickr/Jimmy Wayne

#2

Woonsocket

FY 2013 to FY 2014 Tax Increase: 3.99%

Rank: 2

FY 2013 Tax Levy: $57,588,098

FY 2014 Tax Levy: $59,888,228

Amount of Increase: $2,300,130

Note: Woonsocket fiscal year 2013 includes a supplemental tax.

#1

Central Falls

FY 2013 to FY 2014 Tax Increase: 4.00%

Rank: 1

FY 2013 Tax Levy: $13,674,638

FY 2014 Tax Levy: $14,221,500

Amount of Increase: $546,862