Mattiello, Sasse in Heated Battle Over RI Tax Policy

Mattiello, Sasse in Heated Battle Over RI Tax Policy

The state's former Director of Administration and current Speaker of the House are at odds over Rhode Island tax policy -- just a week into the 2015 General Assembly session.  

The recent proposal endorsed by Rhode Island Speaker of the House Nicholas Mattiello to exempt social security from the state income tax has drawn criticism from the former Department of Administration Gary Sasse -- and a battle of words has ensued.  

"I find to hard to believe that anybody who would propose this tax cut is thinking strategically about tax policy," said Gary Sasse, the former Rhode Island Director of Administration, Executive Director of the Rhode Island Expenditure Council, and founding director of the Hassenfeld Institute for Public Leadership at Bryant University.  

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“Gary Sasse is a contrarian, representing a special interest, and he is quick to criticize any proposals that aren’t his own," said Mattiello.  "He was a State House insider for many years and I can’t recall anything he accomplished to move our state’s economy forward."

As one of the first moves of the 2015 General Assembly session, the proposal by Representative Bob Craven on January 8 to "ease the tax burden on Rhode Island retirees by exempting from the state income tax all Social Security benefits as well as income received from federal, state and local government retirement plans, disability benefits, military pensions and private pension plans and deferred-compensation plans" was "strongly endorsed by the House leadership team," according to a release by the Legislative Press office.

Proposal Under Microscope

"I am a bit bemused by the interest of the House in eliminating the state income tax on social security and some other types of retirement income," said Sasse.  "Social Security benefits are exempt from taxation until a taxpayer’s income reaches a certain level. For taxpayers filing individual returns this threshold was $25,000, and for married joint filers it was $32,000 in TY2013. For example, if the total income of a married joint filer is $32-44,000, benefits over the $32,000 are taxable at 50%, and 85% for each dollar of social security benefit if income exceeds $44,000."

"In Rhode Island, if a married filing jointly couple had a total retirement income of $50,000 - with $30,000 from Social Security and $20,000 from a pension - they currently have no state personal income tax liability. You can’t reduce a tax bill that is zero. Exempting social security benefits from state income tax for taxpayers with modest pension income will likely provide little if any economic benefit," said Sasse, who has contributed as a GoLocal MINDSETTER.  "Therefore, eliminating social security from the state income tax might be a more regressive form of tax relief then the advocates have indicated. Before the debate on this proposal is completed I hope that the Department of Revenue will lets us know who wins and losses from such a tax policy change."

Sasse continued, "Of equal importance is the question of what type of tax relief is affordable and could have the greatest impact on job creation. Even if the State could afford to cut taxes, which I think is fiscally questionable, increasing the property tax exemption on motor vehicles or eliminating the sales tax most businesses pay on their utility bills would make infinitely more economic sense."

Taxpayer Groups Weigh In

MIke Stenhouse with the Rhode Island Center for Freedom and Prosperity said that the proposal was not a "game changer," but could be a "small positive step."

"The big 'but' is it's only good if we don't raise revenues elsewhere to offset it," said Stenhouse.  "That's the bad habit we have.  Last year, we reduced the corporate income tax and estate tax, but we paid for it with the sales tax tweaks, and the gas tax.  You need to cut spending."

Larry Girouard with the taxpayer advocacy group RI Taxpayers said that "tax cuts of any kind sound great because we have one of the highest taxed electorates in the US." 

"That said, to say yes/no to any tax cut would be irresponsible without knowing [the following]," said Girouard.  "How much money would this [cost] the state regarding income; what segment of taxpayers in RI will be positively impacted by increasing their spending power; how will this tax cut improve the Rhode Island economy; what is the anticipated net lost revenue from this tax cut; and what will this tax cut do to improve Rhode Island’s business brand."

Mattiello v. Sasse 

Mattiello defended his position to advocate for the fiscal move.  

"Rhode Island is one of only 13 states with an income tax on Social Security, and I am tired of our state being an outlier.  We must be competitive with our neighbors such as Massachusetts, where there is no tax on Social Security," said Mattiello. "Since I have stated that this will be a priority of mine this session, the response from the public to me and other Representatives has been overwhelmingly positive. We have heard from constituents who had planned to relocate to other states, but they are now having second thoughts. Rhode Islanders need to believe their state government is working for them.  This action will begin to lift the morale and psyche of our citizens."

 “I know that keeping people in Rhode Island, with more discretionary income in their pockets, will be a significant long-term gain for our economy.  This initiative comes with a short-term cost in our state budget.  But, we need to start using a more dynamic analysis that takes into consideration long-term benefits, instead of a static analysis that only looks at how much things cost," said Mattiello. 

Sasse defended his track record on tax policy, in light of the Speaker's comments that he "hadn't accomplished anything."

"There are a number of issues that I worked on to improve the economy. I chaired the strategic tax study commission which proposed the reduction in the top marginal income tax rate which is probably the single most important tax policy reform to enhance economic competitiveness," said Sasse.  "Prior, I worked with the Senate President to develop and implement legislation limiting growth in local property taxes."

"I agree with the Speaker that we can do more to improve our tax competitiveness, we probably disagree that exempting the social security from the personal income tax will get the greatest bang for the buck," said Sasse.  "I hope that the discussion on this matter will be based on evidence and fact, not personalities."