John Perilli: Budget Season 2014: The Good, the Bad and the Ugly

John Perilli: Budget Season 2014: The Good, the Bad and the Ugly

Opinionated Ocean State political observers were in a predictable panic last week as the state’s Fiscal Year 2015 budget filtered up to the House Finance Committee on Thursday. I would like to add my own article to the veritable counter-budget of analysis and proposals.

As with any spending document, there are swords pointing both ways. Innovative reforms are paired with significant steps backward. Here’s what we ought ––and ought not––to pass into law when the budget comes to a final vote.

The Good: Corporate Tax Reform

This issue had been slowly coming to a boil for a few years before the business-friendly leadership team of Speaker Nicholas Mattiello put it on the docket. Under this article of the budget, our corporate tax rate would fall from nine percent to seven percent, while revenue would remain steady––thanks to a interesting little accounting trick called Combined Reporting. Basically, any company headquartered in the Ocean State now has to pay the full Rhode Island rate rather than save money by shifting profits to out-of-state subsidiaries.

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I say this is “good” because our corporate tax code is currently slanted in favor of large companies. Not only can they afford to shuffle profits to more tax-lenient states, they also get credit off their corporate tax rate the more jobs they create. The jobs tax credit is fine, but large high-margin companies shouldn’t get two steps up on small businesses.

Companies with 250 workers or more only employ around a third of our workforce. Large corporations can hire employees more efficiently than other businesses, but small-to-medium size companies should not be at a complete disadvantage. If the new proposed corporate tax is passed, smaller businesses would have larger payrolls to hire more workers, while corporate tax revenue as a whole would remain intact.

The Bad: Estate Tax Escapists

Not all tax reforms are created equal. Corporate tax reform would be a step forward, but estate tax reform would be a step back.

The estate tax, also mockingly known as the “death tax,” is a tax levied on estates and trusts of the recently deceased. A morbid topic, for sure, but an important one: this year, lawmakers are discussing an estate tax cut worth $9 million in 2015, and $18 million the next year. Currently, estates over $922,000 are subject to taxation, but under the reform, the threshold would rise to $1.5 million, and the tax would be applied gradually, rather than all at once.

What’s the problem, you might say? No more “cliff” after an estate reaches the threshold. No more retirees leaving the state to avoid paying the tax.

Income inequality is the problem. When your parents are in the bottom quintile of income earners in the United States, and you have a 42 percent chance of staying there, that is a problem.  Hard numbers are tough to beat: You could have determination, pluck and intelligence, but the steps up the income ladder would still be slippery and far apart. The American Dream is of upward mobility, but wealth has a devious habit of reinforcing itself. Lenient estate taxes just make the problem worse. Not to mention the fact that the estate tax break is being funded by cuts in income and property tax credits that benefit the poor and the middle class.

Did you start a business? Great. Make thousands, even millions of dollars? Congratulations. I have no bone to pick with you. But you did that: not your children, not your grandchildren. You ought to be able to pass down the family business, but not a pristine personal fortune.

The Ugly: Minimum Waging War

Providence hotel workers have been fighting all year for a $15 minimum wage, petitioning the City Council and pulling public support behind them. According to a Suffolk University poll, 64 percent of Providence voters support raising the minimum wage.

How did state lawmakers respond to this urgent cry for change? By preventing it from happening.

A new measure buried in this year’s state budget would forbid municipalities from setting their own local minimum wage. House leadership confirmed that this was a direct response to the Providence hotel workers’ campaign.

We’re not going to argue about the benefits of a minimum wage here. As I’ve written before, there’s no conclusive evidence that raising the minimum wage destroys jobs, but the data is far too faceted to warrant a full treatment in this column.

I will only say that this measure defies the spirit of minimum wage laws––the idea that the federal government can set a floor and local governments can build on it as they wish. Its a classic and concrete example of the otherwise ephemeral idea called “federalism,” which has been the blood of our republic for over two centuries. Imagine how we would protest if the federal government prevented Rhode Island from raising its state wage! The same idea applies at the municipal level. Providence, with its high cost of living and below-average per capita income, needs a minimum wage more than anywhere else. Why should Rhode Island, a state which population-wise is less than one-fifth Providence, stop the capital city––or any other city––from acting in its own best interest?

Budget time comes and goes, but the decisions made during the session’s frantic final days are in effect all year. With so many bills flying around, its important to slow everything down, and recognize what we should keep, and what we should consign to the legislative dustbin to wait another year.

John Perilli is a native of Cumberland, RI and a junior at Brown University. He is the Communications Director for the Brown University Democrats. The opinions presented in this article do not necessarily represent those of the organizations of which John Perilli is a member.