Friday, January 30th, 2015

Linc-O-Meter

Simplify business tax system

"We will take action to simplify the business tax system and plan for a sustainable state budget."


Updates

Chafee has taken steps toward simplifying tax code, planning 'sustainable' budget

During his 2010 campaign for governor, Lincoln Chafee made a number of promises as part of his "Plan for Jobs," which he unveiled on his campaign website.

Among them was this sweeping pledge:

"We will take action to simplify the business tax system and plan for a sustainable state budget."

When we asked the governor's office what Chafee had done to keep the promise, his spokeswoman, Faye Zuckerman, sent in a five-page response that addressed both parts of the promise.

With regard to simplifying business taxes, Zuckerman cited several revisions to state taxes enacted under Chafee's administration. Among them:

  • Repealing the franchise tax, effective Jan. 1.

  • Reducing the state corporate tax rate from 9 percent to 7 percent

  • Instituting a "combined reporting" method of taxing multi-state corporations that will allow the state to consider income in other states when determining the tax liability in Rhode Island.

  • Using a single factor -- Rhode Island sales -- to calculate apportionment of those taxes. (Under prior law, property and payroll were also factors.)

The Senate fiscal office estimated the changes would bring in an estimated $2.7 million in tax revenue.

In 2013, Chafee also signed into law legislation that puts the state in sync with federal government with regard to tax deductions for business assets.

Zuckerman said the changes, in addition to increasing revenue and improving the business climate, also reduced paperwork and resulted in a simplified system.

We reached out to three leaders in the state business community to get their take.

Gary Sasse, founding director of the Hassenfeld Institute of Public Leadership Bryant University, described the new policies as "a far-reaching package of changes to the corporate income tax structure."

"The intent was to improve Rhode Island's business tax competitiveness," Sasse said in an email. "There has not been sufficient time to asses what will be the impact on business development and competitiveness."  

Laurie White, president of the Greater Providence Chamber of Commerce, praised Chafee "for his focus on the corporate rate reduction" as a move toward increased competitiveness.

Leonard  Lardaro, a University of Rhode Island economics professor, said the reduction in the corporate tax rate alone should have "a substantial impact." But, he said, in Rhode Island that impact will be tempered by factors such as regulatory fees, lack of a skilled work force, and high energy costs.

Though it is too early to tell whether the changes will achieve their goal, it is clear Chafee took some action to simplify the business tax code.

What about the other, somewhat harder to quantify part of his promise, to "plan for a sustainable budget"?

Among measures cited by Zuckerman during Chafee's term were:

  • Fully funding the state's Education Funding Formula

  • Ending borrowing for transportation funding, which is expected to save millions of dollars in borrowing costs

  • Paying back a federal loan for expanded unemployment insurance a year ahead of schedule, reducing business taxes

  • Supporting the 2011 overhaul of the state's public-employee pension system, which -- if it survives a court challenge -- will save an estimated $4 billion over the next two decades

John C. Simmons, executive director of the Rhode Island Public Expenditure Council,  credited Chafee for taking steps such as fully funding the education system and working to overhaul the state employee pension system. But, he noted that Chafee is leaving his successor with a structural deficit that had increased over the past year.

"There have been some good things that have occurred," Simmons said, but  "the numbers speak for themselves.

With Rhode Island facing a potential $190-million budget deficit next year, it's clear the state has a long way to go to achieve a "sustainable budget." Critics would say any steps that have been taken aren't near enough.

Still, in our view, Chafee took actions toward his goal.

Overall, we rule this a Promise Kept.

Sources:

Emails, Faye Zuckerman, Governor Chafee's spokeswoman, Dec. 24 to Dec. 29, 2014

Interview and emails, John C. Simmons, executive director, Rhode Island Public Expenditure Council, Dec. 29 to Dec. 31, 2014  

Email, Laurie White, president, Greater Providence Chamber of Commerce, Dec. 29, 2014

2015 Senate Fiscal report, accessed Dec. 30, 2014

Interview and emails, Gary Sasse, founding director, the Hassenfeld Institute for Public Leadership at Bryant University, Dec. 29, 2014

Chafee for Governor, The First 100 Days Plan, accessed Dec. 29, 2014