If you read this blog, you have heard many tales of woe regarding my home State of Rhode Island and Providence Plantations.
The state’s economy is sinking under the weight of public employee pensions and high taxes. That’s not me talking, that’s The NY Times’ assessment.
Last November, in a three way race, former Republican-in-name-only turned Independent Linc Chafee was elected Governor with only 36% of the vote.
Once thing about Chafee, he didn’t hide his agenda. He ran on a platform of erasing state cooperation with federal immigration authorities, and he already has taken steps to end that cooperation.
He also ran on a platform of raising taxes on a host of goods and services, and now he is keeping that promise with $157 million in new taxes. That may not sound like a lot, but in a state of only 1 million people, that’s a lot per person.
The single greatest fiscal problem facing the state, and the motivation behind the tax increases and other fiscal measures (including increased employee contributions), is state employee pensions, as described by Chafee in his budget speech:
Another area for urgent action is our state’s pension system. Our unfunded liability is about $5 billion, and the gap could be even larger. The current system is unsustainable and a burden on our taxpayers. In FY2012, the state is contributing $238 million toward state employee and teacher pensions, and that number will increase to $422 million by FY2016. That’s a 77% increase over four years. The state has made some progress in recent years to address the problem, but we need a comprehensive plan.
The most prominent feature of Chafee’s plan is extending the sales tax (which would nominally be lowered from 7% to 6%) to a long list of goods and services currently exempt, including the following (among a very long list), as reported by The Providence Journal:
Goods currently exempt
Computer software, prewritten and delivered electronically
Eyeglasses and contact lenses
Insurance proceeds from destroyed or stolen passenger automobile as trade-in allowance
Nonprescription drugs, including medical marijuana
Property or supplies used in the processing or preparation of floral products and arrangements
Services currently exempt
Couriers and messengers
Data processing, hosting and related services
Domestic services, extermination and pest-control, landscaping and other support services by commercial providers
Garbage and trash collection, including some waste-management and remediation services
Investigation and security services, including locksmiths
Laundry and dry-cleaning services
Moving and storage, including warehousing and freight services
Personal-care services including hairdressing salons and personal-grooming establishments, diet and weight-reduction centers and other personal services
Pet services except veterinary care and lab work
Photographic and portrait services
Scenic and sightseeing transportation and support activities and package tours
Taxicabs and other road-transportation services
These changes all raise the cost of living in and doing business in Rhode Island. People and businesses have choices, and these measures just make the choice easier — do business elsewhere and move south.
Rhode Island cannot tax its way to prosperity. It’s been tried, and it didn’t work. Cut spending and create a more favorable business climate to increase private economic activity which will generate income and other existing taxes.
It’s not brain surgery. It works in all those states to which Rhode Islanders are moving.