Tax Increases Will Cost Jobs and Return Far Less than expected
Tax Plan Analysis
Download the entire Policy Analysis here … including detailed tables and additional information.
In late January 2012,Rhode Island’s Governor proposed a new budget that included a number of tax and fee increases, with the goal of balancing the state’s chronic budget deficits. In order to properly assess the impact of such hikes on the state’s economy, the RI Center for Freedom & Prosperity conducted a detailed, economic analysis, utilizing the Center’s dynamic tax modeling tool, RI-STAMP.
The Governor’s plan attempts to address the perpetual budget deficit by cutting some spending and raising some taxes. As demonstrated by RI-STAMP, this path will produce negative consequences.
Analysis
To best simulate the Governor’s tax proposal, the following revenue targets were entered into RI-STAMP.
- $69.7 million increase in Sales Tax revenues via expansion of the base, with tax increases in some sectors
- * $13.6 million increase in motor vehicle registration fees was input as a Fuel Tax increase
- $7 million increase in revenues from smoking products and other items entered as a Cigarette Tax
- $3.8 million in other misc. taxes & fees were not included in the projection
After running these inputs through the RI-STAMP algorithm, the negative economic consequences of the proposed tax and fee increases become clear. Full details can be found in the table on the following page, but in summary:
- The expected total revenue increases of $95 million are not attained, as tax increases depress overall economic activity … the state will see only a $35 million increase in revenues.
- Over 1400 private sector jobs will be lost
- Municipalities will lose $9.75 million in revenues due to lower commercial property taxes, as a consequence of lower overall economic activity
- The State will lose almost 1% in overall Gross State Product
- Investment in the State will drop by $27 Million
Because a sales tax increase would makeRhode Islandeven less competitive with its regional neighbors, and nationally overall, consumer and entrepreneurial behavior would be significantly altered, resulting in lower economic activity and actually worsening the state’s economic plight. Municipalities, all too often overlooked, will also suffer a loss in revenues from this unintended consequence.
Balancing the budget is the wrong goal; and tax increases are precisely the wrong solution!
Recommendation:
Conversely, if the OceanStatewas to cut its sales tax to 5%, a very different scenario is projected to occur, because our state would suddenly become a more attractive place to purchase goods and services, meaning economic activity would increase. (See the Policy Brief, Dynamic Effects of Tax Policy)
If instead,Rhode Islandwants to address the larger economic picture, by looking to produce more jobs and a brighter economic future for our citizens …
… cutting taxes and cutting spending will produce a more vigorous economy!
Download the entire Policy Analysis here … including detailed tables and additional information.
Media Coverage of this Analysis:
Warwick Beacon: Chewing over a 10% meal tax
Providence Business News – URI Professor Lardaro supports RI-STAMP economic modeling tool
630WPRO – Conservative think tank says new taxes will hurt RI
Boston.com – Think tank criticizes RI Gov.’s tax plan
NECN – Think tank criticizes RI Gov.’s tax plan
FEB
I could tell right away this post would trigger an omalst unimaginably toxic brew of mindless plutocratic cheerleading that has been thoroughly discredited by real-world application, but you managed to outdo yourself in Gilded Age excess. Where to begin . Either the estate tax doesn’t work, or it’s hitting people who aren’t part of that fcber-rich classification. If the goal of such a tax is to make incomes more equitable, then why has income inequality gone up despite its presence. It works just fine. And repeated efforts have been made to resist raising the worth threshold for which the estate tax kicks in, thus saving the six or seven farms or hardware stores per year that this tax allegedly bankrupts. Unfortunately, Republicans have resisted raising said threshold at every turn, fighting tooth and nail to deliver a tax-free inheritance for Paris Hilton and Patrick Kennedy once their parents croak .based upon their amazing contribution to society of winning the genetic lottery. As for why income inequality keeps going up .basically your responses to answers 2-16 of this quiz go a long way towards explaining that. I say, you can tax when someone’s alive, but once they’re dead, that should be beyond the reach of the tax-man. It gets taxed as income to those who receive it, and that’s good enough for me. Except that the tax doesn’t apply to the person who dies, it applies to person who stands to inherit that money just a litany of other taxes applies to less affluent people who engage in a transfer of ownership in our economy. I know it’s complex! It’s amazing to believe that for all the demagoguery Republicans are spoon-feeding us over the immorality of taxing Paris Hilton’s inheritance, it took Frank Luntz to coin the term death tax several years ago before you had any angle whatsoever from which you could defend a birthright claim to untaxed millions for sitting on your silk sofa eating bon-bons all day. Gotta love that Republican work ethic!!!! Absolutely not. 70% of those in low-wage jobs are teenagers, not the “working poor”. And the with the cost of auto insurance and higher education going down so drastically, it stands to reason that teenagers receive lower wages for their toils year to year. And I’m sure if an airline boasted a 70% success rate in reaching its destination, you’d be buying a ticket. Not only would such a law not have the intended effect, it would make things worse for the working poor by making the supply of jobs that much tighter. Ever since the imposition of the minimum wage, free-market ideologues have been preaching fire and brimstone about the depletion of entry-level jobs and continue the doomsday prophesies with every suggestion to raise the minimum. How then do we explain that the percentage of minimum wage fast food and retail jobs keep rising as a percentage of our overall job market? Just one more example of how the Milton Friedman bible has failed his Mammon-worshipping minions.