Alternative Sales Tax Reduction Scenarios

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Notes

In November 2013, members of the Joint Legislative Commission to Study Repeal of the Rhode Island State Sales Tax requested that the Center summarize sales tax reduction scenarios, compared with the Zero.Zero plan under review.

Compliance costs for businesses, it is important to note, are not eliminated in any scenarios that do not eliminate the sales tax. The unfunded mandate of identifying, calculating, charging, collecting, reporting, and remitting sales tax revenue to the state, as well as costs for bookkeeping, accounting, and legal services, would remain.

Compliance costs would theoretically be the same with a 1% or a 7% sales tax. Furthermore, businesses would still be subject to penalty and interest charges on any past due taxes owed, maintaining an obstacle to keeping their doors open.

Highlights

The charts and table in this report display some of the more critical aspects of alternative sales tax reform scenarios. Significant findings include:

• Sales tax reductions create the most jobs and the lowest budget “investment per job” compared with income and corporate tax reforms.
• In all sales tax reduction scenarios except full repeal, the state will directly realize a dynamic revenue boost from increased sales volume.
• A 0.0% sales tax rate creates the most jobs but requires the largest overall budget investment.
• A 3.0% sales tax rate yields the most value, with the lowest state-budget investment per job and a net revenue gain, with municipalities included.
• Phasing out the sales tax produces a similar number of jobs, but suppresses the dynamic increase in other tax revenue.

Media Release: December 2, 2013

Providence, RI — The Rhode Island Center for Freedom and Prosperity published today a new report – detailing alternative sales tax reduction scenarios – in advance of Tuesday’s hearing of the Special Joint Legislative Commission that will meet for the sixth time at the State House to evaluate repeal of the state sales tax. At the request of the Commission, the Center analyzed a number of sales tax cut options, to be compared with its original Zero.Zero plan to bring the sales tax to 0.0%. All sales tax cut scenarios will have the effect of saving money for every family and business in the state and will create thousands or tens of thousands of new jobs.

In the new report, alternative sales tax rates and phase-out options are explored; and the effect of sales tax reform is compared with other tax reforms; also. The report shows that a 3% sales tax rate would produce up to 14,000 new jobs, about 11,000 less than if the tax was eliminated, but would do so with the lowest budget investment per job.

“Because we need the jobs, our Center is still recommending complete repeal. However, the 3% scenario may be a good compromise for those concerned with the state budget”, said Mike Stenhouse, CEO for the nonpartisan Center. “Importantly, though, any partial sales tax cut scenario does not lower the cost of compliance for this unfunded mandate on the business sector”.

The report includes multiple charts and tables of the various scenarios, including a detailed jobs and revenue projection of the 3% scenario as compared with the Zero.Zero plan. Stenhouse will provide further details about the report’s findings at tomorrow’s Commission hearing.

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