RI governor signs tax changes into law

Providence, R.I. – In a bill signing ceremony yesterday, Gov. Don Carcieri put his signature on a new law cutting state income taxes for the highest earners. Proponents say the new measure will make the state more competitive.

Gov. Carcieri has been calling for tax cuts since he came into office in 2003, so he was happy to sign the new law.

The new law reduces the top marginal income tax rate paid by Rhode Islanders by four percent, to just under six percent. The Republican governor and Democratic legislators say this will help make Rhode Island more competitive with Connecticut and Massachusetts.

"You've got to be in a position where we can say we are tax-competitive, particularly with our neighbors," Carcieri says.

But just how much it will help Rhode Island in national tax rankings depends on the yardstick. Here's Carcieri talking about evaluations by the Washington-D.C.-based Tax Foundation.

"We've been moving up," Carcieri says. "The latest one has us at 44th. I think with these changes we get up, I think, to 41st. I think actually we'll be better than that."

House Finance Chairman Steven Costantino says Rhode Island does even better with a different assessment.

"If you just look at state taxes, and how we rate on that, just state taxes and where we've gone, we've gone from 40th to in the 20s or something like that," Costantino. "That's a tremendous, tremendous jump."

The new law is said to be revenue-neutral, meaning it doesn't raise or lower the state's overall tax collections. State officials say most Rhode Islanders will pay less in taxes, beginning in the fiscal year starting July first.

Lawmakers acknowledged that few people ever actually paid the old top rate of 9.9 percent. But they nonetheless call the new law a sign that Rhode Island is becoming more friendly to business.

Senate Finance Chairman Daniel DaPonte says the new law offers four million dollars in tax cuts for Rhode Island taxpayers who earn less than $175,000 a year. So who's picking up the tab?

"Some folks that are earning over $175,000 a year may pay more," he says. "It depends on what their overall tax liability is and what different elements make up their tax liability."

But Peter Asen, director of the liberal advocacy group Ocean State Action, is skeptical about these claims. He noted how business interests dominated the audience for the governor's state house bill-signing ceremony.

"If it's such a great day for Rhode Island, I would have liked to have seen some people there celebrating who were not from the community that represent folks who make more than $250,000 a year," Asen says.

Asen also points out that struggling Rhode Islanders could face increased car taxes. That's because the General Assembly last week gave cities and towns the power to tax the cars of their residents.

Critics also say that cuts in state aid could mean higher property taxes for many Rhode Islanders. But Carcieri says cities and towns can prevent that by putting a cap on local tax hikes, and he says they should first tighten their own spending.

Yet even Gov. Carcieri acknowledges that his long-sought tax cut won't be enough to revive Rhode Island's battered economy.