Scott MacKay Commentary: Can RI Afford Mattiello's Car Tax Phase Out?

Jun 2, 2017

Rhode Island House Speaker Nick Mattiello has put forward a plan to get rid of the car tax. RIPR political analyst Scott MacKay says it’s a fine plan, but he asks a nettlesome question  – can the state afford it?  

As the General Assembly heads into its final month, Speaker Mattiello finally took the wraps off his plan to phase out the unfair and unpopular car tax. On the surface, the plan looks good—it phases out this widely despised levy over six years. His plan also means lower income Rhode Island motorists would get relief faster than the affluent.

Mattiello’s plan would fulfill a campaign promise he made as he walked his suburban Cranston district last fall, squeaking out a narrow victory. For this we should applaud a politician who does what he says he will.

Yet, this one shouldn’t be one of  those Statehouse “done deals.” There is a major hole in the proposal – a glaring lack of specifics on where the money to pay for it would come from.

Beyond the “can we afford it” question lies a larger consideration. By committing to this form of tax relief, your lawmakers are locking up about $220 million in state revenues when the plan becomes fully put in place.

What is being ignored is whether this is a tax cut that will most help Rhode Island’s economy over the long haul. By dropping this measure near the end of the session, the speaker is avoiding a comprehensive study of the state’s tax policies.

For too many years, the Assembly and various governors have viewed tax policy piecemeal,  driven  by politics and special interest pressure. Rare has been the overall look at how Rhode Island compares with other states and how taxation melds with economic change.

Former Gov. Lincoln Chafee tried to open a discussion about the sales tax to better reflect a 21st century  economy that has shifted from manufacturing to services. Chafee’s political ineptness combined with the simple-minded views of the state’s business community doomed that initiative. One good idea -- never fully vetted --  was cutting the sales tax by one to two percent while adding a tiny, one-percent levy on items not currently taxed.

Mattiello is a Democrat, but he hasn’t been a big spender. He’s been a leader in cutting taxes, particularly for business. Among them: reductions in the corporate tax rate, raising the estate tax exemption and eliminating the state income tax for most of those on social security.

Yet, too often, Mattlello and other lawmakers responded to superficial measures, such as CNBC surveys that ranked Rhode Island a high-tax state with a bad business climate. Those surveys compare us with states like Texas and South Dakota that have far different economic anchors. And lawmakers have failed to address such questions as whether cutting business taxes is a better investment than higher education?

Then there is Rhode Island’s fraught history with phasing out the car tax. Lawmakers tried this once before  during the go-go days of the late 1990s. Once the Wall Street crash made dollars scarce, the money dedicated to eliminating the car tax was diverted to avoid deeper reductions to education and health care.

A current Assembly cannot bind future legislatures from changing any spending program. The only way to ensure that a six-year phase out couldn’t be touched would require a constitutional amendment – that means voter approval.

The immediate concern is affordability. With a $100 million budget deficit projected for the state financial year beginning next month, Mattiello has been coy about where the car tax cut money comes from. ``There’s not nearly enough information about the impact of this plan,’’ says Leonard Lardaro, a University of Rhode Island economics professor who studies public finance.

Lardaro calls the previous aborted phase out,  “a great fraud.” So far, he says no one has convinced him Mattiello's plan is any different.

Lawmakers and taxpayers need more evidence that Mattiello’s proposal won’t turn into another Statehouse promise that can’t be kept. The last thing Rhode Island needs is another political deal that enflames voter cynicism.

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:45 and 8:45 and on All Things Considered at 5:44. You can also follow his political reporting and analysis at our "On Politics" blog at RIPR.org