Straight talk on the RI sales tax

Feb 13, 2013

It is with a sublime sense of irony that some of us are watching the latest State House utterances about taxes, especially the chatter by state Rep. Jan Malik, D-Warren about eliminating the state sales tax.

``Our sales tax is killing small businesses, especially in border communities,’’ says Malik. Now, there is of course, no conflict with his interest. Our good Warren rep runs a liquor store (full disclosure: yours truly and his better 75 percent shop there) off Route 136 that kisses the Massachusetts border.

Malik says his business is off 20 percent since Bay State voters a couple of years back decided by state referendum to eliminate the sales tax on alcohol. House Republican Leader Brian Newberry has also made noises about getting rid of the sales tax.

First off, where were these people two years ago when Gov. Lincoln Chafee proposed some major changes in the sales tax? Chafee wanted to lower the top rate from 7 to 5 percent and extend it to items that are not currently taxed.

Instead of having a dialogue with Chafee, the Democrats who run the Assembly simply rubber-stamped the short-sighted, all-or-nothing approach of the organized business community,  which screamed a collective `no’ and refused to entertain any changes at all. Chafee took some heat, deservedly, for handling the politics poorly and not getting some consensus with the business community.

But the stubborn fact is that Chafee opened a dialogue on sales taxes but no legislative Democrats or members of the organized business community listened. They just up a solid wall of opposition and refused any discussion.

At the time, Chafee had the reasonable idea that Rhode Island had to be competitive with Massachusetts in sales taxes. But nobody listened.

So what has happened since? Well, Gov. Deval Patrick is no dummy. The Bay State Democrat has advanced a plan to cut the Massachusetts sales from 6.25 percent to 4.5 percent. The same plan also increases income taxes on Mass residents, particularly the upper income, to levels higher than R.I.

Patrick is a liberal Democrat and he wants to use the extra income tax money to invest in transportation infrastructure and education, two items that are widely considered crucial to building a strong 21st century economy.

Chafee is an independent, but on fiscal matters, mostly acts like the moderate Republican he once was. He has refused to do what Patrick has proposed, and raise income levies on the wealthy, despite being prodded to do so by organized labor and some progressive groups.

Patrick had presented a balanced tax agenda that ensures that his state will be more competitive in sales taxes but won’t lose state revenue, because the income tax hike more than makes up for the drop in sales revenues.

So now we have some RI lawmakers and self-appointed taxpayer advocates calling for an end to sales taxes. Before we listen to any of this nonsense, let’s ask first how they plan on replacing nearly $1 billion in state money that abolishing the sales tax would cost. Specifically, getting rid of the sales tax would require significant cuts in state aid to education and other social and medical services that the most vulnerable among us rely on. Do these people want to replace the sales tax, a good slice of which is  paid in our  tourist state by non-residents, with crushing hikes in property taxes?

Rhode Island property taxes are high by national standards; sales taxes not so much because of the narrow base of our sales levies and all of the exemptions for such items as clothing, heating fuel and groceries. And so far, none of the proponents of reducing or eliminating the sales tax have stepped up to say that income taxes should be raised to make up for the inevitable shortfall, especially in the short term.

Any politician who advocates slashing the sales tax without a plan to replace the revenue or change the way we finance local education is little more than an attention-grabber/grandstanding yahoo.