Rhode Island: What Not to Do with Federal Stimulus Funds

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Back in January, Rhode Island Governor Don Carcieri, in introducing legislation to cut spending by $240 million in the five months remaining of fiscal year 2009, remarked that, should Rhode Island "receive Federal stimulus funds, we must ... plan on using most of these funds to lower taxes for individuals and businesses, create jobs and stimulate growth." He further maintained that "to do otherwise would be irresponsible." That's an odd definition of irresponsible. Most people living in a state with an expected budget gap of nearly 14 percent in the coming year might say a plan that including permanent tax cuts and only temporary revenue-raising provisions to pay for them is pretty irresponsible. Apparently the Governor isn't most people.

Definitions of irresponsibility aside, the Governor may be about to put his plan into action. The Strategic Tax Policy Workgroup that the Governor initially convened in May of last year met for the final time last week and will soon present the Governor with a report on its work. For several months it seems that the Workgroup would make revenue-neutral recommendations, but now it appears that they will put forth options that would cut taxes by as much as $140 million. Keep in mind that total tax revenue in Rhode Island is projected to be only slightly more than $2.4 billion for the current year. Among the major cuts to be proposed by the Workgroup are the outright repeal of Rhode Island's estate tax, which would cost $28 million annually, and the replacement of the state's corporate income tax with a graduated franchise tax. The latter would reduce taxes on businesses by $82 million per year and would cap the maximum tax paid by any one business, no matter how profitable, at $10,000.

The Governor has requested -- and will likely receive -- a postponement of the deadline by which he must submit his budget for the coming fiscal year. It seems likely that his "otherwise irresponsible" plan will feature prominently in that document.

For more on Rhode Island's budget situation and on the recommendations of the Governor's Tax Policy Workgroup, visit the Rhode Island Poverty Institute's web site.

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