The governor says that the state has to "kick the tax habit," and notes that families' tax payments are 10 percent higher than the national average.

01:00 AM EST on Saturday, November 20, 2004

BY ANDREA L. STAPE
Journal Staff Writer

Governor Carcieri is calling for lower taxes.

After spending most of the year talking about the state's tax burden, Carcieri Thursday laid out a number of principles he would want included in a plan for broad-based tax reduction.

In an electronic newsletter, the governor said it was time to tackle the state's tax burden and proposed that if the state reduces taxes, it should focus on cutting income taxes and bringing the state's tax burden in line with Massachusetts'.

"The key is to reduce the overall burden. Let's kick the tax habit," said Carcieri in the newsletter, which contained the text of a speech he gave at an award ceremony Thursday evening.

The governor, however, has not offered an official and detailed tax cut proposal, said Jeff Neal, Carcieri's spokesman. Neal said that any tax cuts would be part of the budget process, and right now "it's likely that the state is going to be facing approximately a $160-million shortfall in the next fiscal year and obviously any fiscal plans would have to take that into account."

The governor, though, has spent the majority of this year saying that the amount of taxes the state collects from Rhode Island taxpayers is too high. He has cited a number of studies ranking Rhode Island as having one of the highest tax burdens in the country. Earlier this year, he asked the Rhode Island Public Expenditures Council and the Rhode Island Economic Policy Council to study the state's tax policies and tax structure.

Carcieri started saying publicly last month that tax reform needs to be a budget priority. And this week, he strengthened that message.

"The tax reduction should be focused on state income taxes, the broadest tax affecting the most Rhode Islanders," he said in the newsletter.

For every dollar a Rhode Island family earns, about 11 cents goes to pay taxes, according to a study by RIPEC, a business-backed economic research group. That's 10 percent higher than the national average.

Over the past two decades, Rhode Island's tax burden -- which includes state levies such as income tax and local ones such as property tax -- has made the state less competitive against its New England neighbors and the rest of the nation, according to Gary Sasse, executive director of RIPEC.

Other states, such as Massachusetts, have decreased the amount of taxes residents must pay. That state's overall tax burden was 13.4 percent below the national average in 2002, according to a study done by the Massachusetts Taxpayers Foundation.

In 2002, Massachusetts residents paid $95.87 in taxes for every $1,000 in income, according to RIPEC, while Rhode Islanders paid $113.63. In Massachusetts, taxes take about 9.6 percent of residents' personal incomes, according to RIPEC, but in Rhode Island, taxes add up to about 11 percent.

"The governor's on the right track to have an objective of establishing a policy where the overall tax burden is similar to Massachusetts," said Sasse. "I think it's the right benchmark."

RIPEC, the EPC and the Rhode Island Economic Development Corporation are working together to develop a case study that will show whether high taxes are a deterrent to relocating companies and if so, to make recommendations for how taxes can be cut to improve Rhode Island's ability to compete.

Although the governor has not formed an official tax reduction program, House Majority Leader Gordon Fox, D-Providence, said yesterday that the House leadership is planning to take a look at tax policies -- particularly property tax -- during the upcoming legislative session.

"We look forward to working with the governor to look at all of our tax policies, as well as the local property tax, in the upcoming session," Fox said in a written statement yesterday.

With tax cuts, though, often come cuts in government programs, said Ellen Frank, a senior economist with The Poverty Institute at Rhode Island College's School of Social Work. Frank cautioned that the state's spending on education and health care might have to be sacrificed if tax cuts are made. To match Massachusetts' tax burden means cutting state spending by 14 percent, said Frank.

"Our concern is we don't want to talk about revenues without talking about spending," said Frank. "It's inevitable that lost revenues are going to mean spending cuts."