PROVIDENCE — Two Rhode Island legislators said yesterday that they will introduce legislation that would make sweeping changes to the state’s tax structure by raising taxes for the wealthiest Rhode Islanders in order to give property tax relief to middle-  and low-income residents.

Rep. Arthur Handy, D-Cranston, and Sen. Paul E. Moura, D-East Providence, said the Economic Growth and Fairness Act, which they plan to introduce in the next few days, would also raise money to help close the massive state budget deficit.

“We really need to recognize that the tax system is broken,” Handy said in a news conference at the State House. “It’s only getting worse every year.”

The bill would “rebalance” the tax system, “creating equitable distribution of the tax burden,” Moura said.

The bill is being supported by the Campaign for Rhode Island’s Priorities, a coalition of labor unions and social-service organizations.

News of the legislation was given a cold response by Governor Carcieri’s spokesman, Jeff Neal, who said the governor believes that Rhode Islanders are already “taxed out.”

“Raising taxes even higher would undermine economic growth, thereby making it harder to raise revenues necessary to the state going forward,” Neal said.

Larry Berman, a spokesman for House Majority Leader Gordon Fox, said Fox was willing to look at the various proposals once the legislation is introduced and the governor’s 2009 budget is released later this week.

He said, however, that “right now, [Fox] does not support raising any taxes.”

Greg Pare, a spokesman for Senate President Joseph Montalbano, was noncommittal about whether Montalbano would support the measure. “I don’t think anything’s off the table at this point,” Pare said.

The bill seeks to reverse tax policies that have, according to Handy and Moura, shifted more of the tax burden to those who can least afford it — low-  and middle-income families.

“We need a tax structure that keeps in mind the fact that the poor can’t pay a higher percentage of their income in taxes than those who make more money,” Handy said.

Moura said he aggressively supported some of those tax breaks. But in hindsight, he said, some of those decisions were made “without the appropriate analysis.”

“We’ve done a lot of tax cutting in the last 10 to 15 years,” he said, such as phasing out inventory taxes and creating tax credits to promote research and development, film and television productions and preservation of historic structures.

“All this cutting contributed to where we are today,” he said.

While the bill was not available yesterday, Moura and Handy described how it would affect several types of taxes, and how those changes would affect people at various income levels. About 90 percent of Rhode Islanders, they said, would pay less state taxes, mainly because of a new 15-percent property tax rebate. At the same time, the overall tax bill for the other 10 percent — the wealthiest state residents — would increase.

Here’s how the plan would work. The bill would roll back some of the tax breaks that have been enacted over the past few years. It would restore the state income tax to the level it was before it was reduced in 1997 to 27.5 percent of a taxpayer’s federal tax liability. The current rate is 25 percent.

It would also eliminate the flat income tax for high-wage earners, instituted in 2006. It would restore state taxes on capital gains, the profits on the sale of stock and other investments. Handy and Moura said that about 74 percent of all people who claim capital gains in Rhode Island make $200,000 a year or more.

And finally, the bill would impose a new 2-percent gross receipts tax on accounting and legal services, and limit the amount the state makes available in the historic structures tax credits to $40 million each year.

The new taxes would raise $346 million a year, according to a report prepared by the Campaign for Rhode Island’s Priorities.

Of that amount, $180 million would be used for property tax rebates. Another $20 million would be used to increase state aid to education by about 3 percent. And $4.8 million would go toward increasing the state’s refundable earned income tax credit.

That leaves about $141 million that could be used to address the structural budget deficit as well as to restore some of the services that were cut to save money.

Most taxpayers would see a reduction in their overall taxes, the report said. For example, a Cranston couple filing a joint tax return with an annual income of $51,498 — the state’s mean income — would see a reduction in taxes of $419. That couple would receive a $598 property tax rebate, but that would be partially offset by an increase in income and sales taxes.

Though Rhode Islanders would have to pay sales taxes on some services that are not now taxed, the bill calls for reducing the state’s sales tax rate from its current level of 7 percent, to 5.5 percent, over a four-year period.

tbarmann@projo.com