The measure now heads to the Senate, where the leadership says it will consider the proposal, but not at the expense of the state's neediest residents.

01:05 AM EDT on Thursday, May 4, 2006

BY KATHERINE GREGG
Journal State House Bureau

PROVIDENCE -- With House Republicans cheering them on, Democratic House Speaker William J. Murphy and his leadership team yesterday pushed through a bill aimed at reducing the income tax bills of the state's wealthiest residents.

Expectations are 1,687 of Rhode Island's 477,000-plus taxpayers will take advantage of the new flat-tax option during the 2006 tax year at a cost to the state of $7.2 million in lost revenues. That averages out at $4,268 each in tax relief.

By 2011, the annual cost is expected to hit $73.1 million.

Before entering the House chamber yesterday, the lawmakers had to walk through a gauntlet of sign-carrying protesters.

Their signs read "1 Percent Gain, 99 Percent Lose," "The Wealthy Win, Shame On You" and "Don't stomp on Us" over a drawing of an elephant bearing the influential State House name: "Murphy."

journal photo / Connie Grosch

Rep. Steven Costantino, D-Providence, House Finance Committee chairman, right, listens to Rep. Kenneth Carter, D-North Kingstown, while Costantino's Taxpayer Relief Act is debated in the House yesterday. The bill to cut taxes of the wealthiest residents passed.

But after more than an hour of debate, the House voted 52 to 17 in favor of the legislation promoted by the Greater Providence Chamber of Commerce -- and several of its high-profile members -- as a salve for Rhode Island's ailing economy.

"This is not a tax cut for the rich who are here, albeit it will help them," said Rep. Carol Mumford, R-Scituate.

"This is a tax cut for those who, we hope, are going to come to this state now that we do not tax [those] that make over $250,000 a year [at] twice what our neighbors do," she said.

Echoed Rep. Joseph Trillo, R-Warwick, "When you support this legislation, you are not only supporting the tax cuts for the decision-makers who make the decision whether to bring the companies here. You are also supporting all of those jobs that they bring with them; all of the money those jobs bring with them; the opportunities they bring with them, and that helps every one of your constituents right down the line."

House Finance Chairman Steven Costantino, D-Providence, also cast the bill as good news for the upwardly mobile middle-class: "What we are telling the middle class right now . . . [is] if you make more money, you are going to get penalized. We need to turn that around."

The bill would give taxpayers a choice of paying the state's current graduated income tax rate or a new flat-tax that would drop, in increments over the next six years, from 8 percent to 5.5 percent of adjusted gross income with no exemptions and no deductions.

Rhode Island's current tax rate has been difficult to fathom -- and explain -- since lawmakers, in an effort to decouple Rhode Island's piggybacked tax rate from the federal income tax, created a hybrid.

As it stands, Rhode Island taxpayers are required to pay the state 25 percent of whatever their federal tax liability would have been before the first round of Bush tax cuts in 2001.

Put another way: taxpayers pay the state a quarter of what they would have paid when federal tax rates ranged from 15 percent to 39.6 percent of income. That translates into a state tax that ranges from 3.75 percent on the first $49,650 in earnings up to 9.9 percent on every taxable dollar above $326,450.

As a result, the vast majority of low, middle and upper middle-income Rhode Islanders pay less here than they would in Massachusetts or Connecticut. But those with incomes of $200,000 to $250,000 or more generally pay more.

The legislation approved by the House yesterday is aimed at making Rhode Island more competitive with other states, such as Massachusetts with its 5.3-percent flat rate.

While advocates touted the legislation as a jobs-growth bill, it is not linked to the actual production of jobs -- and Rep. Thomas Slater, D-Providence, called it "obscene."

Other Democrats questionned how their leaders could promote tax cuts for the wealthy before telling them how, in the face of $300 million in projected deficits this year and next, they hope to avert the cutbacks Governor Carcieri proposed earlier this year in state programs such as the RIte Care health-insurance program for the poor and struggling middle-income.

In an impassioned speech, Rep. Arthur Handy, D-Cranston, said: "The business representatives and the wealthy Rhode Islanders who want this tax cut have come to us to say: there are people making over $250,000 who don't want to stay in Rhode Island because they have to pay a bit more in taxes than they would in some other states.

"They say, 'we need more money for ourselves so we can give charitable contributions and not move to Florida.' Mr. Speaker, I ask them: What do you say to the family making $30,000 a year who will lose their RIte Care benefit . . . What do you say to the senior citizen who will lose their lifeline, Meals on Wheels?"

And, "it is not enough to say that by creating this tax cut we create more wealth," Handy said. "It's not fact, it's supposition so this vote takes millions from the budget . . . further dooming our most vulnerable families to fulfill a guess by the Providence Chamber of Commerce and some wealthy people who are in it for themselves."

The bill also offers the promise of a $25 increase -- and a larger increase later -- in the income-tax credit of up to $250 currently available to low-income, disabled or elderly people for their rent and property taxes; also, an increase in the refund -- known as an earned-income tax credit -- the state provides low-wage workers who pay little or no taxes.

The bill now moves to the Senate, where leaders are promoting a tax-cutting package of their own that centers largely on capping future increases in Rhode Island's local property taxes.

Asked yesterday about the likelihood the Senate will pass the House's tax cut for the wealthy, Senate President Joseph A. Montalbano, D-North Providence, said: "The Senate is willing to entertain the House's flat-tax proposal as part of the overall budget debate.

"However, we will not do so at the expense of the people who rely upon the budget, Rhode Islanders in need of assistance such as RIte Care, and other families who are struggling, especially at this time of higher gas and energy costs. As long as we are able to provide the vital services upon which Rhode Islanders rely, then we in the Senate will keep an open mind."

kgregg@projo.com / (401) 277-7078