Contributors
Justin Katz: R.I.’s economic clock runs down
01:00 AM EDT on Saturday, April 5, 2008
HOW MUCH TROUBLE is Rhode Island in? So much trouble that it falls to a carpenter subjecting himself to sleep deprivation to hammer some readily available statistics into a picture that refutes the dangerous spin of a well-financed coalition of vested interest groups.
If that carpenter may presume to offer a suggestion about the big “what now” implications of his data, let me humbly suggest that what Rhode Island does not need is a collection of “creative solutions” with suspicious motives and speculative outcomes. Rhode Island needs simple solutions with linear chains of cause and effect and clear costs and consequences.
First, the problem:
• Almost 30,000 fewer Rhode Islanders lived in households earning over three times the poverty level (around $60,000 for a family of four) in 2006 than 2005 (U.S. Census American Community Survey).
• Over that same period, married-with-children households earning more than $100,000 or more a year decreased by 1,033.
• According to tax returns filed in 2005 and 2006 (based on income from 2004 and 2005), Rhode Island lost, on a net basis, 8,296 taxpayers, with an aggregate adjusted gross income totaling $485 million, over those two years (IRS Migration Data).
Two complicating factors deepen the story. First, Census data for 2005 actually shows a 21,754-person spike in people over three times poverty. Second, overall trends for households earning above $75,000 per year have been positive, albeit with shrinking increases.
Unfortunately, Census data before 2004 doesn’t give detailed results above twice the poverty level. However, by that measure, it appears that the spike was unusual, not the subsequent drop. From 2002 to 2003, Rhode Island lost 7,249 such people, and from 2003 to 2004, it lost 19,751.
As for the positive trends among the relatively wealthy, Census data shows a telling bump among households earning between $100,000 and $200,000, with 12,592 more in 2005 than 2004. What’s telling is that every category beneath that earnings range had a corresponding dip.
The picture that begins to emerge from these various numerical trends is of a state in which households — families in particular — from the working through middle classes have been selling their houses (perhaps their businesses) and moving away. Support for this theory can be found in the comparison of the average adjusted gross incomes of those moving to and from counties just over the Rhode Island border.
Judging from 2005 and 2006 tax returns, the average income of Rhode Islanders escaping to the closest parts of Massachusetts and Connecticut were 25 percent and 12 percent higher than the average of those moving the other way, and they were 20 percent and 27 percent more numerous. It’s notable, too, that their incomes were 17 percent and 7 percent higher than the overall average for emigrants (which was higher, itself, than for overall immigrants). The departed appear to be families with strong ties to the state, perhaps still working here, who see a benefit to living under different regimes.
If the trends portrayed in the latest available data have continued, Rhode Island has been losing around 1 percent of its tax-paying population every year since 2004, and those who’ve fled have taken a quarter billion dollars of income with them annually. Stopping this flight must become state and local governments’ Number 1 objective.
One simple solution is to make Rhode Island a more attractive place to live by decreasing the cost of living here (i.e., lowering taxes) and increasing the incentive for businesses to open up shop. Therefore, seeking to drain more tax revenue from commerce and layering taxes on corporations, both of which are “on the table” at the General Assembly, borders on dementia.
A clear consequence of lowering taxes, at least near-term, is that revenue will slip even further below spending. Compensating by taxing the rich more would simply tip the capsizing boat the other way. In 2003, the $75,000-$200,000 and $200,000-plus categories each paid around 35 percent of the total income-tax liability for the state. As the former’s percentage has dropped, the latter’s has increased to over 40 percent. As reluctant as we all may be to take taxpayer-funded services and other public-sector benefits away from those who’ve come to rely on them, our budget must be balanced entirely from the spending column.
Talk of “sharing the pain” is well and good, but it’s mere pabulum unless it means decreasing the pain of those who’ve had more than their share. Short of building a wall the length of our borders, we’re going to have to accept human nature and entice productive people to stay and repatriate. Not facing the problem now will only provide time for those who’ve gotten us into this mess to make their own, heavy-pocketed escape.
The clock is ticking.
Justin Katz, an occasional contributor, runs anchorrising.com, a public-policy-discussion think tank.
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