01:00 AM EDT on Sunday, May 7, 2006

The Rhode Island House's 52-to-17 vote on Wednesday to stimulate the state's economy through tax reform, is an encouraging sign that the legislators are facing reality. Now the Senate should follow through, to give the Ocean State a bright future, with more high-income taxpayers and many more jobs.

We urge Senate President Joseph Montalbano to lead the way in the Senate and back this proposal. The need is urgent to energize the state's economy, thus producing more, and better-paid, jobs and more tax revenues. The state now has a serious competitive disadvantage in comparison with its neighbors -- which is showing up in distressing data.

At the very least, Rhode Island must be no more punishing to high-income taxpayers than is next-door Massachusetts. Changing the top tax rate from 9.9 percent to 5.5 percent would make wealthy entrepreneurs much more likely to move here -- bringing jobs with them.

Remember, we're talking about competing with liberal Massachusetts -- not Alabama!

People might not like the, er, aesthetics of tax relief for the top earners. But Rhode Island has no alternative if it wants to stop being an economic also-ran. It has to deal with the reality of human behavior, not rhetoric.

As even non-rich Rhode Islanders (such as retired public employees) prove every day by moving to Florida and other states, a state's tax rates affect behavior. And when those tax rates serve to send capital to other jurisdictions, the Ocean State suffers -- in jobs, company formation, and charitable giving.

Rhode Island citizens must press their state senators to support this much-needed reform.

But why, more specifically, should Rhode Island seek to attract rich people? Because they run, and make siting decisions about, companies; they bring in venture capital to start new firms; they pay large amounts of the taxes that let government function; and they give extensively to charity. In driving them away, the state only hurts the middle class and the poor.

During months of debate, tax-reform foes have argued that Rhode Island's taxes pose no threat to its economic well-being. That is absurd. Rhode Island has for years been ranked the worst state for affluent taxpayers (because of its property and estate taxes, as well as its income taxes). And top-income earners are increasingly avoiding the Ocean State.

This had led to:

-- On a per-capita basis, Rhode Island has half the high-income earners of its neighbor Massachusetts, and a third of its neighbor Connecticut.

-- Over the past decade, only one new company in Rhode Island (BankRI) has grown to employ more than 250 people, while there have been 22 such companies in Massachusetts, 9 in Connecticut, and 5 in New Hampshire.

-- From 1995 to 2002 in Rhode Island, the amount of income reported by the top earners declined 17 percent. Over the same period in Massachusetts, the amount of such income rose 82 percent; in Connecticut, it rose 41 percent; and in New Hampshire, it rose 35 percent. Indeed, nationwide the rise was 35 percent.

-- Over the same period, the number of families with an annual income of under $25,000 increased 13.2 percent in Rhode Island, while in Massachusetts it fell 4.7 percent, and in Connecticut, 0.1 percent.

These trends have obvious results: The state faces whopping annual budget deficits, and a decreasing ability to pay for its government.

The state should not continue to fight over slices of a shrinking pie. It needs to bake a bigger one.

One thing is sure: Pretending that all is well will only make life harder for everyone in Rhode Island, rich and poor.