Taxing the Rich Raises Taxes on All

Matt Allen is talking about the RITE rally that I mentioned during last night’s liveblog.  As predicted, the rally’s getting plenty of coverage.  Matt played a Bill Rappley segment from WJAR 10; Ian Donnis reported on it; Dan McGowan rounded out his coverage  of the event with a link to a study showing that not enough rich people will leave, because of the tax, to overbalance the amount that it will raise in new taxes; and no doubt, there are several other examples of coverage.  I’ve yet to see one point made, though.

The tax returns that Rhode Islanders are now filling out are the first that reflect changes to the tax system made in spring 2010, and as I’ve been writing for quite some time, the effect of those changes was (for the most part) to (1) freeze the flat tax on higher incomes where it was (preventing a drop of 0.5%) and (2) make up the difference, remaining “revenue neutral,” by shifting whatever revenue non-flat-tax rich folks might have payed above the 5.99% rate onto working- and middle-class Rhode Islanders who benefit most from deductions (based on productive behavior and medical necessity, for the most part).

Viewed in terms of the pre-reform tax regime, what advocates for increasing the top tax rate are really calling for is:

  • An increase in working- and middle-class Rhode Islanders’ taxes, as accomplished in the tax reform.
  • An elimination of the flat tax that upper-income Rhode Islanders’ had enjoyed.
  • An increase in taxes on those upper-income Rhode Islanders, not only by bumping up the rate back toward the old 9.99% and eliminating the flat tax, but also by capping itemized deductions at $15,000 (for married, filing-jointly households).

The end result of their policies, with Senate bill 2622 and House bill 7729 would be a huge tax increase, from the pre-reform baseline of 2010, right in the middle of a recession that Rhode Island is having especial difficulty shaking.