04/24/12 – House Finance Committee

042412-housefinance

4:25 p.m.
So, today House Finance will take up a cornucopia of tax-the-rich legislation.

As seems often to be the case, the audience gathered in advance of the beginning is very heavily tilted toward the left-wing and public-sector union side. Tom Sgouros is up in the front row, a full complement of Economic Progress Institute (i.e., Poverty Institute) representatives are a couple of rows back. NEA leader Bob Walsh is milling about.

Bob Walsh

Jim Cenerini from Council 94. Jim Parisi, RI Federation of Teachers. A variety of other people, looking not quite of the official lobbyist sort, are here.

The clear opposition is, as often seems to be the case, represented only by Diane McLaughlin and Lisa Blais. John Simmons from RIPEC is in the audience, so it’ll be interesting to see what he has to say.

4:34 p.m.
Add Mike Puyana, RI Tea Party, to the opposition.

4:35 p.m.
The stickers that the pro-tax folks are wearing read “Where are the Jobs? RITE” (That’s Rhode Islanders for Tax Equity.) It’s a curious slogan, considering that the legislation would cost the state 1,372 jobs by the time the dust settles. As I’ve noted before, that’s four times as many jobs as would be created by a Twin River casino.

4:41 p.m.
Gary Sasse, currently a consultant to the city council of Providence, is talking to Kate Brewster, Executive Director of the Economic Progress Institute.

Gary Sasse and Kate Brewster

4:45 p.m.
Chuck Collins, a nationally known left-winger (who spoke at the Economic Progress Institute’s Budget Rhode Map conference, this year) has made the trip. Meanwhile, Pat Crowley just walked by without saying, “hello,” and some more of the usual labor reps (e.g., firefighter Paul Valletta) have arrived.

5:03 p.m.
Interesting atmosphere. Some collegiality, with Gary Sasse chatting with Bob Walsh and Tom Sgouros. Kate Brock, of Ocean State Action. A middle-aged man in an orange “Occupy” sweatshirt walked by with a sign showing bleeding red letters bearing a message close to: “Corporations will suck the money out of you, and government will take the rest.” I’m not sure which side that message supports…

5:08 p.m.
And the Web site appears to be down. Therewith the final straw, I think, with this host.

5:20 p.m.
From the TVs, it looks like the representatives should be here, pretty soon. I see the Providence Journal has arrived, too.

5:23 p.m.
And the representatives begin to filter in, including bill sponsors. I see Ken Block is here, too.

5:24 p.m.
One of the reasons I haven’t left my Web host, yet, is that they have telephone tech support, which I haven’t had since my very early days of working on the Web. A telephone call that I just made was a useful reminder that there’s not much they can say over the phone that they can’t communicate via email.

5:26 p.m.
Very full room. Standing room only, in fact. It looks like my usual strategy of sitting out of the way was not wise, inasmuch as the full aisle is blocking my view and my camera.

A group of folks, some wearing “Occupy” shirts, have come in wearing Robin Hood hats.

5:31 p.m.
As the room stands and sits in eager anticipation, union organizers and such are going up to the front of the room to chat with Chairman Helio Melo. George Nee is up there now.

5:34 p.m.
Attending such meetings is not for the claustrophobic, that’s for sure.

But now the Capitol police just announced that anybody who doesn’t have a seat has to leave the room. The Occupiers don’t seem to understand that they were supposed to sign up for speaking and would have their opportunity even if they had to wait in the hall.

5:38 p.m.
The Current’s Web site was up, and now it’s down again. Keep this as a record, kids, and consult it before they ask you to download your consciousness to the Internet.

5:41 p.m.
Melo has opened the meeting, noting that many people signed up to speak. They’re trying to get a TV in the hall. He asks everybody to keep their testimony brief.

Rep. Helio Melo

5:42 p.m.
All bills held for further study.

5:43 p.m.
Rep. Deb Ruggiero is introducing her bill to reinstate a renewable energy tax credit.

5:45 p.m.
She’s saying that the credits increase business activities; people buy the technology, pay to install it, and generate revenue for the state.

5:47 p.m.
Stu Flanagan and Mike Cabral from a renewable technology company (Newport Renewable) are testifying. I wondered what the young guys in suits were doing here. Also speaking on the bill is Abel Collins of the Sierra Club.

5:49 p.m.
Rep. Frank Ferri thanked them for going into the business and asked how much work they’ve had. The answer from the business owners appeared to be, “not much.” They donated a job to get their name out there.

Rep. Frank Ferri

5:50 p.m.
Rep. Bob Watson is introducing his bill to put lottery windfalls to the state in a restricted receipt account for cities and towns. He says that the lottery was initially put into place to provide education funding.

He wants to allocate the money for education… whether as additional revenue or to fill in the budget as it is, he leaves up to the committee to decide.

5:53 p.m.
And the Web site is up again… I’m balding as I liveblog.

5:54 p.m.
Watson is arguing against apportioning the money by size; he wants equal portions to each community.

“Some of our larger communities have been among the most fiscally irresponsible.” A female voice in the audience gasped.

Watson: Smaller communities are “entitled to an equal share of windfall revenues.”

5:56 p.m.
Ultimately, though, Watson mainly wants the money to go to education one way or another.

Rep. Joy Hearn asked if the money should go through the funding formula.

Rep. Joy Hearn

Watson: “Everyone in Rhode Island” gives “great resources” to fund education in Providence. The suburban and rural communities have shown that they are willing to make investments in education across the state, but lottery winnings are “pennies from Heaven.”

Rep. William San Bento doesn’t look that excited.

Rep. William San Bento

5:58 p.m.
Rep. Doreen Costa is speaking in support of the bill. “There are so many distressed communities,” and the first thing to go is education, including sports. Lottery windfalls might save a little league or something.

She says she’s won five dollars in PowerBall.

6:00 p.m.
Now on to Rep. Larry Ehrhardt’s legislation, but one of the people he’s enlisted to testify isn’t here, so he asked to move it down the schedule.

6:01 p.m.
Instead, we have Ruggiero’s legislation to raise the exemption amount for estate taxes, putting Rhode Island in line with its neighbors. Some of the folks waiting to testify for the “tax the rich” legislation are talking among themselves in astonishment that a million-dollar estate is “middle class.” (Once you add in holdings and property, that’s actually not that crazy.)

6:03 p.m.
Rep. Dan Reilly also has a bill that’s exactly the same, but raises the the exemption to $5 million (Tax the rich folks chuckle.) He says about $24 million in revenue would be lost.

6:04 p.m.
Reilly: “$5 million, in my analysis, provided a comfortable footing for the estate tax.” That’s very important in days like these, when people are using inheritance to pay for college and buy homes for family members.

Grafton “Cap” Willey, CPA, is now testifying.

6:06 p.m.
He’s saying that the federal government has a $5 million exemption. That may drop, depending who wins the election, but he hasn’t heard any talk in Washington below $3.5 million.

“The estate tax is an issue” causing people to leave the state. “It’s not necessarily the only issue.” He lists various taxes and “quality of life.”

6:07 p.m.
He says the original estate tax change was erroneous, not exempting all estates from that much of the tax, but only those with estates below.

6:09 p.m.
He wants to convert the money into a credit, as a minimum. “I would love to see us have no estate tax.” He says only 15 or 16 states do have them.

6:11 p.m.
He’s particularly concerned about small businesses and family farms, which he wants protected, at a minimum.

Rep. Larry Ehrhardt is saying that he believes representatives were “misled” when they voted on the estate tax last time.

6:12 p.m.
Ruggiero notes that there are many farms in RI, and $1 million isn’t a lot for them. Those who inherit that sort of property have to come up with the money. (The note on $1 million dollars would be a $6.1 million loss of revenue.)

6:13 p.m.
Rep. Larry Valencia asked whether the sponsors want tax increases or program cuts to make up for lost revenue. Willey noted that the notes are “static” so it might not be as low, if people stay in RI who might otherwise have left.

Reilly noted that the governor has overspent by $30 million, so money can apparently be found.

6:15 p.m.
Mike Puyana is testifying for RI Tea Party that they would like to see there be no estate tax at all. “It would be an attractant for people who want to stay in the state or to move here.”

6:17 p.m.
Diane McLaughlin of the Ocean State Tea Party in Action says that only 20 states have estate taxes, and RI has one of the lowest estate tax exemptions. She listed the states around us, and MA is the next lowest, at $1 million. Maine is apparently moving to $2 million, from $1 million, soon.

6:18 p.m.
She notes that people who leave the state would bring other taxes with them, as well as charitable donations.

6:19 p.m.
David Riedel from the the Rhode Island Bar. “The higher the number [for exemption], the better.” At the least, he says, they ought to fix the error.

He says that we can argue about the estate tax, but whatever the conclusion, we don’t want to be the worst in the country, or the third worst.

6:22 p.m.
Kate Brewster is testifying against the $5 million exemption. “The estate tax is among the most progressive,” and five million would exempt 95% of estates.

6:23 p.m.
On to the tax-the-rich bills. Rep. Maria Cimini and Rep. Scott Guthrie are introducing their bills.

6:24 p.m.
Guthrie says he introduced several bills to “show the people of Rhode Island” what’s on the table when we talk about taxing rich people.

He wants people to know about the cost of the “tax reduction thing” that we did helping out the wealthy.

6:25 p.m.
He says he hopes Gary Sasse (whom he referred to as “one of the architects” of the flat tax) will testify for his bills.

“The only people who are leaving Rhode Island are the people on fixed incomes who can’t afford to live here.” “We stole $200 million” from the cities and towns.

6:27 p.m.
Melo asked the Occupy folks to keep their signs down.

6:28 p.m.
Cimini says her bill would create a “temporary raise” of the income tax on the wealthy.

6:28 p.m.
She thinks it encourages people to create jobs. She says that lower and middle income folks pay a greater share of their income in taxes. [But that totals all taxes of all sorts, which as I’ve argued before brings into question the rationale of having more than an income tax. Essentially, the progressives want to treat all forms of taxation as income taxes.]

6:30 p.m.
She’s listing various cuts to services. [I’d have to check the numbers, but I’m pretty sure that most of these “cuts” were actually reductions in the increases.]

6:31 p.m.
Now she’s listing all of the new fees that the state has introduced in lieu of taxes.

She says the bill “is not an attempt” to punish success or discourage business.

6:33 p.m
The next list that she offered was that people rely on “public [this] and public [that].”

When she finished, the Occupiers clapped.

Melo notes that there are eight pages of witnesses, and he asks people to be brief and not repeat what’s been said.

6:34 p.m.
First up are McLaughlin and Puyana.

Puyana: “I want to make it clear that the RI Tea Party is firmly opposed to all these bills.” Refers to Willie Sutton robbing banks during the Great Depression “because that’s where the money is.” The Robin Hood mentality “never has worked and never will work.” It stifles investment.

6:36 p.m.
He notes that RI’s size means that people can pick up and leave. He’s also offering numbers showing what percentage of the income tax wealthy people already pay.

“Nobody is suggesting that budgets be balanced on the backs of low-income folks or middle-income folks.”

“There are huge spending cuts we can make.”

6:37 p.m.
McLaughlin: OSTPA opposes all tax-the-rich bills. RI has to be comparable to nearby states. She notes a story in the Journal saying that tax revenue is up, showing that the tax reform is working.

She says that revenue projections in other states that have raised taxes are never realized, because people leave.

“Don’t send mixed messages to decision makers.”

6:40 p.m.
“Public sector workers support this because it means more money for them.”

David Carlin, RI Chamber of Commerce Coalition. They oppose all bills. “The business community looks for consistency with respect to tax policy. This legislation would reverse what you did just last year.”

6:42 p.m.
He proposes that the argument that the tax cut didn’t create jobs “is not a logical argument to make.”

6:43 p.m.
The Chambers also oppose the legislation because the people earning $250,000 or more (“the vast majority”) are pass-through entities. “There’s no question about the fact that those are the mom-and-pop” businesses.

The legislation would send “the exact opposite message that we need to have” to encourage those organizations that make the jobs.

6:45 p.m.
Chuck Collins, Kate Brewster, and Jessica Sherwood are up.

6:46 p.m.
Collins mentions his latest book. “Tax cuts for the 1% have exacerbated disparity of income.”

6:47 p.m.
He says Cimini’s bill “rebalances the tax code.” “This bill would address the regressivity of RI’s tax code.”

6:48 p.m.
He says that the income tax doesn’t affect pass-throughs that reinvest in their businesses. [I’m not sure of the specifics, but I think there’s a fine line that shifts back and forth, here, on these arguments.]

6:49 p.m.
He says that the nation has been reducing taxes on the wealthy for the past 50 years.

Jessica Holden Sherwood lives on the east side of Providence. “I’m a mom and a sociologist.” She teaches at URI. She says the state has made “cuts and cuts and cuts.”

6:50 p.m.
She likens taxes to M&Ms, saying some people have a handful, and some people have a bathtub full. [She smacks her lips frequently while she talks.]

6:51 p.m.
She says she lives in the neighborhood of these wealthy people, and the representatives shouldn’t pay much attention to any who complain.

6:52 p.m.
Brewster says she’s highlighting a few points from several papers that she’s submitted. The Economic Progress Institute supports any tax increase.

6:54 p.m.
Brewster says that more than 88% of pass-throughs showed adjusted income below $250,000

Because of budget shortfalls, the state has had to cut state investments in workforce training. [Implying that government investment creates jobs.]

6:55 p.m.
Rep. Ehrhardt asks Collins to make a distinction between what S-Corps can capitalize versus what they can expense. “If they’re putting their money into their business into, say, machinery that the IRS requires them to capitalize, they don’t expense.”  In other words, they <i>do</i> get taxed on money they put into their businesses.

Collins is stuttering. Now he’s found his thread, drawing a distinction between buying machinery and hiring people.”

6:57 p.m.
Valencia thanks Collins for his book. He notes that $500,000 is closer to the 99% versus 1% distribution than is $250,000. Which would Collins prefer?

“The $250 level is a good marker” but none of these are cut-offs and shouldn’t be seen that way. [Huh?] Now he’s saying that investment returns are undertaxed. He’s arguing that the disproportionate percentage of income tax paid by the rich is evidence of the disparity in income.

6:59 p.m.
Valencia asks where he sees the middle class, in income.

Collins: The middle three quintiles. Household incomes under $100,000.

7:00 p.m.
Rep. Joy Hearn asked about taxes at different levels of government.

Collins is saying that he wants to reverse the trend of shifting obligations down toward localities. [Which completes the circle: centralizing tax and spend decision, moving it away from the people.]

Hearn points out that RI had high property taxes before the cuts in income taxes.

7:02 p.m.
Gary Sasse and Pat Crowley are up. Crowley quipped that he’s never before been to the right of Sasse.

7:03 p.m.
Crowley says there hasn’t been a reputable study showing that tax increases cause people to leave. [Not true.] He says the members of NEA-RI urge the committee to raise taxes.

7:05 p.m.
Sasse says he thinks there are studies that taxes make a difference. “They aren’t the only factor,” but they do make a difference.

7:06 p.m.
Sasse is trying to articulate a middle road between business groups that predict “armegeddon” if any marginal tax increases are passed and the other side that predicts calamity if they aren’t.

7:08 p.m.
He says that he supported the tax reform. “Having said that,” he says the state cannot ignore the economic reality that it faces.

Sasse wants them to consider “two fundamental questions”: Can the marginal rates be increased without an effect on economic growth, and what would be reasonable?

Sasse: going back to 9.99% would be “extreme” and “unfair.”

7:10 p.m.
He suggests that there “is some room” for adjustment (upward) related to our neighbors on effective tax rates.

7:11 p.m.
He wants to change exemptions and such the rate is effectively 6.25%, but “cosmetically” under 6.

He also says that any increase ought to be tied to good spending policy, not just a new stream. “The issue in this state is not the budget; the issue is getting this economy to move again.”

[I’d argue that that’s a deal with the devil, as evidenced by union and activist support for this legislation. They’re not looking for infrastructure investments. And they’ve got more motivation to wear down legislators than those trying to build infrastructure by raising taxes.]

7:14 p.m.
In 2010, “none of us envisioned” that we’d still be struggling.

7:15 p.m.
J. Michael Downey, union rep, thinks high-income earners have not made “their share” of sacrifice. [I wonder what they’ve lost in income, having to sacrifice based on economic decline.] He also notes that the unemployment rate is still high. “Short-term pain for long-term gain.”

7:19 p.m.
By the way, Rep. Eileen Naughton is running the meeting, Melo having left.

Rep. Eileen Naughton

Cap Willey is back up urging legislation to encourage business, not raise taxes, especially by undoing income tax reform that just went into effect.

7:21 p.m.
Willey argued that RI doesn’t want to stay at the bottom of the U.S. list of tax rates.

7:23 p.m.
He’s reviewing the tax reform; oddly, he hasn’t mentioned that many households saw tax increases with the reform and would keep those increases if any of this legislation passes, thus increasing the overall tax burden.

7:24 p.m.
He suggests we lower corporate tax rates, because we’re becoming an “outlier” there.

7:25 p.m.
He did end by saying the tax system would be in worse condition than before the reform if the 9.99%-rate returns.

Jim Parisi says the Rhode Island Federation of Teachers supports increasing taxes. [I wonder if that applies to all of its members.]

7:26 p.m.
He says we shouldn’t have to wait to see how the reform works. He argues that the reform just incorporated the flat tax. [He’s saying it “made it permanent,” but the flat tax was permanent; in fact, it was going to go down.]

He blames tax increases and the cap on property taxes for revenue short falls and at least a large part of the job losses in the state.

7:28 p.m.
It’s peculiar that he says we don’t keep pace with Massachusetts in employment, implying that our tax system impedes RI, when others have noted lower rates in MA.

Now he’s pointing out that about half of the jobs lost last year were government jobs.

7:31 p.m.
George Nee, AFL-CIO, says the experiment of tax reductions has “failed,” because our unemployment rate is so high.

7:32 p.m.
Now he’s offering poll numbers. [Feels like it’s going to be a very long night.]

7:33 p.m.
Nee says that cuts in income taxes have led to increases in property and car taxes. [There’s a throw-everything-at-the-wall aspect to these arguments. Parisi raised the cap in property taxes in tandem with tax cuts as part of the problem.]

Nee says the middle-class worker is the job creator, because he or she spends the money.

7:35 p.m.
Quotes Hubert Humphrey: “Moral test of government” is how we treat children, elderly, poor, sick, and handicapped.

7:36 p.m.
Rep. Ray Gallison asks Willey whether people paid more or less under flat tax than the 5.99%.

7:37 p.m.
Willey notes that the first few flat taxes were high (it phased down over time), so not many people took advantage of it. Also, it was a hard sell to promote to those outside the state, he says, because people didn’t understand it and still looked at the 9.99%.

Willey says we’re still not competitive with MA.

He says it’s been a tough economy. He notes other tax policy (e.g., unemployment), and he thinks a lot of the difference between RI’s economy and MA’s economy is tax policy.

7:40 p.m.
“I desperately feel that if” our tax policy keeps swinging back and forth, “nobody’s going to trust us.”

7:41 p.m.
Valencia says he stuffed envelopes for Hubert Humphrey. He asks Willey what percentage of his clients are in high income brackets.

“It might be 20 to 25%.”

Valencia asks about studies on the effect of the estate tax. Willey says many of his clients move out every year, not all for tax reasons.

7:44 p.m.
Pat Thompson, Chamber of Commerce and other financial businesses. “We are opposed” to any of the changes.

The Committee attendance is now down 6 members. Ferri, Hearn, Jackson, Naughton, Valencia, and Ehrhardt.

7:46 p.m.
Thompson likes the simplicity of the current tax system.

7:46 p.m.
The tax increases would be especially bad, she says, considering that a number of credits have disappeared and itemization has been taken away. It would be a “really significant change to go to that rate.” And tying it to the unemployment rate really doesn’t make a lot of sense, because there’s no direct relationship, and “no predictability.”

7:48 p.m.
She says it’s a misconception that the tax reform was a tax cut for the rich. “The numbers weren’t designed that way.” Especially, she says, when you consider that the flat tax was going down from where it was.

7:51 p.m.
Kelly Sheridan, Greater Providence Chamber of Commerce, is addressing “myths” of the tax-the-rich proposals. First is that the reform was a tax cut for the rich. He offered a grid that shows the effects of the tax reform. I think he’s referring to the data that I addressed here. It shows that lower income brackets paid less, while those above $175,000 per year paid more (collectively).

7:54 p.m.
“It’s simply not true” that the reform cut taxes for the rich.

“Second myth was that it was a tax cut” at all. It was revenue neutral, thus undermining the argument that lost revenue was passed on to increased property taxes.

7:56 p.m.
He notes that 2% are paying 36% of the taxes and 5% paying 41%.

Now John Simmons, from RIPEC is up. He’s describing how badly RI does on competitive analyses with the rest of the country, saying that it negates the argument that we should have seen a thriving economy based on the tax reform.

7:58 p.m.
Rep. Jackson has left, bringing the committee down to five. Actually, I’m going to have to do the same.

8:04 p.m.
As I prepare to go, though, Simmons has made an excellent point, noting that very few people were taking advantage of the flat tax by the time it was eliminated, so it’s not accurate to say that we’ve seen lower rates tested. “The cross-over rate was coming,” where the flat tax would have really made a difference.

[That appears often to be a strategy of progressive activists: if things must be implemented, give them phase-ins so that they can be declared failures before they’ve really taken effect. I’m sure it goes the other way, too.]

8:05 p.m.
These tax increase proposals, Simmons says, would mean the rich would pay another 13-15% of all income tax. MA has a lower effective rate.

8:09 p.m.
Hearn asks if high-income earners have been leaving the state.

Thompson says they have no study, but they know their clients, and they tend to leave. [It’s tough to say, by the way, because people’s income has changed, so tracing them is rough.]

Simmons makes the point that the promise of the flat tax may have been keeping people here, throughout the data that’s available.

8:12 p.m.
Rep. Ferri began to make a point about comparisons of rates from state to state. Simmons is saying that the income tax is more “personal” than other taxes.

Ferri asks if we’re on the same level as other states with sales taxes and other taxes. Simmons says we’re not competitive on many issues.

Ferri suggests that states are causing harm to each other by competing. Simmons argues that you have to look at everything, and RI is high on spending as well as taxes.

8:16 p.m.
Ferri notes that he agrees that we have to see what the effects of the tax changes before making additional ones.

10:51 p.m. [From home.]
As I was leaving, Tom Sgouros was defining “effective tax rate” as the amount of taxes that people wind up paying of their total income. It seems to me that there’s room for a lot of mischief making with the numbers, once we start getting into blurring the distinctions between taxes (sales, property, income, etc.) and weighing them all against actual income.

For example, all incomes have gone over the past fifty years, so it’s possible that Sgouros (and Collins, for that matter) are looking at total taxes and taking the percentage of income. But if people’s earnings grow faster than their sales taxes, or their property taxes, or whatever taxes, then naturally the total taxes that they pay will go down as a percentage of income.

This ties to another argument that progressives periodically make, measuring the growth of government against the growth of the economy. In that case, there’s no reason to assume that the government must grow in proportion with the economy. Indeed, the more money to be found in the population, the less it ought to need government assistance.



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