For Sales Tax Reduction and Better Government in General

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Given the political-policy battle between Speaker of the Rhode Island House Nicholas Mattiello (D, Cranston) and Governor Gina Raimondo (D), the RI Center for Freedom & Prosperity has renewed its call for a substantial reduction of the state sales tax to a 3% rate.  Using our RI-STAMP model, we find that the sales tax reduction creates many more jobs, whether it’s revenue neutral or accomplished through spending reductions, while a revenue neutral car tax elimination would actually kill 3,065 private-sector jobs.

The most astonishing observation, however, is the difference in approach between us and the politicians who run Rhode Island state government.  Their arguments are all based on airy, subjective notions of fairness and asserted benefits.  Mattiello appears to be focused on his hyper-local political dangers, while Raimondo appears to be focused on the national political establishment that loves her.  One gets the sense that the effects of policies on the people of Rhode Island are secondary, to the extent that they rate at all.

How else could a leader wade into a policy that might, even theoretically, destroy thousands of jobs?  (We’ll be offering numbers for the governor’s tuition plan in the near future, so don’t assume this criticism is limited to Mattiello’s car-tax elimination.)

The next-most astonishing observation on the Center’s car-tax post is how obvious it is not only that the state government could reduce its spending, but that doing so would be the only just action.  Consider this chart:

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The red area of the chart is the total state budget (with the governor’s requests for a revised 2017 and initial 2018).  The blue area is what the budget would have been if, from 2001 on, the state government had tracked it according to inflation and population growth.  The dashed line is the level of personal income in the state (including various forms of investment income), as used in the Center’s Jobs & Opportunity Index (JOI).

The income line follows the right axis, so it isn’t truly a one-to-one comparison, but the ratios of the axes are the same, so one can generally say that Rhode Islanders’ income has grown more than inflation and population, but not as quickly as the state budget.  So, far from allowing Rhode Islanders to enjoy the extra income they’ve earned — investing it back into our economy — the state government has actually increased the percentage of income that it confiscates and spends.



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