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UPDATED: Latest Stunning Display of Incompetence by Raimondo Involving our Most Vulnerable May Cost Taxpayers Tens of Millions

Both the Providence Journal‘s Kathy Gregg and WPRI’s Ted Nesi are reporting today that the State of Rhode Island, more specifically, the Executive branch’s Office of Health and Human Services (the Rhode Island Executive Branch being currently occupied, we should note, by Gina Raimondo), missed a critical court deadline to appeal a court ruling and thereby may have put state taxpayers on the hook for “$8 million annually for each year starting in 2016-17″. From Ted Nesi’s story about this disturbing and jaw-dropping situation:

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Sinkholes of One Kind and Another

Readers in the Rhode Island area, particularly to the east of Providence, may have caught wind of the heavy traffic along I-195, yesterday.  Apparently, crews were repairing some sort of “depression” in the road, perhaps from a prior patch.  These things happen, of course, but the longer a fix takes, the more traffic it causes, and the more expensive it is to do road work and maintenance, the less state and local governments will be able to do.

With regard to that second point, this still from WPRI’s coverage arguably tells the deeper story:

WPRI-RIDOTstanding-053018

 

To be fair, the reporter does say that the video was being taken as the crew was doing “finishing touches,” so at earlier periods the ratio of people working to standing around might not have been two to eight, as appears to be the case in this short clip.  That said, seeing high proportions of watchers to workers is hardly an unusual experience in Rhode Island.

One suspects a large part of the calculation is the strict assignment of jobs.  In traffic, recently, I watched a crew setting curbs along an exit ramp.  Two guys were hanging out in the truck with all of the traffic cones, another appeared to be supervising, two guys were in the hole setting curbs, another was standing on a truck to offload the curb pieces a few feet away, and another was driving the machine back and forth to move the curbs.  (Plus the cop directing traffic, of course.)

That crew could easily have been cut nearly in half without a loss in efficiency or safety simply by putting the cone placers to work setting curbs and giving the supervisor a more-active task.  I never did road work when I was in construction, but similar tasks would probably have called for only three people: One helping to set the curbs, one operating the machine, and one going back and forth to hook the machine to each new curb piece.

Multiply that excessive labor cost times every task associated with every yard of roadway, and the potential savings that could be put toward accelerated repairs and maintenance or left in the private economy would be massive.  Eliminating any presumed need for truck tolls would just be the starting point.

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When an Administration Cares About Regulatory Reform

In the Washington Examiner, Paul Bedard points to an under-reported achievement of the Trump administration:

When he came to office, Trump promised to cut two regulations for every new one he imposed.

The duo said that the percentage is actually 3.75 to 1, an unprecedented reduction.

Trump believes that cutting regulations, while it receives few headlines, is one of his team’s biggest accomplishments and a driver in the improving economy and investment in the United States.

Contrast this with Rhode Island’s efforts.  Here, it takes years to create a special commission that takes years to get rolling in order to produce a short list of licenses and regulations that can maybe be taken off the books, which list the legislature will trim before it becomes law, after which the special interests that benefited from the existence of the regulations will agitate to put them back.

This shouldn’t be so hard.  Rhode Island overtaxes and over-regulates.  We need a strong, quick push that changes the impression of our state into one barreling in the right direction, and the right direction is not extending limited taxpayer subsidies to counteract the effects of our taxes and regulations for hand-picked companies willing to cut deals with politicians.

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A Canary in Seattle

The city of Seattle is blazing trails in the assault on business and disincentive for job creation, and Seattle Times columnist Jon Talton is correct to warn of a reckoning:

One thing is clear. The tax will not be paid by Jeff Bezos, the world’s richest person, or any other real or imagined toffs running the targeted companies. It will be “paid” by hiring fewer people here, making fewer investments, thus perhaps reducing overall taxes to the city. This is not sticking it to The Man.

One of the fascinating aspects of the jobs tax is how it reveals a tectonic shift in Seattle politics.

The slow-moving but generally pragmatic center-left that governed for years has collapsed.

Some of Talton’s lessons are either (it seems to me) either off base or specific to Seattle.  I’m suspicious, notably, of the blame that he puts on the GOP for becoming a “hard-right party” that exploded its leverage by booting its centrists.  One needn’t change the tilt of one’s head too much to see that as something more like a center-right party that didn’t move far enough to the left to keep progressive activists from attacking its donors and volunteers.

Consider Talton’s complaint that voters don’t have options; that can be a sign that people won’t run, given the charged atmosphere.  In short, this probably isn’t quite the distinct trend that he presents it as:

Meanwhile, a hard-left movement arose with the activist foot soldiers, infrastructure and energy to win municipal elections. It might represent a minority of voters, but given the withering away of the old order, it can win. Voters don’t have alternatives.

This lesson is probably increasingly universal across the country.  An activist infrastructure has been built up with funding from embedded interests (like labor unions), a supremely wealthy progressive elite, and siphoned taxpayer money from the Obama Administration.  At the local level, it targets any politician or grassroots organization that attempts to offer an alternative, and so the alternative doesn’t get a voice.

So… the city gets insane tax-and-spend policies that create obvious incentives against economic activity and for reliance on public subsidies.  A reckoning will come, indeed.

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A Glimpse at Changing Property Tax Tides

Here’s an interesting milestone over here in the East Bay, as I wrote on Tiverton Fact Check

Looking at the actual comparison for the 2018-2019 fiscal year, if Budget #2wins at this week’s FTR, Tiverton’s tax rate is projected to be $15.96.  Meanwhile, the proposed budget in Portsmouth is projected to bring that town’s tax rate to $15.97, and taxpayer advocates tell Tiverton Fact Check that the proposal is likely to be accepted.

Matching Portsmouth’s rate shouldn’t be the finish line for Tiverton, but it is a major milestone.  Notably, the comparison should take some of the shackles off of the high-end real estate market in Tiverton and help to balance out the tax burden around town.

Obviously, I’m observing these tax trends in the thick of a budget battle (with voting in Tiverton’s financial town referendum going on today, tomorrow, and Saturday), but in general, it’s disappointing that we don’t have these discussions more often at the local level.  Many factors can move what might be seen as a theoretically appropriate tax rate up or down, but comparisons from town to town do make a difference.

More importantly, we’d all be much better off (and maybe even more civil) if we were more thoroughly conversant about why various government numbers matter.

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Matt Brown’s Disastrous Platform

One can have little doubt that Matt Brown’s platform is right in line with the views of progressive Democrats.  One can also have little doubt that Matt Brown’s platform would be economically disastrous for Rhode Island:

On policy, Brown said he wants to reverse various recent state tax cuts, such as by raising the top income tax rate from 5.99% back to 9.9%, where it stood until 2010. He also said he would raise the top corporate rate from 7% back to 9%, but wants to create a graduated system that lets smaller companies pay a lower rate. He has not yet decided whether he wants to raise the estate tax, he said.

Brown pledged to increase funding for Medicaid, the state-federal health insurance program for low-income residents that has grown to about a quarter of the state budget.

So, increase dependency on government and suppress the free market dynamism that pays for government programs.  Brown’s program would push Rhode Island into the accelerated spiral that Connecticut is experiencing and the flight of the productive class.

It seems unlikely that Brown will actually have a chance to push his program as governor, but his end point is that toward which progressives are incrementally moving the state.  We need to take his succinct statements as a warning.

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The Coy Calculations for Sports Betting

I’ve got a post on Tiverton Fact Check that might be of some interest statewide.  Most of it has to do with the increased expectations for revenue from the Twin Rivers location soon to open in town (which argues against the pessimism that some have about estimates in the 2.9%-tax-reduction budget that I submitted for a vote this week at the financial town referendum [FTR]).  But the introduction of the topic of sports betting has broader implications:

Also this week, the United States Supreme Court “struck down a 1992 federal law… that effectively banned commercial sports betting in most states,” as a New York Times article put it.  Expecting this outcome, Rhode Island Governor Gina Raimondo had already included a provision in her proposed budget for the upcoming fiscal year suggesting that referendum votes across the state and in Lincoln and Tiverton had already provided authority for the state to conduct sports betting.  She estimated $23.5 million for the state from this source.

However, no language yet exists describing whether this betting would count as a VLT, table game, or something else.  Therefore, although Rhode Island is apparently planning to allow only in-person betting, probably at the two Twin Rivers locations, how much the host communities would receive from these transactions is not yet known.  State officials are coy on the matter, even on the way in which the $23.5 million estimate was calculated, but it is clear that negotiations are underway.

I haven’t been able to find any evidence of how the state thinks this money should be attributed or any calculation that led the governor to estimate her millions, even after communicating with multiple state departments.

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Asset Forfeiture Reform in Rhode Island

Building off the successful “Justice Reinvestment” reforms that were enacted in by Rhode Island lawmakers in 2017, the state’s asset forfeiture laws should next come under scrutiny, as they can often lead to the unfettered government seizure of cars, cash, and other private property. While many policymakers might assume that such laws are directed at criminals, in reality, simply being accused of a crime or violating a regulation may be sufficient for the state to take your property.

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Raimondo’s Major (Union) Jobs Announcement

The expansion deal that the state government of Rhode Island has just announced with Electric Boat at the quasi-public Quonset industrial park includes an understated feature:

As part of the deal with Rhode Island, Electric Boat has agreed to use union construction workers on the expansion and pay the prevailing wage.

Why would the government of the State of Rhode Island negotiate for the mandatory use of union labor?  If state officials would rather have more money go to construction workers, rather than have it available for additional investment, the prevailing wage requirement would have been sufficient.

The likely answer sheds a different light on the component of the deal requiring “$14 million in state infrastructure spending at the Quonset industrial park.”  If the state is negotiating on behalf of unions, this provision may have been requested by the state negotiators.  That is, they were happy to tie taxpayers hands with a contract requiring new government spending for labor-union work.

Note, by the way, that the vast majority of the deal offered to Electric Boat is a targeted exemption from sales tax.  Imagine how much more other companies would invest here if the state would eliminate or dramatically reduce the sales tax as a blanket measure.  Of course, if people were investing their money in economic development on their own initiative, the government officials wouldn’t so often have a seat at the negotiating table to direct funds toward their friends and political supporters.

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Some Interesting Correlations with High Taxes

Investor’s Business Daily found striking correlations between tax burden, presidential vote, population loss/gain, and government fiscal condition.  In general, high-tax states tended to vote for the Democrat in the last election, tend to be losing domestic population to other states, and tend not to be in great fiscal condition.  As IBD suggests:

One way to look at all this is to conclude that poorly managed states are trying to force taxpayers to cover for their mistakes. But, taxpayers won’t stand for it. Which strongly suggests that high-tax states need to set a new course, toward lower taxes and less spending, if they want to stop their population losses.

Of course, that’s a big “if.”  As long as they can keep the scheme going, population is only incidental… never mind that our governments are supposedly instituted to represent the people who actually live in an area.  That isn’t any longer true in a fundamental sense.

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Where the Unexpected Windfalls Go

In preparation for my weekly spot with John DePetro, this afternoon, I revisited Katherine Gregg’s Providence Journal article about the 7.5% in raises (actually 7.7%, compounded) state employees under Council 94 are expected to receive as part of a deal with Democrat Governor Gina Raimondo.  Raimondo, you may have heard, is facing a tough election this year.

These paragraphs jump out:

… the events at Council 94 union headquarters coincided with the announcement by the Raimondo administration that year-to-date revenue collections are running $46.5 million ahead of the estimates adopted at the state’s official Revenue Estimating Conference last November, on which Governor Raimondo’s $9.3 billion budget proposal was based.

A statement issued by the Department of Revenue said: “The major contributors to this surplus are personal income tax revenues, $43.6 million more than expected; estate and transfer tax revenues, $5.3 million above expectations; departmental receipts revenues, $4.5 million more than expected; and public utilities gross earnings tax revenues, $5.4 million ahead of estimates.” A few smaller sources of revenue fell short of projections, yielding the net surplus of $46.5 million.

Gregg notes that the new raises will be competing with the pleas of other special interest groups in their annual “more money” dance (which, admittedly, sometimes means more than a budgeted reduction).

But have you noticed that an unexpected increase in revenue is never cited as an opportunity to lower tax rates?  To the extent that it comes up, reduced taxes are typically handled in such a way as to make a special interest out of taxpayers, as with the specific elimination of the car tax.

In any event, time will tell whether Raimondo’s bid for the labor vote creates enough of a boost to save her job.  Valley Breeze publisher Tom Ward is skeptical of her chances, generally:

My take on it: There is no amount of money that will save her candidacy. The unfixable UHIP that continues to cost taxpayers more millions, the now-late and already unpopular tolls that create a new budget shortage, the “scooping” of energy conservation monies – and now, grabbing 911 emergency funds for God knows what. She owns all of it! She will lose a two-way race soundly, and needs to keep independents like Joe Trillo in the race to save her.

We’ll see.  The thing with full ballots is that a candidate can win with a small plurality, as Rhode Islanders keep learning… to our detriment.

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Arthur Brooks Of AEI Inspires Audience at Center’s Leadership Luncheon

This last week, one of America’s leading conservative thinkers, Arthur Brooks of the American Enterprise Institute, inspired over sixty local leaders at our Rhode Island Center for Freedom & Prosperity leadership luncheon. One guest said: “Every once in a while I get the opportunity to experience something that will change my life in such a profound positive way, that was exactly what happened to me yesterday as I listened to Mr. Arthur Brooks’ words of wisdom. I was further empowered and assured that together we all can and should make that needed difference!”

With “life entrepreneurship” as his central theme, Brooks encouraged the lawmakers and civic leaders in the audience to advance a “start up your life” attitude among the people of Rhode Island. Brooks said that by taking the risk of investing love, time, and commitment to the important people and self-improvement opportunities in one’s life, that this “start up your life” attitude will bring happiness, prosperity, and overall returns on that investment many times over.

The feedback from the bipartisan attendees, whether liberal or conservative, was overwhelmingly positive. As only Arthur Brooks can do, he challenged us intellectually to consider the kind of moral, family, and work culture we want to have in our state. Click here now to see pictures of the event.

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UHIP Catastrophe: Governor Once Again Blaming Deloitte as “Real” Problem (Also, Chafee)

Yesterday on NBC 10’s Connect to the Capitol, Dan Jaenig asked Governor Gina Raimondo, among other topics, how the state dropped the UHIP ball. The governor started her response by taking a swipe at former Governor Lincoln Chafee, saying he signed a terrible contract with Deloitte. She then continued,

Under my watch, we hit the go button before it was ready. But I will say the real problem here is the company sold us a product that didn’t work.

This is not to defend Deloitte, which apparently has a mixed record with regard to such systems. But let’s be clear. It was you, Governor Raimondo, who gave the catastrophic order, for your own selfish political reasons, to launch an unready system. Accordingly, DO NOT BLAME FORD MOTORS FOR DELIVERING A DEFECTIVE CAR WHEN YOU ORDERED THEM TO REMOVE IT FROM THE ASSEMBLY LINE ONLY HALF WAY DOWN. And similarly for the aspersions you cast at Governor Chafee: the contract, good, bad or indifferent, is completely irrelevant if the manager who takes over the contract inexplicably orders production to be shut down well before the product is finished.

Everyone else – taxpayers and UHIP clients – but you, Madame Governor, is paying the high price for your catastrophic action. Please at least stop casting blame for it in desperate and absurd directions.

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Holding On to a Fading Tax

Add the Tax Foundation‘s Morgan Scarboro to the list of people observing that state-based estate taxes are on their way out:

In addition to the federal estate tax of 40 percent, some states impose an additional estate or inheritance tax. Twelve states and the District of Columbia impose an estate tax while six states have an inheritance tax. Maryland is the only state in the country to impose both. …

Recently, states have moved away from these taxes or raised the exemption levels:

  • Indiana repealed its inheritance tax in 2013
  • Tennessee repealed its estate tax in 2016
  • New York raised its exemption level to $5.25 million this year and will match the federal exemption level by 2019
  • The District of Columbia is set to conform to the federal level this year after meeting its revenue triggers
  • New Jersey will fully phase out its estate tax by 2018
  • Delaware repealed its estate tax this year

Rhode Island is holding on to its estate tax for the time being, and it’ll probably take something like a political earthquake to shake it loose.

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Always Record Revenue, Always a Shortfall

Doesn’t it always seem that government spending goes up and up, and yet officials always claim it’s not enough?  Andrew Malcolm notes that… umm… paradox on HotAir:

According to the Census Bureau, last year alone state and local governments collected a record $573 billion just in property taxes. That’s about $1,759 for each one of the estimated 326 million Americans.

Add to that another record — $386.2 billion — in sales and gross receipts taxes.

And another $405 billion in income taxes.

That’s almost $1.4 TRILLION. Quite a haul for governments. And yet, as the Wall Street Journal reports (subscription), state and local governments are hiking taxes and fees even more, claiming budget crunches.

The bottom line, I’d say, is that we’re just trying to undertake too much of our society’s activity using government.  Even if they are supremely capable and well meaning, those in the public sector are given broad goals and also have to factor in institutional sclerosis and corruption.

Because the goals are both mandated by law and generally unbound by targets or metrics, resources will always be drawn away from their intended use.  And because the people who supply the resources aren’t typically the first beneficiaries of the programs and don’t really have a choice on an individual basis, the business model must be to find ways to pry out more.  The paying customer isn’t being persuaded that he or she should spend more for something, but rather, is being told that government has no choice but to take it.

It’s difficult to imagine an activity in which these features would actually make things happen more efficiently, so they should be considered an inevitable drag outweighed by some other problem, like free riding when it comes to national defense.  At this point, our sense of that balance is way out of whack.

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The Incentives of School Bonds

Regular readers know I put a lot of emphasis on incentives as a way to understand events and a key consideration when crafting policies.  The $250 million school bond proposed for the November ballot is a good example.

On the front end, the incentive is very strong for school districts and municipalities to let facilities deteriorate.  First, the law is structured to give advantages to labor unions organized at the state and even federal level, creating incentive for them to manipulate the political structure.  Then, elected officials have incentive to tilt budgets toward organized labor, drawing money to compensation.  Next, having learned from that experience over time, taxpayers have incentive to squeeze money out of budgets so that even higher taxes aren’t paying again for things like maintenance that they thought were already included and that might be diverted again if available.

On top of it all, the near certitude of passing bonds for dire repairs creates disincentive for regular maintenance from the start.  This mechanism creates incentives for financial interests and investors, and the bias toward big projects brings in the incentive that got me thinking of these things.  As Dan McGowan reports for WPRI:

Fix Our Schools R.I., a 501(c)4 nonprofit formed last week, will spend the coming months “educating communities across the state about what this plan is and how it would affect them,” Haslehurst told Eyewitness News. …

The organization lists its address as 410 South Main St., the same building as the Laborer’s International Union of North America. Haslehurst said it will share space with the Occupational and Environmental Health Center of Rhode Island, a nonprofit that has an office inside the building.

A quick look at the health center’s IRS filing shows that it’s a labor union organization, with AFL-CIO poobah George Nee as the treasurer.

‘Round and ’round the incentives go, to the point that running things efficiently — in the way people run their households, planning ahead and all that — seems almost to be an impossible task.  Be skeptical of anybody who tells you that this is a “once in a generation” investment that fixes a problem.  After all, when the debt payments subside, the incentive will be to find more projects in need of debt or to build the payment amount into regular budgets.

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Lack of a Scandalous Flop Isn’t “Guts and Vision”

A recent editorial in the Providence Journal lauding the Rhode Island Convention Center deserves some push-back.  The writers applaud those who “invested” in the center back in the ’90s for their “courage and imagination on the basis of eye-popping numbers:

The analysis, conducted by Conventions, Sports & Leisure International of Plano, Texas, found that the Rhode Island Convention Center, the Dunkin’ Donuts Center and the Veterans Memorial Auditorium generated $838 million in total economic impact for the State of Rhode Island from fiscal year 2013 through 2017.

That far exceeds the costs of running the facilities, including $23 million a year in state bonding costs.

This isn’t a reasonable number to proclaim for these purposes.  A quick search turns up the iteration of the report from 2015, which tells pretty much the same story, and it shows that the great majority of traffic in the three venues considered (the Convention Center, the Dunkin’ Donuts Center, and Veterans Memorial) is local.  As the report puts it, “It is appropriate to assume that much of the spending from attendees that are from the local area is “displaced”, or would have taken place somewhere in the local economy if the event had not been held.”

This is compared with the result if we switched out the venues for three holes in the ground.  The $838 million of economic impact assumes that none of the customers would have spent their money locally, that none of the employees would have had jobs, and that none of contractors would have found other clients.  The study makes no attempt to estimate how much additional impact the center has over any likely alternatives if it weren’t there.  If the land remained in private hands, the owners would have had incentive to sell it, the buyers would have had incentive to develop it, and the developers would have had incentive to figure out the most efficient things to develop.

The study also doesn’t consider that the government spending that has bolstered the center could have been used for something else, like leaving money in people’s pockets to spend and invest in the ways that they considered most important.

In short, the Convention Center hasn’t been a scandalous disaster, but proclaiming “guts and vision” for investing other people’s money seems a bit overstated.

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Getting Turned Around with Progressive Tax Policies

This story out of Seattle provides a teachable moment on the craziness of the progressive approach to tax policy:

The Seattle City Council will once again consider an employee hours tax that’s being recommended by its Progressive Revenue Task Force, after having rejected such a proposal last November.

Rather than approving the proposal last year, which was projected to generate about $25 million annually by taxing businesses grossing more than $10 million annually 6.5 cents per employee per hour, the council decided to create the PRTF to further explore an employee hours tax, or head tax, and other possible new revenue streams.

The PRTF provides three options for an employee hours tax (EHT) in its recently published final report for generating $75 million in new revenue for creating affordable housing and providing emergency services. It provides several more recommendations for the city council to consider for generating another $75 million in new revenue for $150 million total, which the task force states is still grossly inadequate when dealing with the city’s homelessness crisis, but is a “solid start.”

Even on the progressives’ own terms, this is crazy.  So, a city has a problem with homelessness, and this “task force” thinks the solution is to increase the cost of employing people in the city by up to $150,000,000.

Employment and prosperity are the answers.  Incentives function by making it easier for people to do the thing you want while making it more difficult for them to do the things you don’t.  Now, we can certainly argue about the appropriate amount of meddling for government at each tier (local, state, and federal), but we should at least agree that incentive structures should point in the correct direction.

This would be like taxing gym memberships in order to fund obesity programs or taxing vaping products in order to fund smoking cessation activities.

It’s difficult not to conclude that progressives don’t much care how they get money for government; they just want more of it.  They may not even care all that much about what government does with its windfalls, as long as it’s government that gets to do the doing.

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Can We Realize The Destruction Of Families Has Unintended Consequences?

In the Providence Journal this week, Wendy P. Warcholik and J. Scott Moody write, “This growing number of children in Rhode Island without a solid familial foundation should give us all pause. This is not a problem that is going to just go away, and we must find ways to help these children before tragedy strikes, perhaps in your own neighborhood.”

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Rhode Island Has Less and Less Company with Its Estate Tax

Rachel Sheedy reports for Kiplinger that the state-level estate tax continues to evaporate from the United States of America:

Delaware is one of the latest states to bury its estate tax, which snared estates exceeding $5.49 million last year but has completely disappeared. New Jersey, too, has ditched its estate tax altogether, after hiking its exemption to $2 million in 2017 from its notoriously low, longtime exemption of $675,000.

That leaves 12 states (plus the District of Columbia) with state estate taxes on the books. And many of them are hiking exemptions for 2018, sparing more families from a tax bill when a loved one pass

So, the question on the table has become:  Will Rhode Island be the last state to slough off this relic of political philosophy that stands in the way of Americans who wish to improve their families’ lot and keep wealth churning throughout society?

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