From RIFuture.org
By Samuel Bell on January
17, 2013
Governor Chafee’s State of the State speech, announcing his budget
proposal, strikes a fine balance between solutions and inaction. Woefully
inadequate as his proposals are, Governor Chafee does appear to have a
reasonable grasp of the problems facing our great state.
On social issues, Chafee proposes popular, common-sense
solutions like tweaks to gun laws and ending marriage discrimination, but when
it comes to his core task, revitalizing the state’s economy, it is a different
story. After accurately laying out the multitude of problems facing our state,
the governor proposes to do nearly nothing.
Unlike Carcieri and the General Assembly, Chafee understands
that we cannot simply dump more problems onto already strapped municipal
budgets. Since 2007, state aid has fallen by 60%, devastating communities all around
Rhode Island. To fill this $150 million hole, Chafee has recommended $20
million.
Noting that “there is simply no more important investment we can
make than in our schools and the potential of our students,” the governor makes
a powerful case for investing in education. But his proposal to maintain and
fully fund the current school funding formula is hardly a bold investment in
the future. Nor is the proposal for a $6 million increase in aid to CCRI, RIC,
and URI, which will only materialize if those institutions freeze tuition and
make $6 million in cuts.
Chafee correctly points out that Rhode Island’s refusal to
maintain our infrastructure winds up costing us more in the long run. “We must
invest in our infrastructure,” he insists. However, the $14 million the
governor is proposing for maintenance at vocational schools cannot be counted
as a serious commitment to infrastructure. That figure is less than a hundredth of what the American Society
of Civil Engineers estimates we need spend on water infrastructure alone.
Largely contracted out to a business lobby, the “Moving the Needle” report produced by the state
Senate harps on the business tax climate indices, which Republicans have
invented so that there can be economic metrics red states will do well on.
Chafee is right to reject these silly rankings. And this refusal to play by
Republican rules allows him to see that “the property tax is the real major
barrier to economic growth.”
This is strong rhetoric. But the governor’s tiny down payment on
state aid to cities and towns will do little to alleviate property tax hikes.
Perhaps Chafee’s boldest proposal is to cut the special tax
exemption that CVS benefits from and use the revenue to pay for a reduction in
the corporate income tax from 9% to 7%. Getting CVS to pay a higher rate is
probably a good thing for Rhode Island, although as a free-market liberal, I am
highly susceptible to the argument that our current tax code discriminates
against retailers for no good reason. If the Woonsocket-based chain agreed to a
tax hike in negotiations with Chafee, then we owe them a debt of gratitude.
A cut in the corporate tax rate, however, is rather silly. If
you want to reduce taxation on businesses, it would do far more good to the
economy to focus on tax cuts that help startups and small businesses or remove
market distortions. This is hardly a controversial principle. Rhode Island’s
tax code is unusually hard on small businesses, the engine of our economy.
For instance, the $500 minimum tax, which is levied even when a
business has no profits, is essentially meaningless for large, successful
corporations, but can impose a serious burden on small start-ups.
Similarly, the network of licensing fees Rhode Island is famous
for barely matter to large corporations but can be a nightmare for small ones.
Another option that would be more beneficial to small businesses would be to
adopt a progressive corporate income tax instead of the flat 9% rate we have
now.
Chafee could have taken any of these proposals to maximize the
effect of his tax cut. Instead, he chose to cut corporate taxes in one of the
least beneficial ways. Bolder business tax cuts, apparently, were off the
table.
While Chafee clearly understands the problems facing our
state—municipal budget cuts, weakened educational institutions, crumbling
infrastructure, and an anti-business tax code—he proposes to do basically
nothing about any of these problems.
The reason is simple. He refuses to end the
tax breaks for the rich that created this budget mess in the first place.
Without, new revenue or debt, there is just no way you can fund a recovery
package. These are the cold, hard facts of math.
Samuel Bell is the
Rhode Island State Coordinator for the Progressive Democrats of America. My
primary interest is Rhode Island's economy and what we can do to fix it.
By Gus Uht
On the whole Governor Chafee’s speech was disappointing.
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| WPA poster from the 1930s, as are the other two illustrations in the article. |
The first big budget item: no increases in taxes or fees. So
much for tax equity. In fact the corporate tax rate is to go down from 9% to
7%.
There are more millions for many worthy projects/areas: K-12
education, higher education, infrastructure, property tax relief, and
workforce development are some. No new sources of funding for the above were
mentioned. So how do we pay for all of this? This was not specifically
addressed by the Governor.
There was no mention of increased funding for social programs,
in fact it sounded like the usual ‘hard decisions’ will be made on the backs of
the disadvantaged via decreased funding. Such cuts may be one of the sources of
the increased spending elsewhere in the budget.
Governor Chafee also said how well the state government works
now. With all due respect, what about the poor service to the unemployed after
all of the DLT staffing cuts?
There was some good news on social issues: continued strong
support for marriage equality, gun control proposed, and more support for
veterans. However, there was no mention of women’s health issues, nor tax
equity (see above).
On the whole the speech came across as somewhat
feel-good-with-no-pain, that is, kind of unrealistic. Hopefully my concerns will
not be realized.