The ongoing discussion
of eliminating the sales tax proves the enduring value of telling people what
they want to hear.
Don Carcieri, for his
whole term, told people that government could be cheaper, but really all he did
was insist it be so and ignore the evidence when it turned out not to work
quite the way he’d hoped. Does anyone remember the “big audit”? It was done
early in his administration, but all the findings about places where increased
investment would help our state were deep-sixed and the other results were
insignificant enough that the whole project was considered a minor
embarrassment and mostly forgotten.
So here I am, feeding
into exactly that need for attention they crave, but let’s be clear: this is a
stupid idea, supported by fantasy projections and a misunderstanding of the
real world.
I see from their most
recent press release that they claim a reduction of the sales tax to 3% would
produce secondary effects worth much more than the revenue lost: over 13,000
new jobs, hundreds of millions in new revenue to the state and cities and
towns, and so on.
They call these
“dynamic projections” presumably because everyone knows that something that is
“dynamic” must be good. They do say that state revenue might be down by a bit,
but made up by city and town revenue. (An aside is important here: we often see
claims like theirs that Rhode Island’s sales tax is the highest in the country.
This is false, or misleading at best. In most states, county governments are
supported by sales taxes, and there are places in 31 states — including Texas,
Arizona, and most of the South — with a higher sales tax than ours.)
But let’s look at
these “results” of theirs. They claim, for example, that their model
predicts $79 million in new sales tax revenue. This is a 20% boost in sales. Do
you believe that lowering the cost of a $100 item from $107 to $103 will
produce a 20% increase in sales of that item?
That is, they predict
that a 3.7% savings will produce a 20% increase in sales. Do people out there
with retail experience think this is remotely likely? Presumably people will
spend a little more when there are savings, but seriously? Perhaps they imagine
hordes of Swansea residents will drive through Seekonk to do their
shopping in Warwick in order to save a few percent on their purchases?
The CFPMAP report goes
on to imagine that the resulting 20% increase in retail sales in Rhode Island
will be responsible for $208 million in income tax revenue. Backing this out,
that means they imagine the 20% increase in sales will be responsible for
around $4 billion in income for the state.
This is almost a 10%
increase in the economic output of the entire state. Do you believe this will
be the result of a sales tax cut? They are only (only!) projecting an increase
in taxable retail sales of $2.5 billion, so the other money presumably comes
from the tax cut fairy.
The 13,000 new jobs
they suggest would appear don’t even account for a quarter of the increase in
income they project. The rest is because everyone else would get a raise, or
more hours. Would you expect a raise if the sales tax is cut?
One could go on, into
their hidden assumption that all these new hires and raises happen
instantaneously upon the announcement of the newly lowered tax, or into their
projections that newly-prosperous Rhode Islanders would buy 32% more cigarettes
and 25% more liquor (also immediately), thereby swelling the revenues from
those taxes, but why bother?
The proposal is
ridiculous, supported by projections that will take in only the gullible and
those who really wish to be taken in.
And there’s the issue,
really. Lincoln Almond and Don Carcieri owe their success to the desire of
people to believe their claims that government could be cheaper. They were not
brave politicians, taking on the fearful power of special interests. They were guys
who were propelled into high position by promising people what they wanted to
hear and maintaining that it was possible long after events had proven them
wrong. Theirs was no kind of courage.
Political courage is
what we have seen in Governor Chafee, who has consistently presented us with
tax and budget proposals that worked against his interest in re-election — and
that have been consistently overridden by legislative leaders more interested
in theirs. Let us only hope that they are able and willing to see through this
latest sales tax claptrap.
Tom Sgouros is a freelance
engineer, policy analyst, and writer. Check out his new book, "Checking
the Banks: The Nuts and Bolts of Banking for People Who Want to Fix It" at Light
Publications.