The Palmetto Insider

The blog of the South Carolina Policy Council

Rhode Island Bucks Trend by Cutting Taxes

with one comment

Having just passed the largest budget in state history—$20.887 billion—after the governor’s budget vetoes trimmed $261 million, it seems certain that lawmakers will raise taxes and fines/fees once they reconvene in 2011.

And so the cycle begins anew: higher spending fuels tax increases when revenue drops, while economic boom times fuel ever higher spending.

In fact, a majority of states have already raised taxes or fines/fees in the midst of the worst recession since the Great Depression. South Carolina, for one, raised its cigarette tax by 700 percent to 57 cents per pack. We also raised several fines and fees. According to the liberal-leaning Center on Budget Policy and Priorities, “more than 30 states have raised taxes or tax-like fees” since the beginning of the recession in 2008.

One notable exception is Rhode Island.

In an effort to create jobs and attract new business, the state just slashed its top income tax bracket by 40 percent. Rhode Island also reduced its income tax brackets from five to three (5.99 percent, 4.75 percent, 3.75 percent) and increased the standard income deduction. At the same time, lawmakers eliminated several targeted tax exemptions/deductions.

All in all, the reforms, according to the Tax Foundation, will improve Rhode Island’s business tax climate by 3 spots, from 44 to 41.

When asked how they managed to cut taxes during a recession, Governor Donald Carcieri responded, “We’ve had good revenue. It’s been a spending problem until recently when the revenue collapsed.… Both sides in a bipartisan fashion have understood that we’ve got to control spending and doing that you can make some of these tax policy changes.” In particular, noted the governor, the state cut spending by reforming its employee pension plan and eliminating overly generous state employee retirement benefits.

All of these issues sound strangely familiar.

As indicated above, South Carolina just passed its largest budget in state history. The state is also facing serious problems with its pension plan and needs to look at cutting state retiree benefits – TERI, in particular.

To learn more about Rhode Island’s success, listen to this podcast from the Tax Foundation.

And to learn more about why cutting taxes would be good for South Carolina’s economy as well, check out Unleashing Capitalism.


Written by Jameson Taylor

July 8, 2010 at 9:00 am

One Response

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  1. […] 28, 2010 12:40 pm We’ve written before on how at least one state—Rhode Island—managed to slash taxes during the current […]

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