Gov. Lincoln D. Chafee’s proposed state budget for next year puts big business in the spotlight.
It would slash the state’s corporate tax rate, paid for exclusively by large companies, while scaling back Rhode Island’s biggest big-business, tax-break program.
Although Chafee proposed something similar in his first budget two years ago, that plan also included a variety of tax changes affecting a broad array of activities and industries. The fiscal 2014 budget, by contrast, has no broad-based tax increases and leaves tax structure and programs for individuals and small businesses largely untouched.
Outside of the handful of large corporations expected to lose out on tax breaks, the new budget is bound to be more popular than the sales tax increases that were rejected by the legislature after a revolt by business leaders.
Across the border in Massachusetts, Gov. Deval L. Patrick is taking a dramatically different approach, hiking personal income taxes 1 percentage point while cutting the state sales tax 1.75 percentage points. (The combined plan raises taxes $1.9 billion.)
“The theory is you want to reduce the rates so it helps everyone, and I think we do want to move in that direction,” said Mark Higgins, dean of the University of Rhode Island’s College of Business Administration.
“But the corporate tax change is only about $8 million [in fiscal 2014], so it is not that significant in the context of the economy,” Higgins said. “The bigger thing is what Massachusetts is doing with sales tax and income taxes. I am afraid the legislature might raise income taxes in Rhode Island in response.”
So far, Rhode Island small-business reaction to Chafee’s budget has featured a mix of relief that no new taxes have been proposed, and disappointment that tax cuts are focused on big corporations.
“I’m not completely satisfied, but it is moving in the right direction and holding the line on taxes,” said Grafton H. “Cap” Willey IV, managing director of Providence accounting firm CBIZ Tofias Inc. and a member of the Smaller Business Association of New England. SBANE has proposed a capital gains tax holiday for startups to spur innovation.