By William Hamilton PBN Staff Writer Twitter: @waham
PROVIDENCE - Rhode Island’s taxes – and in particular, its estate tax – are driving wealthy residents away and have cost the state more than $540 million in lost revenue between 1995 and 2007, according to a new study by a nonprofit that supports free enterprise and limited government.
The report from the Ocean State Policy Research Institute said more than $1 billion in taxable income has disappeared as the state has experienced a net loss of 23,483 taxpayers in that time period.
If the annual income loss is compounded over the 13 years examined in this study, the state has cumulatively lost $4.6 billion, the study said.
Warmer states with favorable tax policies and low levels of union membership were popular spots to relocate to, according to OSPRI. Far and away, Florida was the most popular destination for migrants.
The report, released Thursday and titled “Leaving Rhode Island,” lays most of the blame for the migration on Rhode Island’s estate tax – a tax on the right to transfer property when someone dies.
While the state raised the estate tax threshold from $675,000 to $850,000 in 2009 and tied it to the consumer price index in future years, it is still one of the lowest exemptions in the country. Meanwhile, Florida has no estate tax.
Numerous financial planners have acknowledged advising high-asset clients to look into moving their primary residence to a state with more favorable income and estate taxes. It requires people to live in another state for at least six months of the year.
“Virtually all of my wealthy friends and fellow philanthropists have moved their residencies out of Rhode Island,” Alan Hassenfeld, whose Hassenfeld Family Initiatives foundation commissioned the OSPRI study, said in a statement. “This loss of income to our state’s economy, to our tax revenue base, and for local charitable-giving is a lose-lose situation for everyone involved. Unless there is a drastic change in the punitive estate tax here in Rhode Island, anyone in my position would be a fool not to leave.”
Not everyone agrees with Hassenfeld and OSPRI.
The Poverty Institute at Rhode Island College disputed the report findings, arguing that Rhode Island’s population has grown over the past decade.
The OSPRI study “marks yet another attempt to lay the groundwork for more tax cuts for wealthy Rhode Islanders – based on the unproven but undying myth that these taxpayers are ‘fleeing’ for low tax states – in particular, states with no estate tax,” the Poverty Institute said in a statement.
The left-leaning group also said the OSPRI used “very flawed assumptions” in its claim of $540 million in lost tax revenue.
“This figure is derived by applying Rhode Island’s state and local tax rates to the income reported to be leaving the state with out-migrants, resulting in a seriously overstated amount,” the Poverty Institute said. “This overly simplistic methodology assumes, for example, that property tax revenue will be lost when someone leaves. This is not the case, however, as it is reasonable to assume that the property will be sold and taxes will continue to be paid.”
Other findings in the OSPRI report include:
Between 1995 and 2007, total net income (in-migration minus out-migration) leaving the state averaged $78.4 million every year, translating into a total loss of more than $1 billion. Had that income stayed in the state, local governments would have collected an average of $9.11 million more each year.
From 1995 to 2007 Rhode Island collected $341.3 million from the estate tax. In 2008 – the most recent year the study looked at – the state collected $27 million.
Bill Felkner, OSPRI founder and director of policy, said he hoped the report findings would persuade state lawmakers to make some changes.
“The estate tax is one of the most counter-productive taxes in our state’s tax code,” Felkner said. “Small and family businesses are often forced to dissolve and many prudent high-net-worth individuals will simply leave Rhode Island to avoid the ‘death tax.’ ”