On April 14, I testified before the Senate Finance Committee against Gov. Lincoln D. Chafee’s budget proposal to tax services at 6 percent. In principle, a sales tax on services is not unreasonable if it serves to lower the overall sales tax. But initiating a new tax on services and starting it at 6 percent is too much, too soon. As a result, it could slow our state’s economic recovery, particularly prospective job growth.
I have listened to many constituents on the so-called “Chafee Tax.” What aggrieves people most is that state government appears ready and willing to raise taxes, but shows precious little willpower to cut the costs of government in order to bring spending under control. I agree and have argued this point repeatedly in the past.
To place Rhode Island back on a path to prosperity, it must reduce its costs, lower its tax burden and create a healthier business climate. In addition, Rhode Island will need to make a number of investments in areas such as higher education and infrastructure to cultivate good-paying jobs that are less susceptible to economic downturns. These goals are not attainable if the state continues to consume revenue as fast as or faster than generated. As a consequence, we will likely see slow job growth, and, of those jobs, fewer will be in higher-paying professions.
Moreover, if state spending goes unabated, there will be relatively less government revenue, mounting structural deficits, and inevitably larger tax increases simply in order to make ends meet. At that point, the state will be forced to make unfortunate and indiscriminate decisions to avoid a very real financial crisis.
This scenario need not be our fate. If state leaders can show the courage to make some very tough choices now, we can come out of this recession stronger than we are today. This will require shared sacrifices that will affect many Rhode Islanders. Policymakers will need to examine a number of areas in state government wherein cuts, changes or reforms can yield substantive cost savings.
Major cost drivers need to be examined. Human services represent about 40 percent of the state budget. Cost savings may be found here through such approaches as restructuring benefit options and improving the efficiencies in the delivery of services.
With the exception of access to emergency medical care, government services generally should use e-verify to make certain that they go to lawful citizens only. The state also needs to streamline/merge and modernize its various agencies. Moreover, government oversight needs to be enhanced to root out waste and abuse, especially in Medicaid as well as in tax collections, especially in the underground economy.
As about one-third of the state budget goes to aid cities and towns, encouraging the sharing of municipal services within a municipality or between municipalities will help reduce local and state costs as well.
Long-term pension reform is required to make sure that the system is affordable today and sustainable for future recipients. While it represents a tiny portion of the state budget, there should be a salary freeze for high-paid government staffers to illustrate the point that leadership begins at the top.
There are assuredly other areas of government deserving of our attention. I offer these areas merely as a starting point from which to begin a constructive dialogue both inside and outside the halls of state government. •
Estate and Corporate Income Taxes are changing next year, and business owners and executives should know the details. The PBN Summit on November 6th will provide those details and more - including how much Obamacare's Employer Mandate could cost.
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