Rhode Island has a $295 million deficit. That’s a lot of money, and none of the solutions proposed thus far sound very just or very smart. Despite what the Tea Party says, we cannot cut anymore—we just can’t. We’ve been cutting for the past decade, and with schools closing and bridges crumbling, there simply aren’t any services left to cut. But there’s also a strong pushback brewing against plans that put most of the tax burden on working families and small businesses. So it seems Rhode Island is stuck between a rock and a hard place.
Or at least that’s what some would have us believe.
Luckily, there is another option, one that would solve our fiscal problems in a socially and economically responsible way. State Representative Larry Valencia is currently drafting a piece of legislation (it will be officially entered next week) that would function as a state-level repeal of the Bush tax breaks for the wealthy. Though the tax breaks were implemented at the federal level, this piece of legislation still functions as a repeal because it raises the state income tax for the wealthy by the same amount President Bush cut the federal income tax for these highest earners, thereby restoring their overall rates to what they were before W. took office.
When people talk about the deficit, the term ‘shared sacrifice’ comes up a lot. But what usually happens is this: working families and small businesses are asked to absorb all the cuts and extra fees, while those who can best afford to share in the sacrifice are given a free pass (it is no coincidence that they’re the ones who write the big campaign checks to the politicians who make these decisions). The idea behind Valencia’s bill is to actually share the sacrifice. It’s not a huge sacrifice; Valencia is simply asking the rich to pay what they were paying before the Bush tax cuts—back when our country and state were running a budget surplus, and when the unemployment rate was less than half what it is today.
That last statement may come as a surprise for those who buy into the right’s refrain that taxing the wealthy hurts the economy and causes job loss. To those folks, I’d recommend looking at a graph showing Rhode Island’s state income tax rate increase for the wealthiest 1 percent and Rhode Island’s unemployment rate over the last 15 years: it’s a big fat X. As the tax rate on the wealthy has been steadily cut, from a little under 10 percent in the mid-1990s to a little under 6 percent today, the state unemployment rate has steadily grown, from around 5 percent in the mid-1990s to over 11 percent today.
Some conservatives claim that even if this cut will help the economy in theory, it will actually just make all the rich people pack up and leave. And here we see myth #2, or what I like to call the ‘Flight of the Earls’ folly. The right wants to scare Rhode Islanders into thinking that we can’t ask the wealthy to pay their fair share or they’ll move, but the truth is that there’s a wealth of research showing this myth has no basis in reality. Just this month, Jeffrey Thompson, a researcher at the University of Massachusetts-Amherst’s Political Economy Research Institute, published a study called “The Impact of Taxes on Migration in New England,” in which he definitively states, “Taxes do not play any notable role in causing people to leave Rhode Island.” The study found that in five of the six New England states (the sixth being Vermont), the relationship between net migration and relative income is positive. That means more people enter and/or fewer people leave the state as relative taxes rise.
The truth is that tax increases generate revenue, which can be spent in ways to make an area more attractive to current and potential residents. That concept has been missing in Rhode Island, where for the past decade the establishment has argued that we need to cut taxes to improve the economy. If that tactic had been working, if our economy were in great shape and the rich’s rising tide had in fact been lifting us all up, then I’d be all for more tax giveaways. But we’re not in great shape. We’re in a pit, and we’re certainly not going to get out of it using the same policies that got us here in the first place.
I support Representative Valencia’s upcoming bill because it is, quite simply, the only answer to our budget deficit that makes any sense. In this time of need, when small businesses, students, cities, teachers, and working families are being asked to sacrifice, it makes sense to ask a little more from those citizens who have been receiving an immense windfall for the past decade thanks to President Bush’s tax breaks. Let’s hope our leaders in the Statehouse are finally able to learn from their mistakes and move on to a better future. If not, we’re all going to have to pay.
AARON REGUNBERG B'12 works with Rhode Islanders Advocating for Fair Taxes.