Frankly, I’m getting really tired of debunking the idea that reducing the corporate tax rate will do anything to revive the stagnant economy in Rhode Island but, in the immortal words of David Coverdale, “Here I go again, on my own. Going down the only road I’ve ever known.”
In a press release, dated May 6, 2014, Senate Finance Committee Chair Daniel Da Ponte says that he will introduce legislation to reduce the corporate tax rate from nine to seven percent, beginning in 2015. There are several telling – and disturbing – passages in the release. The first passage that pricked up my progressive ears and raised my journalistic hackles was this.
"Chairman Da Ponte developed the legislation, with assistance from the Rhode Island Public Expenditure Council, following a series of meetings with large employers from a cross section of industries."
Hmmm, meeting with “large employers.” I’m going to guess that doesn’t mean small business men and women that happen to be portly. Let’s just assume that the “largest employers” in R.I. are those that occupy the top six tax brackets. According to the R.I. Division of Taxation, there are 2,144 businesses in those six brackets. I don’t want to downplay the importance of these large businesses on our economy, but on the other hand there are 47,555 businesses in the bottom two tax brackets. I’m no economist, but it seems to me that if one wanted to have a significant and broad impact on businesses across the state, one would focus their attention on the most significant and broadest swath of businesses, that is, small businesses.
I’m going to write the next sentence in bold caps so that everyone understands the situation, and, yes, I am “internet yelling.”
THE ONLY SECTOR OF RHODE ISLAND CORPORATE ENTITIES THAT PAY ANYWHERE NEAR NINE PERCENT INCOME TAX ARE BUSINESSES THAT POST LOSSES OR EARNINGS UNDER $250,000 PER YEAR!
Did you get that? Only the smallest businesses in RI actually pay anything vaguely resembling the 9 percent mandated by our tax code, and then some. In fact, the 18,390 Rhode Island businesses that posted adjusted net losses of $161,284,348,417 actually paid $10,181,122, which is an astronomically high tax rate. To put that in perspective, the 214 businesses in the top bracket – earning $500 million or more – and whose adjusted income was a whopping $344,338,188,611, paid only $18,641,027; a mere .00541 percent.
Tom Sgouros has an Op-ed on the Providence Journal today which breaks down this misconception nicely. Sgouros writes, in response to his recent debate with right-wing hack-conomist Stephen Moore, who advocated for reducing the corporate tax:
“Moore was apparently unaware that a Democratically-controlled legislature could act this way, and went on to talk about Rhode Island’s corporate income tax, calling it among the highest in the nation. Well, yes, the rate is the fourth-highest, at 9 percent. But in reality, the tax is so riddled with exemptions and credits that 94 percent of businesses pay only the minimum. The tax will raise $133 million next year, and according to the Division of Revenue, 42 percent of the exemptions and credits are worth $83 million. (They have no idea how much the remaining exemptions and credits cost us.)”
Maybe this wouldn’t be so bad if the words, ‘Small business is the lifeblood of the Rhode Island economy’ fall lugubriously from so many willfully ignorant or intentionally deceitful elected officials’ lips. My question is this: If 94 percent of corporations already pay only the minimum tax rate, which I believe is 4.5 percent, what impact does reducing the rate from 9 to 7 percent have? The answer is simply this: none. Da Ponte is quoted in his release as saying:
“A two percentage point reduction in the corporate tax dramatically improves Rhode Island’s competitive position nationally and regionally. After meeting with more than a dozen important corporate partners, I’m convinced this will improve the business climate here. This allows existing companies to expand, and helps to attract new companies and new jobs to our state.”
Is Sen. Da Ponte really that gullible? After meeting with the folks that stand to benefit from the reduction , he’s “convinced” that this will help the Rhode Island economy? Maybe I’m missing something here, but I fail to see how this move will benefit anyone except those 2,144 large corporations which, by the way, represent only 3.65 percent of all Rhode Island businesses, and already pay well below 9 percent in income taxes. The release also states that:
"The bill would shift Rhode Island to a single-sales factor apportionment formula, calculating a corporation’s tax based on its sales in Rhode Island versus its total corporate and affiliate sales."
This very well could be an important piece of the puzzle when it comes to righting our economic ship, but only if the same standards are applied to small businesses that sell and ship products out-of-state. The state’s historical propensity to screw the small businessperson gives me little hope that this will actually be the case if the bill passes.
There is one bright spot in the bill, however. There is a provision to introduce combined reporting to multi-state businesses that are headquartered in RI. Bob Plain has done a nice job at RI Future of outlining the benefits to our state of combined reporting for RI-based companies that do interstate and international business.
But hey, don’t take my word for it. You can see the 2012 corporate tax revenue table for all Rhode Island businesses here. The table lays it all out in black and white; or red, if you’re one of the 18,000-plus small businesses that posted a loss in 2012. Math was never my strong suit, but it seems to me that Da Ponte’s numbers don’t add up. This is just another case of the Rhode Island legislature fellating Big Biz, while continuing to screw small business sans lubrication.