RI’s Flat Tax: What is it Good For?

As I know Kmareka and RI Future readers never tire of talking about the flat tax in Rhode Island that helps out our wealthiest residents, the lie of the “Flight of the Earls” and the Providence Chamber of Commerce’s advocacy to save the flat tax, I give you lawyer and Cranston Herald columnist Geoff Schoos:

Three years ago, I ran for the state Senate. During that race, I opposed the reduction in the marginal tax rate for high-income taxpayers, often referred to as the “flat tax.” Since that time, I have opposed that reduction at every opportunity.

My reasons for opposing the reduction are simple: it’s unfair and it doesn’t work. It’s unfair because it transfers the burden of paying for government away from those most financially able to share that burden to those who are least able. The second reason is that its proponents promoted the reduced marginal tax rate as an indispensible element for economic development.

This reasoning made no sense in 2006 and makes even less sense today. In fact, there has never been any evidence lowering taxes on a select group of taxpayers would, in and of itself, generate economic expansion. Indeed, this “theory” flies in the face of any study of economic development.

7 thoughts on “RI’s Flat Tax: What is it Good For?

    1. They taxed food and clothing in Illinois when I lived there.
      A high sales tax is regressive.
      Europe has a VAT.It truly sucks.

  1. Until Rhode Island gets its spending and long-term financial commitments under control, the economic problems will not go away. Getting lucky each year with a monetary band-aid (by selling the tobacco money, receiving stimulus money, etc.) merely delays the inevitable. However, imposing high taxes on the job-producers in Rhode Island is no way for Rhode Island to solve its problems. Empirical evidence supports lower marginal tax rates increase job growth, tax revenues and other measurement of economic growth. See my post at http://www.mclaughlinquinn.com/blog and the link to the recent article by Arthur Laffer and Stepehn Moore. They make a very compelling argument for reducing the marginal tax rates in Rhode Island. I also find the argument about tax breaks for the wealthy and the progressiveness of the tax system intersting when Rhode Island relies so heavily on gambling revenues, which is undoubtedly one of the most regressives taxes known.

  2. There is no doubt RI’s economic difficulties stem from a number of problems, but I include among them the decision to reduce taxes on top earners. I will refer your comment to Geoff Schoos for further response.

  3. Moore McLaughlin? Tax attorneys? Please.

    Anyone who cites anything by Athur Laffer has no credibility.

    Laffer literally drew his famous curve on the back of a napkin. It is pretty much considered a joke by any serious economist.

    OTOH, we have 30 years of data that cutting taxes does nothing except make the wealthiest among us even wealthier.

    Here in the real world there is no–that’s none, nada, zilch–“empirical evidence” that lower marginal tax rates promote job growth or any of the other things you claim. Were you not paying attention during the Bush admin? He cut taxes and produced the weakest economic “recovery” on record since WWII.

    Investment, job growth, real median income, etc. grew anemically, if at all, despite a prime rate of 1% for a good chunk of the decade. At the end of the “expansion” median wages had not regained the level of 2001. That’s the first time that’s ever happened. Ever.

    The only thing that grew strongly was corporate profits, and most of those were in the financial sector, and we now know that those profits were an illusion.

    That’s my empirical evidence. Where’s yours? What is this “empirical evidence” you claim to have? Time to put up or shut up. Otherwise go peddle your nonsense elsewhere.

  4. Sorry for the delayed comment to Mr. McLaughlin’s post. I read Laffer’s article on the Heritage Foundation’s website and was struck how he was able to combine both a 14th century Muslim philosopher/polymath (Ibn Khaldun) and John Maynard Keynes. If I understand the positions of both, it is that tax policy must be in some balance so that taxes will be low enough to stimulate an economy but broad based enough to increase tax revenue to fund needed programs.

    Fast forward seven centuries or six decades, take your pick, and that’s not the discussion today. The discussion today is the reduction of taxes for a few, the increase of taxes and fees for the many, all in the unsupported, empirically unprovable hope that somehow, miraculously jobs will be generated.

    Perhaps in theory that sounds good. But in practice it becomes a political contest as to whose taxes get lowered, whose are raised, and at what social cost. As we’ve seen in the past, the rich win, the middle class pays and the poor get screwed.

    We’re seeing this play out here in Rhode Island. Sold a bill of goods that cuts for the rich will pay dividends in jobs, the legislature passed the so-called flat tax three years ago. Since that time, taxes for the rich have been reduced and no jobs created. Some of that is due to the national economy, but not all of it. Most economists that I know (e.g. Robert Franks of Cornell), suggest that economies grow faster with balanced tax policies, along with a growing vibrant middle-class, and with the gap between incomes being in some closer proximity to each other than they are now.

    What we have is an economy that is increasingly imbalanced, with more resources flowing into the hands of a very few. And in the case of Rhode Island’s flat tax, at least half of whatever benefits derived accrue to the wealthy living in neighboring states. As I’ve written before, that’s one helluva economic stimulus policy.

    Now we have RIPEC, whose members proposed and designed the Governor’s new tax proposals, which perpetuate and expand the 2006 decisions by the legislature, now urge cities and towns to cut programs and services. Please see my column, the link to which is, http://www.cranstononline.com/pages/full_story?article-Different%20Drummer-%20Now%20playing%20in%20RI-%20AC-DC%20=&page_label=news_columns&id=2631122-Different+Drummer-+Now+playing+in+RI-+AC-DC&widget=push&instance=lead_story_left_column&open=&.

    In the end, tax policy is no longer being used to promote economic development – it’s being used to dismantle government programs, which enhance the lives of many of us and are vital to the lives of the most needy among us. That strikes at the very heart of a government in an egalitarian democratic society.

  5. Supporters of the flat tax claim that if the wealthiest rhode islanders are paying too much they will be motivated to leave the state and live elsewhere. I say let them leave. They need to find their own brand of happiness. Would this be like cutting of the nose to spite the face? Maybe. I’m not too worried. Real Rhode Island will survive because the vast majority of us know how to work hard, innovate, and take care of our own communities without feeling burdened. Besides, if the wealthiest citizens leave, maybe our corrupt, short sighted politicians will follow along side them. In fact, let any of us who depend upon their money follow. I’m an independant man, I will still work my nine to five, our school’s teachers will still teach our children, ect. ect. life will go on. Maybe we can take all of those vacant mansions and turn them into museums.

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