Charts: Regressive RI taxes getting (slightly) more progressive
January 30th, 2013 at 12:35 pm by Ted Nesi under Nesi's Notes, On the Main Site
For more than a decade, state and local taxes in Rhode Island have been among the nation’s most regressive – meaning they’re structured to take a larger share of income from the poor than they do from the wealthy.
That said, a WPRI.com analysis of the last decade’s “Who Pays?” studies from the Institute on Taxation and Economic Policy shows the richest Rhode Islanders are paying slightly more of their incomes in state and local taxes than they were in 2002, while the poorest are paying a bit less.
That doesn’t necessarily contradict progressives’ argument that wealthier Rhode Islanders have gotten a tax cut: the studies show the share of income paid by the top 1% in income taxes fell from 5.8% in 2002 to 4.8% in 2013. But that reduction was offset by an increase in how much the top 1% paid in property taxes, which rose from 2% to 3.1%. Here’s how the tax mix for the top 1% has changed over the last decade:
At the other end of the income spectrum, the poorest 20% of Rhode Islanders stopped paying income taxes after 2002 and have also seen very small reductions since then in their sales and property tax bills as a share of income. But they still lose more of their income to state and local government than the rich:
Of course, there’s more to the equation than the tax percentages – the share of income anyone pays also reflect any changes in pre-tax income over time, because that changes the denominator.
Between the 2002 and 2013 studies, the average Rhode Island family in the top 1% saw its income rise about 20%, from $757,400 to $912,400. (That’s down, however, from a high of $1.2 million in the 2009 study.) The bottom 20% of Rhode Island families have seen their incomes rise by 15%, from $8,400 to $9,700.
So what, if anything, should policymakers do based on this information? It depends who you ask.
The liberal Economic Progress Institute says the numbers show Rhode Island needs to do more to shift the state and local tax burden to rich from poor, most notably by adding another income tax bracket to raise more revenue from the highest-earning state residents. They also argue for more redistribution to offset the impact on the poor, for example by making the Earned Income Tax Credit fully refundable.
The conservative Center for Freedom & Prosperity takes a different lesson from these numbers: Rhode Island taxes are too high on everyone, and the best way to deal with that is to cut them, most notably by eliminating the sales tax altogether. “A state that already has a high tax burden should eliminate the tax that harms those on the bottom end,” the group’s Justin Katz wrote on Wednesday.
• Related: Study: RI taxes take most from poorest, least from the top 1% (Jan. 30)
Tags: citizens for tax justice, economics, economy, institute on taxation and economic policy, municipal, public policy, state budget, state government, tax, taxes
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
the primary tax policy question–should we tax the few on behalf of the many (equity), or tax the many on behalf of the few( competitiveness).The Rhode Island tax structure is out of balance and we can do a better job of balancing fairness and competitiveness .
Very well said.
I disagree with your statement of equity vs. competitiveness completely, but let’s put that aside. The truth of your second sentence is more than proved by the dismal state of the Rhode Island economy. Of course there is a lot more to that problem than tax structure. But unless we tackle and resolve the entire problem from our corrupt politics to our overpriced state and municipal employees, Rhode Island will remain the economic backwater of New England. You can coat a rotten apple with candy and technically that makes it a candy apple, but nobody will want it anyway. Nor will reforming the tax struture, in the absence of resolution of the other problems, make employers want to bring jobs to Rhode Island.
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The reason why ITEP counts the recent property tax hikes as largely falling on the 1% is that they have been directed at small businesses, which is the main reason progressives argue that income tax cuts for the rich wind up being very anti-business. Research on corporate income tax concludes that the burden of corporate income taxation falls mostly on capital rather than labor. ITEP assumes that this same ratio will hold true with property taxes on businesses. However, it is not entirely clear what the basis for this assumption is.
The reason that corporate income taxes fall on capital rather than labor is that they tax profits, which mostly accrue to the owners of capital. Assuming businesses are profit-maximizing, a tax on profits does not really affect staff or wage decisions, since those decisions will have already been made in order to best maximize profits. Workers are rarely laid off because of corporate income taxes. Property taxes, however, tax general revenue, and they often fall on businesses without profits. If I own a struggling small business making a loss, I will probably have already adjusted down my own salary, and an increase in property taxes will quite likely force me to lower wages, cut benefits, or lay off my employees. That hurts labor. Indeed, there is substantial evidence that payroll taxes–especially unemployment insurance taxes, which increase when a business is struggling–fall on labor.
At a certain point, though, it does not matter. If there’s one thing that liberals and conservatives agree on, it’s that small businesses, struggling businesses, and startups are one of the things we least want to tax. And property taxes on businesses are one of the worst ways to do this. Even the ultraconservative Tax Foundation admits that property taxes on businesses are the biggest tax factor in location decisions. The policy implications are clear: Shift the burden from business property taxes back to income taxes on the 1%!
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[...] Related Progressive Products Charts: Regressive RI taxes getting (slightly) more progressive That doesn't necessarily contradict progressives' argument that wealthier Rhode Islanders have gotten a tax cut: the studies show the share of income paid by the top 1% in income taxes fell from 5.8% in 2002 to 4.8% in 2013. But that reduction was … Read more on WPRI-TV 12 (blog) [...]