Earlier this week, Rhode Island Governor Donald Carcieri signed legislation that significantly reforms the state’s personal income tax structure.  An ITEP analysis found that the bottom 95% of Rhode Islanders will see a net tax cut from the revenue-neutral reform, while the richest 5% will pay a slightly higher percentage of their income than under previous law. The problem is that this tax reform generates no new revenue to address the state's budget hole. 

Rhode Island lawmakers and the business community championed the reform as a means to make the state more competitive, convinced that lowering the marginal top rate will make the state more attractive to businesses.  While some of the motivations behind the reform are misguided, the end product has a lot to be said for it.  Starting on January 1, 2011, Rhode Island’s personal income tax will be simpler, more sustainable, and somewhat fairer as a result of the reform passed this week.

Elements of the Rhode Island Reform Package

Perhaps the most significant aspect of Rhode Island’s personal income tax reform is the full repeal of all itemized deductions coupled with a substantial increase in the standard deduction.  Itemized deductions are costly, “upside-down” subsidies with the greatest benefit going to the best-off taxpayers, offering little or no benefit for many middle- and low-income families.   The increased standard deduction along with the state’s personal exemption will phase out for taxpayers with taxable income between $175,000 and $195,000 and will not be available for those with taxable income above $195,000.  These changes alone will make Rhode Island’s income tax fairer and more sustainable over time.

To achieve their "competiveness" goal, lawmakers reduced the number of income tax brackets from five to three and lowered the top marginal rate from 9.9 percent to 5.99 percent.  They also eliminated the alternative flat tax method for calculating the income tax, which had been a windfall for the wealthiest residents in the state.

Dozens of special tax breaks and credits were also eliminated.   Only eight credits remain under the new law, including the state Earned Income Tax Credit and credits for child care and statewide property tax relief.  Much to the chagrin of many advocates, the movie and TV production, scholarship, and historic structure rehabilitation credits also remained intact.

Victory for Fairness and Simplicity, But What about Revenue?

Some proponents of tax reform argue that it should be done in a revenue-neutral manner, meaning it does not result in a net gain or loss of tax revenue. This is how Rhode Island's tax reform works. The cost of rate reductions is offset by reducing credits, deductions and loopholes. This will make the state’s income tax simpler, fairer and more predictable.  

Given the state's current budget difficulties, however, revenue-neutrality is an odd goal.   By not taking the opportunity through restructuring the income tax to raise additional state revenue, state lawmakers passed the tax-raising buck to local lawmakers. This is particularly true in light of a $165 million cut to school districts and municipal governments that will surely force tax increases at the local level in order to preserve investments in public education and other programs.  

In fact, the state budget cut to local governments all but ends the long-standing local car tax exemption program for low-valued cars.  In exchange for the cuts, the budget included a measure allowing municipalities to tax all but the first $500 in value of cars, whereas previous law had exempted the first $6,000 in value.  

This means that while low-income Rhode Islanders may see a slight decrease in their income tax from their state leaders’ reform efforts, they will likely also be paying more in local car taxes.  And, due to the sleight of hand state lawmakers pulled by ending their support for the exemption for low-valued cars, one could argue that on a whole, their tax reform “package” was not revenue neutral at all.

This week the Oklahoma Policy Institute released a report urging, among other things, that one of the state’s more ridiculous tax breaks be eliminated — specifically, the state income tax deduction for state income taxes.  This deduction was created not as a result of careful consideration and debate among Oklahoma policymakers, but rather as an accidental side-effect of the state’s “coupling” to federal income tax rules.  And as the New Mexico Legislative Finance Committee politely points out, while the deduction may make some sense at the federal level, the rationale for providing it at the state level is “less clear.”

Citing figures provided by ITEP, the Oklahoma Policy Institute notes that only one out of four Oklahomans would be affected by eliminating this deduction, and roughly 58% of the overall tax hike would be borne by those richest 5% of Oklahomans.  This is a predictable result of the deduction only being available to itemizers.  In total, the state could collect an additional $118 million in revenue each year by eliminating the deduction — revenue that could go a long way toward preserving important public services.

State income tax deductions for state income taxes have been receiving a growing amount of attention.  Last year, Vermont limited its deduction to a maximum of $5,000, while just last week New Mexico Governor Bill Richardson signed a budget eliminating his state’s deduction entirely.  The Georgia Budget and Policy Institute (GBPI) also highlighted the benefits of eliminating this deduction in a policy brief released just a few weeks ago.

In total, seven states currently offer this deduction: Arizona, Georgia, Hawaii, Louisiana, Oklahoma, Rhode Island, and Vermont.  Eliminating the deduction in each of these states is long overdue.

While the current holder of the office may still be in denial about the best ways to deal with his state’s continued fiscal woes, it now appears that most of the major gubernatorial candidates in Rhode Island support an idea whose time has come. Most would repeal – or at the very least, suspend further changes in – the state’s alternative flat income tax.  

As the Rhode Island Poverty Institute explains, the alternative flat tax was originally enacted in 2006 and gives Rhode Island taxpayers two choices. The first choice is using all available deductions and exemptions and paying taxes using a set of graduated rates that range from 3.75 percent to 9.9 percent or. The second choice is applying a single flat rate to federal adjusted gross income with no exemptions or deductions.  For tax year 2009, the flat rate is 6.5 percent, but it is scheduled to fall to 5.5 percent by tax year 2011.  

At present, only about 9,000 taxpayers choose to use the alternative flat-tax approach, but virtually all of them are among Rhode Island’s wealthiest taxpayers and all of them, by definition, see an enormous reduction in taxes by using the alternative approach.  In other words, repealing the flat tax would not only generate significant revenue for the Rhode Island budget – as much as $53 million according to the Providence Journal – but would also improve tax fairness substantially.

Here’s hoping that Rhode Island doesn’t have to wait until it has a new governor to see such a change made.

“Hello.  Bad Tax Ideas R Us.  How may I help you?”

“Well, good afternoon, Governor Carcieri.  Good to hear from you again.  What can I do for you?”

“You say you’re looking for a ‘game-changer’? Something that would ‘significantly alter Rhode Island’s tax structure and send a signal that the state wants to promote the growth of business’ and you want to know what we’ve got?”

“Well, how about slashing tax rates on capital gains? That one’s always popular.”

“What’s that?  Rhode Island tried that one already, it didn’t work, and the Legislature went back to taxing capital gains at the same rate as all other income?  I’m sorry to hear that.”

“Wait – didn’t your hand-picked Tax Policy Workgroup come up with a radical idea earlier this year to replace the corporate income tax with a tiered minimum tax?  Why not go with that? After all, the Workgroup spent over six months exploring various options and came up with that at the last minute.

“I beg your pardon?  The Legislature opposed that one as well?  Oh, I see.”

“OK, so how about replacing the corporate income tax with a business net receipts tax or BNRT?  It’s all the rage in California.”

“Yes, it’s true that one Commissioner – one of the leading state tax policy experts in the country – indicated that the BNRT ‘is fraught with economic disincentives’ that he feared would ‘harm California businesses.’”  Yes, I am aware that nine other well-respected tax experts earlier said that 'adoption of the BNRT at this stage would be highly imprudent.'  Yes, I know that the business community in California isn’t exactly thrilled with the idea either.  You can’t make an omelet without breaking some eggs, sir.”

“Well, think it over a bit and let me know what you decide.  I’m sure we can work something out.”

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

A new report from Citizens for Tax Justice makes the case for a “performance review” system designed to evaluate the effectiveness of special tax breaks in achieving their stated goals. While CTJ's report primarily focuses on the importance of such a system at the federal level, most of its findings are equally applicable to the states.

The special breaks littered throughout state tax codes — or “tax expenditures,” as they are frequently called — are an enormous and often overlooked part of government’s operations.  Although the primary purpose of a tax system is to raise the revenue needed to pay for public services, every state, as well as the federal government, also uses its tax system to accomplish a variety of other policy goals. Encouraging job creation, subsidizing private industry research, and promoting homeownership are just a few of the countless ends pursued via special subsidies contained in state tax codes. Rather than having anything to do with fair or efficient tax policy, these tax credits, exemptions, and other provisions are actually much more akin to government spending programs — hence the term, “tax expenditures.”

A performance review system takes the commonsense step of asking whether these provisions are doing what policymakers intended of them. Under such a system, tax credits designed to encourage research and experimentation, for example, would be regularly examined to determine the amount of new research undertaken as a result of the credits. Shockingly, the vast majority of states, and the federal government, do not currently attempt to answer fundamental questions of this sort with any type of rigorous evaluation.

Among CTJ’s findings are:

— “Procedural biases,” such as the omission of tax expenditures from the authorization and appropriations processes, allow tax expenditures to slip by with a fraction of the scrutiny given to direct spending programs. State legislative systems requiring supermajority consent to “raise taxes” (or eliminate tax expenditures) are particularly biased in this regard.

— “Political biases,” such as the erroneous belief that government can take a “hands off” approach, or reduce its overall size by offering special tax breaks, also contribute to the current lack of oversight.

— A number of states have made strides in recent years to counteract these biases through performance reviews and other, similar means. Washington State’s efforts represent the most complete attempt at tax expenditure performance review yet to be undertaken in the United States. California, Delaware, Nevada, Oregon, and Rhode Island have also made attempts — with varying degrees of success — to enhance the level of scrutiny applied to their tax expenditures.

— The bleak state budgetary outlook makes the implementation of tax expenditure review all the more urgent. States, like the federal government, can no longer afford to deplete their resources with ill-advised and ineffective tax expenditures. By implementing a tax expenditure performance review system, states can pave the way for a reduction in tax expenditures by identifying those expenditures that are ineffective.

— A formal review system could also help to reconceptualize these provisions in the minds of policymakers, the media, and the public as spending-substitutes, rather than simply as tax cuts. This would further help reduce the rampant biases in favor of tax expenditure policy.

— The precise design of a tax expenditure review system is very important. States should be sure to include all taxes, and all tax expenditures within the scope of the review. Additionally, states should exercise care in selecting the criteria to be used in the reviews — Washington State’s criteria represent a good starting point from which to build. Other key design issues include choosing the appropriate body to conduct the reviews, timing the reviews to coincide with the budgeting process, allowing similar tax expenditures to be reviewed simultaneously, and attaching some type of “action-forcing” mechanism to the reviews so that policymakers must explicitly consider the reviews’ results.

— Tax expenditure reviews are necessary, though they may not be sufficient to correct for the biases in favor of tax expenditure policy. A tax expenditure performance review system can play a vital informational role either on its own, or alongside other, more aggressive tax expenditure control techniques such as sunset provisions or caps on tax expenditures’ total value.

Read the full report.

Read the 2-page summary.

The Rhode Island Department of Revenue recently released its second annual "Tax Credit and Incentive Report," providing the names, addresses, and size of tax breaks received by Rhode Island businesses under six major tax incentive programs.  This report provides a valuable, and unusually detailed look at where over $82 million in state tax subsidies went during the 2009 fiscal year.  CVS, for example, benefited from over $12 million in special tax subsidies over a twelve month period, while the producers of the "Brotherhood" TV series raked in more than $5 million.  More states would benefit by sharing this type of information with their residents.

But while the "Tax Credit and Incentive Report" does provide a valuable source of raw data for Rhode Island residents and policymakers, the Department of Revenue has regrettably dragged its feet in implementing Phases Two and Three of Rhode Island's broader tax incentive accountability program.  Phase Two, which was supposed to have been completed in October 2008, will eventually detail the degree to which state tax incentives have met the job creation, wage, and benefit objectives for which they were created.  The Rhode Island Poverty Institute has rightly pointed out that "it is impossible to judge the usefulness of these tax credits without the information required in Phase Two of the law." 

Phase Three, which also has yet to be implemented, will require adding the tax credit information released by the Department of Revenue to the state's budget, so that these programs can be considered on a more equal footing with traditional spending programs and subsidies.

Oklahoma also recently made some headlines related to its tax incentive programs.  Last spring, the Oklahoma legislature approved new investment tax credits as a means of attracting Mercury Marine, a boat engine manufacturer, to the state.  Recently, Mercury Marine announced that despite the tax credits, it will be moving a significant number of jobs from Oklahoma to Wisconsin.  Since the legislation authorizing the tax credits explicitly allowed for the state to recover those credits in the event that something along these lines occurred prior to 2012, the company has agreed to refund the credits, with interest.  By tying the credits to some measure of performance on the part of Mercury Marine, Oklahoma was able to avoid a situation where the company could simply take the credits and run. 

Be sure to visit Good Jobs First for more on tax incentive best practices such as these.

Taxes have been at the forefront of the public debate in Rhode Island for some time now, due both to the depth of the state's fiscal crisis and to the work of Governor Don Carcieri's hand-picked tax commission.

With the release of the House of Representative's budget proposal for fiscal year 2010 earlier this week, it appears not only that the end of that debate may be in sight, but that it will close on a positive note. The House's budget plan contains a number of changes in tax policy, changes that are at once a repudiation and an affirmation of the commission's recommendations. Those recommendations, as embodied in the budget that Governor Carcieri put forward in March, would have eliminated Rhode Island's corporate income tax and dramatically flattened out the income tax's graduated rate structure. Fortunately, the House did not include either of these changes in its budget plan.

The commission recommendation that the House budget plan does include is a major step forward for tax fairness - the elimination of preferential rates for income from capital gains.

In addition, the budget plan appears to include changes in law, similar to those adopted in New York last year, designed to increase the extent to which Internet retailers such as Amazon are responsible for collecting sales taxes on purchases made by Rhode Island residents. It would also provide for an increase in the state's estate tax exemption and index that exemption to inflation.

While the prospect of ending favorable treatment for capital gains taxation should cheer all those concerned about sound tax policy, the House budget plan fails to remove Rhode Island's existing alternative flat tax, which means that both the revenue and equity gains resulting from the capital gains change will be somewhat muted. Policymakers should seriously consider addressing that flaw in the tax code before completing action on the state budget.

To learn more about the shortcomings of the commission's recommendations and the Governor's budget proposal, see this helpful fact sheet from the Rhode Island Poverty Institute -- and this one as well. (In fact, check out the Institute's budget webinar too.) For more on the other states still offering capital gains tax breaks, see this March report from ITEP.

As state policymakers craft their budgets for the upcoming fiscal year, they must confront a pair of daunting challenges, one fiscal, the other economic. The budget outlook for the states is, at present, the most dire in several decades. In this context, then, states must find ways to generate additional revenue that create neither additional responsibilities for individuals and families struggling to make ends meet nor additional distortions in the economy as a whole.

For nine states -- Arkansas, Hawaii, Montana, New Mexico, North Dakota, Rhode Island, South Carolina, Vermont, and Wisconsin -- one straightforward approach would be to repeal the substantial tax breaks that they now provide for income from capital gains. In tax year 2008 alone, these nine states are expected to lose a total of $663 million due to such misguided policies, with individual losses ranging from $10 million to $285 million per state. A new ITEP report explains that repealing these tax preferences would help states reduce their large and growing budgetary gaps, enhance the equity of their current tax systems, and remove the economic inefficiencies arising from such favorable treatment.

This report explains what capital gains are, how they are treated for tax purposes, and who typically receives them. It also details the consequences of providing preferential tax treatment for capital gains income for states' budgets, taxpayers, and economies in nine key states. Lastly, it responds to claims about both the relationship between capital gains preferences and economic growth and the role capital gains taxation plays in state revenue volatility. (Appendices to the report provide detailed state-by-state estimates of the impact of repealing capital gains tax preferences.)

Read the report.

Back in January, Rhode Island Governor Don Carcieri, in introducing legislation to cut spending by $240 million in the five months remaining of fiscal year 2009, remarked that, should Rhode Island "receive Federal stimulus funds, we must ... plan on using most of these funds to lower taxes for individuals and businesses, create jobs and stimulate growth." He further maintained that "to do otherwise would be irresponsible." That's an odd definition of irresponsible. Most people living in a state with an expected budget gap of nearly 14 percent in the coming year might say a plan that including permanent tax cuts and only temporary revenue-raising provisions to pay for them is pretty irresponsible. Apparently the Governor isn't most people.

Definitions of irresponsibility aside, the Governor may be about to put his plan into action. The Strategic Tax Policy Workgroup that the Governor initially convened in May of last year met for the final time last week and will soon present the Governor with a report on its work. For several months it seems that the Workgroup would make revenue-neutral recommendations, but now it appears that they will put forth options that would cut taxes by as much as $140 million. Keep in mind that total tax revenue in Rhode Island is projected to be only slightly more than $2.4 billion for the current year. Among the major cuts to be proposed by the Workgroup are the outright repeal of Rhode Island's estate tax, which would cost $28 million annually, and the replacement of the state's corporate income tax with a graduated franchise tax. The latter would reduce taxes on businesses by $82 million per year and would cap the maximum tax paid by any one business, no matter how profitable, at $10,000.

The Governor has requested -- and will likely receive -- a postponement of the deadline by which he must submit his budget for the coming fiscal year. It seems likely that his "otherwise irresponsible" plan will feature prominently in that document.

For more on Rhode Island's budget situation and on the recommendations of the Governor's Tax Policy Workgroup, visit the Rhode Island Poverty Institute's web site.

Rhode Island, like many states, is facing some tough fiscal and economic times. Its current budget deficit of $357 million is among the largest in the nation (relative to total spending) and its unemployment rate of 9.3 percent is nearly the highest in the country.

So, what does Governor Don Carcieri think the state ought to do in response? Why, repeal the estate tax, of course. After all, repealing it would drain away another $35 million that the state can ill afford to lose and would benefit fewer than 5 out of every 100 people who die in Rhode Island each year.

Others have offered more sensible approaches to addressing Rhode Island's fiscal woes. As Kate Brewster, the Executive Director of the Rhode Island Poverty Institute points out, "revenue problems require revenue solutions." To that end, she suggests modernizing the state's corporate income and sales taxes, by adopting such reforms as combined reporting or by ensuring that services are subject to taxation.

To learn more about the need to preserve federal and state estate taxes, see CTJ's latest report.

Enacting an income tax would obviously be a step in the right direction for states like Nevada, New Hampshire, and Florida, but it would only be the first step. As ITEP's latest policy brief explains, states' income taxes must also be progressive, in order to balance out the regressive impact of the other types of taxes that states levy, like sales taxes and property taxes. States that do not have a progressive personal income tax will find it nearly impossible, over the long run, to fund public services in a way that is sustainable and fair.

At the very least, this means states' income taxes should provide meaningful exemptions to poor taxpayers and use a graduated rate structure to ensure that the very wealthy are paying their share. Unfortunately, though, as a new report from the Center on Budget and Policy Priorities documents, some states with personal income taxes are actually taxing the poor deeper into poverty. In fact, the Center's report finds that, in 18 of the 42 states that levy income taxes, two-parent families of four with incomes under the federal poverty level actually paid state income taxes in 2007. It also finds that 15 states make single parents with two children living below the poverty line pay state income taxes.

There are some straightforward solutions to this. For example, 23 states and the District of Columbia offer earned income tax credits (EITCs) which reduce income taxes for poor families and sometimes provide a refundable credit that further offsets the regressive impact of other state taxes. Plenty of states with personal income taxes could also make their rate structures more progressive, which would ensure that high-income families pay a bit more, as a share of their income, than low- and middle-income families.

Also troubling is that some states that do the right thing and use fairly progressive income taxes -- such as Rhode Island and California -- are considering fundamental changes to those taxes. As ITEP's Jeff McLynch observes in yesterday's Providence Journal, policymakers in Rhode Island should be strengthening the progressive character of their state's income tax, rather than seeking to diminish it.

Rhode Island's Remarkable Tax Credit Disclosure Report

Last week, Rhode Island's Department of Revenue Division of Taxation released a study detailing the tax credits and incentives that nearly 120 companies operating in Rhode Island received over the past year. The report is a result of recent disclosure legislation intended to reveal to the public and policymakers just how much money Rhode Island corporations receive. The Poverty Institute has their own summary of the report here. The release of the report is quite timely as lawmakers are coming to terms with a projected shortfall and may dip into the state's rainy day fund.

The disclosure legislation required the state "to annually report the names, address and amount of tax credits received during the previous fiscal year." Some states have disclosure reports, but including the names of recipients of government largesse is a very unusual -- and positive -- step. Now Rhode Islanders know which businesses received part of the $54.1 million in tax subsidies doled out during the last fiscal year. CVS (the pharmacy chain) saved about $17.2 million through various credits and watchers of Wall Street may be interested to know that Bank of America benefited to the tune of $1.72 million from Rhode Island's attempts to spur development.

The state's tax administrator said, "This report is not intended to provide an analysis as to the effectiveness of the tax credit programs. It is simply aimed at disclosing the amount of tax credits received by taxpayers." But it's almost a certainty that this type of disclosure will affect the politics surrounding these tax credits, since voters actually know who and what they're subsidizing. We'll remain on the edge of our seats until next month when the Department releases a report detailing the, "the full-time and part-time jobs created or retained by each recipient, and the employee benefits provided; the degree to which each recipient has met tax-credit requirements and goals for job creation or retention and employee benefits; and the full cost to the state of each tax-credit awarded." Thanks to this report, policymakers, taxpayers and advocates can now have honest discussions about tax incentives with an understanding about who actually benefits.

The House of Representatives in Rhode Island unanimously passed a $6.89 billion budget this week that is expected to receive approval from both the Senate and Governor Carcieri. Unwilling to make responsible choices during an election year, lawmakers settled on a budget that includes across the board spending cuts with virtually no tax increases. Ocean State legislators breezed through statutes that would reduce funding of organizations such as Meals on Wheels, the Rhode Island Community Food Bank and the state's largest homeless shelter, Crossroads Rhode Island. A $17.8 million cut from the state's public universities also received little attention, as did a $12.5 million cut in non-school aid funding for cities and towns. Further blows to Rhode Island's impoverished include the elimination of state-subsidized health care benefits for approximately 1,000 low-income parents, the eradication of a program that subsidizes heating costs for the poor, a cap on welfare benefits at 4 years rather than 5 years, and the removal of 300 poor children from the Head Start program.

Requests to reverse tax breaks for high-income Rhode Islanders, such as the capital gains tax or flat tax alternative were ignored. The one tax increase is on health insurance premiums which would be borne by the major insurers -- Blue Cross, United and Delta Dental. These companies will likely pass on those costs to consumers, as they did last year when the tax was expanded. With no other tax revenue increase, the remaining sources of savings or revenue all come with high degrees of uncertainty. Lawmakers are looking to unspecified state personnel cuts to save about $91 million. But this money is only guaranteed if planned labor negotiations go smoothly. In addition, the state anticipates savings of $67 million on Medicare programs; this money hinges on federal approval. Rhode Island will rely on gambling revenues, in an uncertain economy, to allocate $12.8 million in education funding to cities and towns.

Sen. Paul E. Moura, D-East Providence, happily declares, "I think we are coming out of it looking good. Any time in an election year you knock on someone's door and you haven't raised their taxes, it certainly makes the walk a lot easier." As Senator Moura proudly indicates, the motives behind Rhode Island's budget debates this year were almost completely political. And among the victims were the poor, homeless and children who have little to no say in government.

Rhode Island Governor Don Carcieri last week announced the formation of a Tax Policy Workgroup to consider fundamental changes to the Ocean State 's tax system. While the group has been charged with devising changes that promote "equity, efficiency, predictability, competitiveness, and transparency" - laudable goals all - the Governor's comments regarding the group's aims suggest he may favor one particular outcome over others. In the Governor's view, " Rhode Island cannot prosper if its tax policies hinder the creation of jobs and are a disincentive to investment. Unfortunately, [Rhode Island is] now at a competitive disadvantage with many of the other states in New England, including Massachusetts and Connecticut. That needs to change." In light of the fiscal woes now confronting Rhode Island and the regressive legacy of past tax cuts, changes are clearly needed, but will they be the "business-friendly" sort that the Governor seems to have in mind or will they help to produce the revenue state government needs in a fair and sustainable fashion?