Many government officials being asked to address this situation are saying all the same things — we should not raise broad-based taxes; there may need to be cuts in social services, especially impacting the elderly and disabled; there may need to be further reductions in aid to cities and towns; everything is on the table to try to find a solution and there are going to have to be sacrifices at every level.
Well, that last part isn’t entirely true, is it?
The phase-out of the capital-gains tax and the phase-in of decreasing alternative flat tax — implemented by laws enacted a few years ago — was all about stimulating the state’s economy because, it was argued, the wealthiest citizens of our state are the job creators, and making their lives better was going to trickle down and help us all.
The economy has soured, Rhode Island unemployment is one of the highest in America and lots of people are truly suffering — except those richest few who are able to employ the flat tax formula. (The flat tax stands at 6.5 percent this year and will decrease to 6 percent next year and decrease again to 5.5 percent in 2011.)
According to Department of Revenue figures, a total of 838 tax filers applied the alternative flat tax to their income during the 2007 tax year. Of that number, the majority — 719 — claimed incomes of $200,000 or more. (The Poverty Institute at Rhode Island College School of Social Work estimated last year that the average income of that upper-income group is, in reality, about $462,000.)
According to information from the State Budget Office and corroborated in figures provided by the House fiscal staff, the cost to the state in lost taxes as a result of those using the flat tax will be $34.7 million in the next budget year and more than $50 million in the 2011 budget year. (The Poverty Institute last year estimated that those individuals using the alternative flat tax would receive an average tax cut of about $5,000.)
