A week after Gov. Lincoln Chafee '75 P'14 released his budget proposal to the General Assembly, Rhode Island residents are expressing their distress over its proposed tax increases, which Chafee himself called "controversial" during his annual State of the State address to legislators last week.
The almost $76 million of tax hikes in the proposal include a four-cent increase to the state tax on cigarettes, as well as an expansion of the taxable base for the lodging tax, extending it to certain bed-and-breakfasts and rental properties. The sales and use tax would expand to include services such as limousines and taxis, moving, storage and car washes. A new tax would also be applied to clothing and footwear purchases exceeding $175.
The most controversial measure in Chafee's tax plan is the 2 percent increase to the meals and beverage tax, raising the total tax to 10 percent — a proposition that does not bode well for local restaurant owners.
"They should roll (the tax rate) back to what it was 10 or 15 years ago," said David McAllister, owner of Meeting Street Cafe on the corner of Meeting and Thayer streets. Measures like this are "making it more difficult for students to dine out."
McAllister added that while he does not believe the tax increase will drive customers away, his customers — the majority of whom are students — will definitely be affected by the increased cost.
The tax increases represent Chafee's attempt to rectify a $120 million budget deficit from last year, said Sen. Daniel DaPonte, D-East Providence and Pawtucket, who chairs the Senate Committee on Finance.
"No one wants to deal with higher taxes," Daponte said. But "when you have a $120 million hole to fill, there are only two ways to do it — cuts or additional revenue."
According to the Chafee administration, revenue from the tax increase will also be used to finance public education expenditures and greater state aid to cities and towns — a high-priority measure for the Chafee administration coming into 2012.
"Some of our cities and towns are facing some significant financial challenges and some of them have really begun to dig in and cut costs," DaPonte said. "But there is still a lot of work that needs to be done … the solution is not just to throw money at them. We need real reform."
DaPonte added that the state itself is under financial strain. "We're not in any position to just write a check to any community that is having problems," he said.
Gary Janczynski, owner of Ugly American, a restaurant on Ives Street, said he understands the state is experiencing financial difficulties but the current situation is "unfortunate because it will affect tourism."
"Any time — especially in this economy — you raise the price of anything, people notice, and it absolutely affects their choices," Janczynski said.
But not all local restaurateurs are concerned about the tax hike. Andrew Mitrelis, owner of multiple restaurants on Thayer Street — including Andreas, Paragon and Viva, Better Burger Company and Spats — said he does not think the tax increase will significantly affect the business community because it is not "extreme."
"Five dollars this way or that way doesn't make that much of a difference," Mitrelis said. "We're not making the same money we used to make 10 years ago, but we have to keep working."
Chafee's proposal represents a decrease in overall spending for the state, as the cumulative budget for the 2013 fiscal year stands at $7.9 billion — a notable decrease from last year, largely due to $40 million worth of cuts. Many of these cuts, such as the elimination of dental services for adults on Medicare, are directed at the health and human services portion of the state budget.
After deliberating, the General Assembly will vote on the proposal, which Chafee formally introduced Feb. 1. Approved changes will be implemented before July 1, the official beginning of fiscal year 2013.
