Local business owners, chamber of commerce representatives and a spokesperson from Woonsocket-based pharmaceutical company CVS spoke in favor of the lower corporate tax rate and against tax credit reductions proposed in Gov. Lincoln Chafee’s ’75 P’14 budget during a state House Committee on Finance hearing Wednesday.
Most of the witnesses testified in favor of lowering the corporate tax rate from 9 percent to 7 percent over a period of three years to make Rhode Island more competitive with Massachusetts and Connecticut.
The tax incentives and corporate tax reductions come out of Article 9 of the budget, which also includes highly-contested reductions in tax credits for job creation. One of the credits under consideration — the Enterprise Zone Business Tax Credit — offers a tax reduction for businesses that increase their employment bases by 5 percent within a year in struggling parts of Rhode Island. Chafee proposed a reduction or the possible elimination of this credit.
The committee also debated Chafee’s proposal to reduce over the next two to three years the Job Development tax credit, which, according to the Rhode Island Economic Development Corporation, lowers the corporate tax rate by “a quarter percentage point for every 10 new jobs created for those companies having a baseline employment below 100, or a quarter percentage point for every 50 new jobs created for those companies having a baseline employment above 100.”
CVS representative Robert Goldberg testified that the company — which ranked 18th on the Fortune 500 list of businesses and has brought considerable economic growth to the state, according to Goldberg — benefited from the Job Development tax credit, though he did not have the exact tax numbers to present to the committee.
The company, founded in Rhode Island, has expanded in the state over the past year. Goldberg said the company’s position is very clear — “any reduction made to tax credits will result in serious consideration of job growth in the state.”
Peter Merino, the director of the new Office of Management and Budget, said Chafee’s budget “gets people back to work” and “improves the state’s overall business climate.” Chafee unsuccessfully submitted a similar corporate tax bill two years ago, Merino said.
“This is an area where we are an outlier,” he said, citing Rhode Island as the state with the highest corporate tax rate in the region and the sixth highest in the nation. Merino called the rate a “deterrent for attracting companies.”
But Kate Brewster, a representative from the Economic Progress Institute, expressed concerns the corporate tax rate cuts would do more damage than good. “This will not help the vast majority of businesses (in Rhode Island),” she said, adding that it would also do little to increase state revenues, even in the long run.
Bill Clarke, director of business development in Portsmouth, argued that the Enterprise Zone tax credit is still very relevant. The credit provides many benefits to Rhode Island and will still “stimulate revitalization” of the “blighted urban areas” of the state and kick-start promising new industry sectors, he said.
“This program is not about projected jobs — it’s about documented, full-time … good jobs,” Clarke said.
Two measures from Article 9 that did not see any opposition were a reform to tax preparer standards — which would make sure that no one “cheats the system,” said Grafton Willey, managing director of the Tax Group — and a hazardous substance fee, which Rep. Larry Valencia, D-Charlestown, Exeter, Richmond, said is “just a burden.”
“Tax credits sound sexy and seem easy to pass,” Willey said, but he urged the committee to treat the budget with careful consideration.
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