In his State of the State address last week, Gov. Lincoln Chafee '75 P'14 unveiled a series of new sales tax increases as part of his $7.9 billion budget plan for next year. As reported in the Boston Globe, Chafee's proposals would increase the sales tax on restaurant food and beverages from one to three percent, in addition to the existing seven percent sales tax, and levy sales taxes on currently tax-exempt items such as "taxi fares, moving, storage and freight expenses, pet grooming and car washes." The additional revenue generated from these taxes — which Chafee claims were designed to "minimize the impact of these proposals on the working families of Rhode Island" — would largely go toward financing public schools.
While Chafee clearly faced a delicate and dire situation as he designed this year's budget, we believe his approach to state funding is exactly the wrong way of trying to solve the state's fiscal woes. By choosing to increase the sales tax rather than the income tax, Chafee has turned to a regressive tax policy that will fall disproportionately on Rhode Islanders of lesser means. Though the state Office of Revenue estimates that the increase in taxes will be relatively small — $34.60 for those making less than $10,000 per year and $393.55 for those making more than $200,000 annually — as a proportion of income, the additional burden is greater on the cash-strapped former group than on the relatively comfortable latter group.
Chafee argues that his proposal, in keeping groceries and clothing under $175 tax-exempt, affects only discretionary purchases. Yet in a state plagued by unemployment and in which small businesses seem to be closing their doors every day, this is exactly the wrong tactic. If these tax increases pass, citizens of all stripes will likely choose to eat in more, cut back on washing their car and take the Rhode Island Public Transportation Authority rather than a taxi. This may be good news for home finances, but it is bad news for local restaurateurs, car washes and taxi drivers who are already struggling to get by in a recession. Forcing these businesses to effectively increase their prices will undoubtedly hurt consumer spending and small businesses, two incredibly important engines of any state economy.
Though it may be less politically popular, we hope that Chafee considers instead generating this additional revenue through an increase in the state income tax on the higher tax brackets. This would offer a progressive way of spreading the costs of the recession, ensuring the burden is carried more by the mansion-owners in Newport than the single mother in South Providence for whom even $40 more in taxes per year is $40 too much.
A regressive tax such as the sales tax is not only unjust, but it is bad economic policy in the face of a sluggish economy. While we understand the need to raise additional state revenue — and are pleased that Chafee is seeking ways to increase the state's support for education — we hope that the governor considers doing so in a way that does not disproportionately harm the pocketbooks of the state's poorest residents.
Editorials are written by The Herald's editorial page board. Send comments to editorials@browndailyherald.com.
