Tax Analysts Blog

Shilling for Corporatists

Posted on May 20, 2015

In Rhode Island, Rep. Joseph Shekarchi (D) is doing the bidding of big corporations once again. For the third year in a row, he has introduced a bill that would provide tax credits to "job creators." This time Shekarchi has allies in Gov. Gina Raimondo (D) and House Speaker Nicholas Mattiello (D). The momentum is on the side of bad tax policy in Rhode Island.

The proposal at issue is H 5116, the Rhode Island New Qualified Jobs Incentive Act of 2015. It would work the same way other bad tax incentive programs work: A company that creates new jobs in the state would receive a reduction in its income tax. The proposal mirrors a bill introduced earlier this year. Basically, the bill, if signed into law, would reduce the tax rate for companies that hire full-time employees in Rhode Island who work at least 30 hours per week and receive a salary that is at least 250 percent of the prevailing hourly minimum wage in the state. Large companies would be eligible for a 0.25 percent tax incentive off their net income tax rate for every 50 new hires. Smaller companies would be eligible for a 0.25 percent incentive off their personal income tax for every 10 new hires. The rate reduction would be limited to a maximum of 6 percentage points for the applicable income tax rate and to no more than 3 percentage points for the applicable personal income tax rate. Complicated? You bet. But that's why law firms like the incentive business.

Statewide employment is expected to grow in Rhode Island in the next several years without the political gimmicks of tax incentives. So this bill is unnecessary (no one thinks the incentives will lead to growth greater than what's expected). In other words, there is no incentive being provided; the state is just making a welfare payment.

Moreover, like almost all these schemes, the tax incentive won't come close to paying for a new employee. Usually states offer incentives, but this proposal is in the form of a rate reduction. All analyses show that the average business would save a few thousand dollars for every new hire. No sane business owner will hire someone for $40,000 simply to save $4,000 on her tax bill. This bill will not create one new job in Rhode Island.

The proponents of the bill (mostly Democrats in this mostly Democratic state) keep pointing to the Tax Foundation's business climate ranking as proof that something must be done. Rhode Island ranks 45th in business tax climate, according to the foundation. If the bill's proponents bothered to check, they would discover that offering more tax incentives does not result in higher rankings by the Tax Foundation. If Rhode Island is serious about creating a friendlier business tax climate, it should drastically lower its corporate and personal income taxes -- for everyone.

This post is an excerpt of an article that appeared in State Tax Notes.

Read Comments (2)

robert goulderMay 19, 2015

"This bill will not create one new job in Rhode Island." True. And I suspect
that Shekarchi, Raimondo, and Mattiello are perfectly aware of this. The
illusion of job-growth has become just as important as the reality of job
growth.

edmund dantesMay 26, 2015

but for the illusion of job growth, there wouldn't be any job growth at all in
this country, outside of Texas.

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