TOM WARD - At Statehouse, fundamental misunderstanding of how jobs, revenue are created

TOM WARD - At Statehouse, fundamental misunderstanding of how jobs, revenue are created

They called it "surreal." I just think it's troubling.

On Sunday, my daily e-newsletter from the Rhode Island Center for Freedom and Prosperity (RICFP) came to my inbox. My Mother's Day duties completed, I took a peek at the main story titled "A 3.0 percent sales tax and surreal at the Statehouse," regarding the prior week's testimony on the RICFP proposal to lower the state sales tax. Admittedly, the center is conservative, and for years now has been calling on leaders to make bold changes in how our declining state conducts business. They have previously called for the elimination of the state sales tax altogether.

Legislators, to their credit, have listened to them in multiple hearings, though I don't believe they ever had any intention of moving forward on this issue. Elimination of the sales tax - and the loss of $1 billion in state revenue - would take a leap of faith that I believe is well beyond the courage level of our politicians.

The point made by RICFP has always been that, were the tax eliminated or sharply lowered, shoppers from surrounding states would come here to shop. Business would pick up; jobs would be created, and the income taxes from those new jobs would make up for much of the sales tax revenue decline. Or, in the matter of the sales tax cut to 3 percent, new shoppers would bring new revenue. After all, the new 3 percent would be better than the nothing we get now as shoppers stay in their home states.

So while some might dismiss RICFP because of its conservatism, videotapes don't lie, and that's where the "surreal" part - one legislator's question - comes in.

State Rep. John M. Carnevale is a retired Providence Police sergeant, a Democrat who represents Providence and Johnston. He serves on the House Finance Committee. In a hearing on the 3 percent sales tax last week he asked of RICFP representatives, and I'm paraphrasing:

In earlier testimony, a state Department of Revenue person's theory agreed that if we dropped the sales tax from 7 (percent) to 3 or from 7 to 0 it would drop the cost of retail. He showed charts that savings would only last a short time, because eventually, those who it affects most in retail would have to hire more employees to sell what they were selling. In effect, after a short period of time, (merchants) would have to add the cost of those employees into the cost of the products which would cause the products to rise in price and the savings would not be there for long.

If I'm understanding Rep. Carnevale correctly, his contention is that if business grew, and we created jobs, that the cost of those jobs would cause prices to rise and the entire point of the sales tax cut would be lost.

Honestly, if you don't think Rhode Island's goose is cooked yet, you need only watch this video.

While I respect Rep. Carnevale's service as a police officer, it is certain that he's never run a business, and his fundamental misunderstanding of business practices is worrisome. As long as we keep electing men and women from the public sector, conditions will continue to nosedive in Rhode Island. I predict that with certainty.

Here's how business works, in brief.

1) If the sales tax is lowered, more customers - especially new customers from out of state - come in the door.

2) Staff work harder, until finally, the business owner hires more help. Assuming the business is making, for instance, another $1,000 per week in profit, it pays the new employee $400. The state wins with added sales tax revenue, and added income tax from the new employee and the boss. The new employee also spends his/her money and pays new sales taxes. The boss has more profits, so he/she spends more, too.

Just a month ago, a new Speaker of the House, Nicholas Mattiello, was elected, and promised a singular focus on jobs and the economy. Rep. Carnevale is likely against this tax cut proposal because it might create jobs, and in his mind that will be costly to merchants. You can't make this stuff up.

We can debate this proposal to lower the sales tax on its merits. Would the loss of revenue in a sales tax reduction be made up by new shoppers and income taxes? That's the question. But it is indeed troubling when legislators, and apparently even Department of Revenue "theorists," are so unaware of even the most fundamental principles of business and job creation.

Ward is publisher of The Valley Breeze