JUSTIN KATZ - R.I. government takes ‘harmful thinking’ approach to budget

JUSTIN KATZ - R.I. government takes ‘harmful thinking’ approach to budget

In a proposed state budget of $9,559,137,600, a new tax of $4,819,500 hardly registers. A number in the millions barely changes the appearance of a number in the billions.

The state plans to take that additional $4.8 million from residents by expanding the sales tax to software-as-a-service products. SaaS is when a customer doesn’t buy a program that sits on his or her computer forever, but instead subscribes to software that either operates on the seller’s servers or expires if the subscription ends. Common examples range from streaming entertainment, whether music (Apple Music) or movies (Netflix), to common productivity tools (Microsoft Office 365) to business applications (Salesforce.com).

What connects all SaaS offerings is that they save people money and make their lives more efficient. Rhode Islanders are saving hundreds of dollars each month by cutting cable cords and watching what they want when they want to watch it. Programs like Office 365 allow families to ensure students have access to the updated software they need for school and to help parents organize their lives and advance in their careers. Then, when Rhode Islanders start thinking about going into business, having access to professional tools without a big up-front cost closes the gap with established corporations.

In short, the state government is going to tax an innovation that empowers productive, motivated Rhode Island families who are making the most of technology that levels the economic playing field. Even if it’s “only” $4.8 million, why would the state government do that?

The guardians of the state budget might argue that SaaS deprives the state of revenue that it needs. As the law stands now, SaaS not only is more-efficient and less expensive, but also evades the sales tax. When technology changes, the state has no choice but to adjust its policies … or so the insiders will say.

There we have the lesson in Rhode Island government’s harmful thinking. State budget experts expect revenue from the sales and use tax to go up by $30.5 million in the coming year (2.9 percent), after going up $53.3 million this year (5.3 percent). These are the estimates the state expects if the budget makes no changes to what and how it taxes. In other words, finding new things to tax isn’t a matter of maintaining the same amount of income for the state, but of having more money to spend.

Since 2001, the state’s budget has grown an average of 3.9 percent every year. Meanwhile, inflation has averaged 2.0 percent, and the population has seen almost no growth at all. During the same period, Rhode Islanders’ income has gone up about 3.0 percent per year.

So, when Speaker of the House Nicholas Mattiello, a Democrat from Cranston, tells reporters that “to not expect (the budget) to rise every year is not realistic,” he’s really saying it is unrealistic to expect state government only to grow at the same speed or more slowly than the household budgets of Rhode Island families. If that’s the expectation, then the governor and the General Assembly must find new ways to take more money from Rhode Islanders.

After all, the politicians have to find some way to pay for election-year raises for unionized state employees. If they’re going to increase the tax credits for producers who film movies here, they’re going to have to start taxing your Netflix account. If they’re going to promise a big chunk of the state’s income, sales, and corporate taxes to the PawSox for a new stadium, they’re going to have to increase those taxes even more to break even.

This attitude among the specially interested folks who control the levers of power in the Ocean State explains why our economy is not capitalizing on recent growth as well as most other states. It also explains why thousands of motivated, productive Rhode Islanders become non-Rhode Islanders every year.

Justin Katz is research director for the R.I. Center for Freedom & Prosperity and editor of OceanStateCurrent.com.


As one of the motivated people who became a non-Rhode Islander three years ago, I couldn’t agree with Jason more. I sold my home in Rhode Island and purchased one at a little higher price, in Florida. Property tax in RI....$5,500; property tax in FL...$3,100. Income tax in RI...YES! Imome tax in FL: NO! Car tax in RI...ridiculously high; car tax in FL: Zero. To be honest, Florida does tax clothing; but a few pairs of shorts and some tee shirts, every year, don’t cost all that much. I use all of my tax savings to travel. And it never occurs to me to travel to Rhode Island...although, I hear that it is “Fun-Sized” (as long as you don’t live there).

Its common knowledge that Rhode Island is losing population at a rate that will probably cause loss of one Federal Congressional Representative after the 2020 census.

It's not higher mathematics to divide the state budget by current population versus anticipated lower population.

Bottom line less people paying more taxes.

A very untenable situation and soon.

The House Speaker is blowing smoke to all RI Taxpayers, for 4 years I have chased our General Assembly to address a wrong with a present law 44-33-3 which excludes Disabled Veterans from taking this credit, to correct this law only needs a language change to include Disabled Veterans, however, the Senate put a 1 million funding tag to this change and again it died in committee, this funding is not correct however nobody will listen, as Mr. Speaker kindly lied to me that he would address this, and lied and forget my name. Mr. Speaker knows why because he chose to not to fund it, but he got his sports betting bill, and will take the 51% funding and put the money in his pocket.