Projo Biz Blog

The panel appeared to reach consensus on a number of key items during a meeting today at the state Department of Administration building in Providence.

Following are some of the points that emerged:

Standard Deduction: A taxpayer would still use federal adjusted gross income (AGI) as a starting point for preparing the Rhode Island individual income tax return, said Paul L. Dion, chief of the state Department of Revenue's Office of Revenue Analysis.

However, taxpayers would no longer be able to obtain a state tax benefit by making a separate list of their deductions, a process known as itemizing.

Instead, all taxpayers would claim a lump-sum deduction, known as the standard deduction. The amount of the standard deduction would differ depending on a taxpayer's filing status.

For example, a single taxpayer would generally be allowed a $7,500 standard deduction amount (up from $5,450 on the 2008 return). A married couple filing a joint return generally would claim a $15,000 standard deduction amount (up from $9,100 on the 2008 return).

Because a married couple's standard deduction amount would be twice that of a single person's, Rhode Island's "marriage penalty" in this regard would be eliminated, Dion said.

Tax Rates: In general, a taxpayer's Rhode Island taxable income currently is sorted into five different baskets, with a different tax rate applying to each. Tax rates range from 3.75 percent to 9.9 percent.

Under the plan, a taxpayer's Rhode Island taxable income would be sorted into four baskets, with tax rates ranging from 3.8 percent to 5.5 percent.

Thus, the lowest tax rate would rise a bit, while the top tax rate would fall sharply.

Capital Gains: Rhode Island currently offers favorable tax treatment for profit (known as capital gain) on the sale of stock or other such investments. The maximum capital-gains rate can run as low as 1.67 percent, or 0.83 percent in some circumstances.

Under the plan, favorable treatment would be eliminated; capital gains would be treated as ordinary income, the same as wages, for example.

Thus, capital gains would generally be subject to sharply higher tax rates, ranging from 3.8 percent to 5.5 percent.

Credits: Most tax credits would be eliminated, including one for child-care expenses and another related to the production of TV shows and movies.

But certain credits would remain, including one for taxes paid to other states. And the earned income credit, which is essentially a tax break for the working poor, would be expanded.

Impact: Broadly speaking, those with $30,000 or less in AGI would wind up paying less in tax than they do under the current system.

Those with between $30,000 and $110,000 in AGI would end up paying more.

Most of those with AGI above $110,000 would end up paying less. But those with the very highest incomes, above $5 million each in AGI, would pay more.

Carcieri formed the panel in May, urging it to recommend a long-term tax strategy "designed to make Rhode Island's tax structure a competitive advantage in retaining jobs and recruiting businesses."

At today's meeting, panel member Alfred J. Verrecchia, chairman of Hasbro Inc. of Pawtucket, a global maker of toys and games, wondered whether the group has gone far enough to meet its goals.

"We need to change the perception that people have" that Rhode Island is one of the nation's highest-tax states, he said.

To do that, he said, the panel should consider "some bolder steps" - which he did not detail - to make Rhode Island more competitive from a tax standpoint, particularly with its neighboring states - Massachusetts and Connecticut.

Verrecchia said that it is up to others - such as the governor and General Assembly - to determine whether the state can afford bolder steps at this time, given the state's budget deficit and the national recession.

Kernan "Kerry" King, who serves as executive counsel to Carcieri, said that the panel's preliminary proposal would lower income taxes for many people and make the income tax simpler and easier to understand and work with.

The panel plans to meet some time next week to hone its recommendations and also resolve some outstanding issues, said panelist Edward J. Cooney, vice president and treasurer of Nortek Inc. of Providence, a maker of building products.

"I think we're 90 percent there in terms of recommendations," said Cooney, who is also president of the Greater Providence Chamber of Commerce. Issues involving the individual income tax are "pretty much resolved,'' he said.

Panelist Mark Higgins, dean of the University of Rhode Island's College of Business Administration, said of the income-tax proposal, "I think it's a step in the right direction - a big step, I would say."

The group still has to address some other issues, such as the possible adoption of a tax reporting method, known as combined reporting, for some businesses, and possible changes to the state's job development credit.

The group also appears to have decided to deliver a single, detailed proposal for tax reform to Carcieri, instead of various packages of proposals.

"We're out of time and we've got to bring it in for a landing," Dion said. "We're probably looking at one proposal" that would include changes to the individual income tax, business taxes, sales tax and other areas, he said.