Chafee defends plan to Chamber

April 27, 2011

PROVIDENCE — Just two weeks after businesspeople from across the state flocked to the Statehouse to fight Gov. Lincoln Chafee’s sales tax plan, Chafee marched into his opponents’ camp, a Northern Rhode Island Chamber of Commerce breakfast, to defend his proposal.
“There is no doubt that taxes are harmful, there’s no argument about that,” Chafee said in response to a question from Call Publisher Barry Mechanic. “It’s a cost we don’t want to pay.”
Chafee said his budget, which would lower the sales tax from 7 percent to 6 percent while at the same time broadening it to a slew of goods and services that have until now been exempt from taxation would provide “certainty to business,” something he said business leaders have told him they want.
“Certainty, that’s what businesses want, certainty. Not shifting sands of tax policy,” Chafee told the group. “We’ve already just lowered the income tax. Do we want to zig-zag and now raise it again? Property taxes? Do your companies want to keep raising property taxes? I don’t think so.
“No tax is good, but you have some control over sales taxes,” the governor, an Independent, asserted. “You can hunker down and just not spend any money and not pay sales tax.” That, however, is exactly what many businesses have said they are afraid their customers will do if the state slaps a sales tax on the goods and services they offer.
David Sullivan of the Office of Revenue Analysis, said budgeters factored in some aspects of what revenue would be lost by depressed sales due to the new tax and from people crossing borders into Massachusetts and Connecticut to avoid an Ocean State sales tax.
In response to a question about his proposal to add a 1 percent sales tax to manufacturers’ machinery and equipment, Chafee said that tax has been “one of the most resonating issues” in the feedback the administration has received about his plan.
“I like to have a state in which we are making things that if you drop it, it makes a noise,” the governor said. “We don’t want to drive them out.”
He said if the results of the Revenue and Caseload Estimating Conference that is currently underway show increased revenues from the November figures his administration used to assemble the budget, dropping the plan to tax machines and equipment could be a possibility.
“Heating oil the other one,” Chafee said of a tax that aroused popular opposition. “Even though electric heat is taxed, and natural gas is taxed, boy, that’s an emotional hot button to tax heating oil. There is no good tax, but those are two that really stood out.”
Chafee said his budget closes a nearly $300 million deficit with one-half cuts and one-half revenue enhancements (mostly from the sales tax expansion).
While other areas of state government spending have been reduced or stayed the same, Chafee said, “Human services has gone up about 10 percent in 3 years. That’s the hard area to cut. Long-term care, nursing homes, nobody wants to be in a nursing home, but it is hard t get them out in community-based care. Adults with disabilities -- very expensive, but no easy answers – children with disabilities. That is where we are making most of the cuts in my budget, in human services, that’s te growth area. We have to address it, but it isn’t easy.”
“I’ll cut taxes after I cut spending; that’s my conservative way of budgeting,” he said.
Chamber President John Gregory told Chafee, “the only entity that creates wealth are those people who make a payroll every week.”
Asked after the program about the relatively gentle treatment Chafee got from the chamber members after the anger that was expressed at a House Finance Committee hearing on the sales tax that lasted six rancorous hours, Gregory said the chamber “did our thing” at the hearing and the idea of the breakfast was to let the governor hear chamber members “one on one.”
“We haven’t changed,” Gregory told The Times, “we are absolutely against any sales tax. We don’t want to see what happened in Connecticut happen in Rhode Island. In Connecticut, they started carving things out: ‘OK, we’re going to exempt haircuts, and we’re going to exempt this and we’re going to exempt that.”
Is there no room for compromise with the business community on sales taxes?
“That’s not what we are hearing from our members,” Gregory said. “No one has said to us, ‘you know what, maybe you guys should look at some other alternatives.’ We’re hearing: ‘stay the course.’”
House Speaker Gordon Fox has said Chafee’s sales tax plan would not pass as proposed. But he has not yet said what the alternative might be to offset the deficit.
Chafee told The Times that he thinks his budget is a good one and though he concedes it will not pass completely intact, he will defend it in negotiations with legislative leaders.