PROVIDENCE, R.I. – When city officials sent all 1,926 public school teachers termination letters earlier this month, they warned that several schools will have to be closed next year to address a “staggering” financial crisis facing the city. Now Mayor Angel Taveras and his financial advisers are proposing major slashes in spending and in city worker pensions. They even talk of selling off a city jewel and tourist attraction, the Roger Williams Park Zoo. The city is reported to face a $110 million structural deficit next year.
But economists and policy experts say spending cuts are the wrong medicine for hard-hit cities and states.
“More experienced economists say it is better to raise taxes on the rich than to lay off workers and cut spending,” the New York Times editorialized last December,
Among those “experienced economists” are Nobel Prize winner Joseph Stiglitz and former White House Office of Management and Budget Director Peter Orszag, who wrote in 2008 that spending cuts hurt local economies by reducing demand for goods and services. “Tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run,” they said.
Art Perlo, economics commentator for this newspaper, says deficits are not caused by “runaway spending.” When states cut spending, he says, they lose jobs, local businesses lose customers, and towns lose tax revenue. This makes the economic crisis worse.
Rhode Island state Rep. Scott Guthrie, a Democrat, has introduced two “tax the rich” bills that could help Providence and the state boost the economy and avoid those damaging cuts. But it won’t happen unless residents mobilize to get the measures passed.
Currently in Rhode Island, whether you are a billionaire or just a middle class person earning over $125,000, you pay the same marginal tax rate of 5.99 percent. The top rate was reduced from 9.9 percent in 2006, phased in over several years, as part of a “flat-tax” measure, with the claim it would make the state “more competitive.” What it amounted to, according to a 2009 Providence Journal report, was a break for the state’s wealthiest taxpayers, and slashes in state aid for “cash-strapped cities and towns.”
Guthrie’s bills, cosponsored by several other lawmakers, would bring raise the marginal tax rate on taxable income over $500,000 – which applies to less than 1 percent of Rhode Islanders.
One bill would restore the 9.9 percent rate for that tiny group of rich people, and, says Guthrie, would bring in an additional $190 million in tax revenue next year, and about $134 million the following year.
The second bill would raise the rate to 7.9 percent, bringing in $88.5 million in new tax revenue next year and about $62 million the following year, he projects.
“We often hear talk about the structural deficit in Rhode Island, but what these proposals do is address the structural injustice in our recent budgets,” Guthrie said in a statement.
The slogan of “shared sacrifice” has been used to “cut taxes for the rich, while cutting services for the needy and forcing classroom teachers, first responders, and other public servants to take pay cuts and layoffs in order to balance the budget,” he said. “So much for shared sacrifice.”
By bringing back the higher tax rate on the rich, Guthrie said, “we could solve many of our immediate budget problems [and] set ourselves up for a brighter future as the economy improves.”
Patrick Crowley, government relations director for National Education Association Rhode Island, commented, “After a decade of cutting taxes on the elite, hoping a miracle would happen, it’s time to get back to real-world economic strategies. In Rhode Island, nearly half of our budget deficit can be attributed to tax breaks for the wealthy in the last five years and the other half to tax breaks for corporations. It is time to reset the balance.”
Down the road in New York City, Councilman Brad Lander, who co-chairs the council’s Progressive Caucus, has introduced a plan for a temporary city/state income tax surcharge on the wealthiest New Yorkers. The surcharge, he said, would equal the amount of the “tax windfall” that these people got in December when Republicans in Congress forced a two-year extension of the Bush tax cuts for the rich.
Lander said he was proposing the surcharge “in order to restore vital services proposed for deep cuts, address severe deficits, and revitalize the economy.”
Kate Brewster, executive director of the Poverty Institute, based in Providence, has noted that the extension of the Bush tax cuts is “expected to save the top 1 percent of Rhode Island taxpayers $39,000 per year on average.”
Perlo says, “States and cities around the country should take up the New York City proposal – increase local taxes on the rich to make up for the windfall they just got in December’s tax deal.”
Even then, he says, “millionaires would be paying far lower taxes than in the 1950s and 1960s.”
In Rhode Island, Guthrie said, “We are lamenting the poor economy and looking for ways to make cuts and imposing most of the cuts on those residents of our state who can least afford to go without certain services or who can least afford to pay more for them. We are looking to make cuts in schools and in services, or looking at more hikes in property taxes.”
“The way the wealthiest can help society is to pay a little more, which they are much more able to afford than the rest of us,” he said. “If digging out of our current economy misery is about shared sacrifice, I think those making over a half-million dollars can share a little more.”
Photo: This Mar. 5 scene, during ongoing protests in Madison, Wis., could apply to Providence, R.I., as well. (People’s World photo)