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1 Joseph Henchman, Testimony before the Rhode Island Special Joint Legislative Commission to Study the Sales Tax Repeal 1 (2013)

handle is hein.taxfoundation/taxfaare0001 and id is 1 raw text is: Testimony before the Rhode Island Special Joint Legislative Commission to Study the Sales Tax Repeal Joseph Henchman Vice President for Legal er State Projects, Tax Foundation Hearing of the Rhode Island Special Joint Legislative Commission to Study the Sales Tax Repeal November 21, 2013 Mr. Chairman, Members of the Commission: Good afternoon. It is an honor and a pleasure for me to be in front of you today. For many years now, I've had the chance to come to Rhode Island to discuss tax policy with elected officials and Mr. Simmons has invited me up many times to speak at his events. Visiting the Ocean State is something I always truly look forward to. We at the Tax Foundation get a lot of mail and e-mail with crazy tax ideas. It's the nature of the business, I suppose. People convinced the Sixteenth Amendment was never ratified. People who have come up with their own new all-encompassing tax idea. Not a week goes by without something like that coming across our desk. Depending on who it is, we try to be polite and explain whatever needs to be explained. A state doing without a sales tax is not crazy. As you know, of course, there are five states that do without a state sales tax. Before eighty years ago, no state had a sales tax. They came about not as a well-thought-out, well-designed tax but as a crash implementation in the midst of crisis-the Great Depression. In fact, if you got the nation's public finance and state tax experts in a room, and asked them to design a sales tax, it would look very different from the sales tax that many states, including Rhode Island, have today. What 9 out of 10 public finance experts would say is that the sales tax should apply to all final sales of goods and services, while exempting all business inputs. That way, the tax is neutral, does not distort economic decisions, and keeps pace with the economy. Many state sales taxes-including Rhode Island-do the opposite. Many goods and nearly all services are exempt from tax, while business purchases are taxed. The result is that some items are taxed multiple times and others not at all. I think you all already know that Rhode Island's sales tax rate is high, both nationally and compared to its neighbors. But you may not know that Rhode Island's sales tax base-what is and is not taxed-is among the narrowest in the country. Only 25 percent of what people buy 1

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