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1 Elizabeth Malm, Rhode Island Governor Proposes Positive Corporate Tax Reform 1 (2013)

handle is hein.taxfoundation/ffdghxz0001 and id is 1 raw text is: FONAINFisa                                                    F act
May 1, 2013
No. 367
Rhode Island Governor Proposes Positive
Corporate Tax Reform
By
Elizabeth Malm
Introduction
In his annual budget briefing, Rhode Island Governor Lincoln Chafee (I) proposed a reduction of the state's
corporate income tax rate from 9 percent to 7 percent over the next three years.1 If enacted, this would make
the state's tax rate the lowest in the New England region. Rhode Island currently shares the spot for the
highest regional corporate tax rate with Connecticut and New Jersey.2
To offset some of the projected revenue reduction from the tax rate cut ($5.3 million in 2014, $12.9 million
in 2015, and upwards of $20 million in years thereafter), the governor's plan would broaden the corporate
income tax base by phasing back a few corporate income tax carve-outs.3 Governor Chafee's tax plan moves
in the right direction by broadening the tax base to lower the overall rate for all firms.
If a state must offer lucrative incentives to entice business to the state, chances are this is because the tax
climate is prohibitive in the first place. Not only do such carve-outs distort the market, they complicate the
tax code unnecessarily and require firms ineligible for the carve-outs to pay a higher rate in order to generate
adequate tax revenue. It is debatable whether such tax incentive programs are even effective at reaching their
goals.4 Further, high corporate income taxes are negatively related to economic growth5 and are the most
Rhode Island Office of Management & Budget, FY2014 Budget Plan Overview (Jan. 1, 2013),
2 Tax Foundation, Weekly Map: Top State Corporate Income Tax Rates as ofJanuary 1, 2013,  - --i' - - -a--'. fo-- --.---- ----<---. .
3 Governor Budget Overview, supra note 1.
4 Terry F. Buss, The Effect ofState Tax Incentives on Economic Growth and Firm Location Decisions: An Overview of the Literature, 1
ECONOMIC DEVELOPMENT QUARTERLY 90-105 (Feb. 2001).
5 William McBride, What is the Evidence on Taxes and Growth?, TAX FOUNDATION SPECIAL REPORT NO. 207 (Dec. 18, 2012),
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