We have officially entered tax hell. For a state with so many smart people we have such a simple understanding of taxes. It is bad enough that we fall for the line about how we are one of the highest taxed states but I actually heard an elected official say that 12,000 people pay 44% of the taxes in this state.
Gag me with my pocket protector.
Let’s get a few things straight: First of all, the statement above is ludicrously untrue. According to the Revenue Fact Book 2008, there are 12,900 tax filers that report income over $200,000. Of the income tax collected by the State, they indeed do pay 44% of it. But, and this is a big but, INCOME TAX IS NOT THE PRIMARY WAY WE PAY FOR OUR STATE GOVERNMENT.
The regressive property tax account for 36.1 % of all taxes and is the largest tax in Rhode Island. Consumption taxes are 26.8 % and income taxes are 19.5% of revenues.
In other words, the only progressive element of our tax structure actually accounts for slightly less than 12% of all revenues. And we are lucky to get that out of our elite! In 2006 there were 491,750 tax returns filed, an increase of 5,541 over the previous year. And even though our collective taxable income rose by $1,044,615,287, we collected $80,281,003 less in income taxes. More filers, more taxable income, less revenue? How is that possible? Well, maybe because of how we structured our taxes?
The bottom 3 tiers of income earners in Rhode Island all had reductions in taxable income from 2005 to 2006. People earning less than 75K a year account for 79.36% of the tax payers in RI, but collectively they lost $172,051,052 in taxable income.
The top three tiers of taxpayers, those making more than 75K a year, account for 20% of tax filers. Between 2005 and 2006, their taxable income rose by $1,216,666,340.
You will notice that the increase taxable income for the top 20% accounts for 116% of all the increase in taxable income. In other words, when it comes to income, 80% of Rhode Islanders are moving backwards. And yet, we give breaks like the Flat Tax and the Capital Gains tax cut that benefit most people in the top three tiers. Its not that the rich paid a greater share of the tax burden so much as the poor and the working class lost so much more in comparison to what the people in the top tiers captured.
Sources: House Revenue Facts Book 2008
Rhode Island Budget Office