With the expected influx of $1.78 billion in federal aid from the American Rescue Plan, some would say there is no longer a need to raise any taxes. However, the point of our legislation to raise the income tax of the top 1% is not to address the coronavirus recession. That’s the job of the one-time infusion of federal relief dollars.
By contrast, raising the income tax on the top 1% is about Rhode Island’s long-term success — addressing challenges that predated the pandemic and that will continue if left unaddressed. The problems include an unbalanced tax code which disproportionately benefits the wealthiest and systematically benefits white Rhode Islanders over Black and Latinx Rhode Islanders. The challenges include finding revenue to pay for the goods and services that make Rhode Island a wonderful place to live and grow businesses.
Our proposal to raise the income tax rate from 5.99% to 8.99% on income above $475,000 will only impact the top 1% of earners — about 5,000 taxpayers. This proposal is not designed as a fix for the damage done by COVID-19. Indeed, it takes effect beginning with tax year 2022, meaning that most of the estimated $128 million in new, annual revenue will not be generated until people pay their 2023 taxes, after most of the one-time federal aid will be gone. Our proposal is therefore an investment in Rhode Island that will raise valuable revenue and help rebalance our tax system.
The truth is that our tax system has long been unbalanced — and the Bush, Carcieri, and Trump tax cuts only further unbalanced our system and provided windfalls for the wealthiest. Today, the top 1% of Rhode Islanders pay only 8% of their income in state taxes — income, property, and sales taxes combined — whereas those in the lowest 20% of income pay over 14%. That’s far from balanced.
As legal and tax policy scholar Dorothy A. Brown’s new book, “The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — and How We Can Fix It,” shows, housing and other tax policy in the United States has contributed to the disproportionate growth in wealth among white Americans while shutting out many Black Americans and their families. The top 40% in income, let alone the top 1%, of Rhode Islanders are disproportionately white, and by rebalancing our tax code, we can begin to reverse these inequities and usher in a broader, shared prosperity. Unemployment data have made clear that already existing racial and ethnic inequities in unemployment rates only became worse for Black and Latinx Rhode Islanders over the last year.
And although the coronavirus pandemic has proven devastating for many Rhode Islanders, not all Rhode Islanders have suffered equally. With significant gains in the stock market, some have not suffered at all financially. According to IRS data, over 60% of capital gains income goes to the top 1% of Rhode Islanders, and the federal code taxes those profits at a lower rate than it taxes wage income.
For many people, there is never a good time to raise any taxes. In bad times, they claim it will harm individuals and businesses, and in good times, they say they do not want to rock the boat. But now is the right time to enact our proposal — a popular one, supported by 72% of Rhode Islanders — so that it is set in place for when the one-time relief money is gone. The relief funds will jump-start us out of recession, and our tax proposal will help maintain the momentum, while addressing problems we faced long before COVID-19.
Sen. Murray is a Democrat representing Senate District 24 (Woonsocket, North Smithfield). Rep. Karen Alzate is a Democrat representing House District 60 (Pawtucket).