Study shows free-market enterprise is path to prosperity in RI

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As the General Election fast approaches, the Rhode Island Center for Freedom and Prosperity (RICFP) believes that it isn’t politics that the Ocean State needs – it’s policy.

“Today, our Rhode Island Center for Freedom and Prosperity recommends a get the government out of the way approach to getting control of the Rhode Island economy,” said center CEO Mike Stenhouse, a resident of Cranston, during a press conference last Thursday at Legion Bowl on Park Avenue.

When left to its own devices, Stenhouse says Rhode Island government has created an economic climate that strangles small business.

“We’ve created one of the most burdensome tax and regulation environments,” he said. “We must tear down these intrusive barriers. No one in the political class seems to want to address the problem.”

RICFP has issued a report card on the state’s competitiveness, which claims that a “departure from capitalism” is to blame for the state’s poor economic condition. The center gives Rhode Island an F in nearly every category, including tax burden, business climate, infrastructure, health care and living and retiring in the state. Rhode Island likewise performs poorly in public sector (D), energy (D-), spending and debt (D-) and employment and income (D). Education earned the highest grade on the report card, still a dismal D+.

With high unemployment and a high cost of living, Stenhouse says that people are leaving Rhode Island at an alarming rate.

“They are moving in droves. They’re taking their wealth with them; they’re taking their kids with them and they’re taking our future with them,” he said.

A graph the center provided shows that between 2003 and 2010, the net adjusted gross income (AGI) and taxpayer migration to nearby states amounts to a loss of $254.46 million – 2,802 tax returns in that time period.

Stenhouse argues that the loss of revenue, and the stagnant nature of the economy, is as serious an issue as pension reform. He questions why the General Assembly has not sprung into action in a similar fashion on these issues, going into a special session this fall. What has been done to address the problem so far, he said, is just a window dressing “to forestall critical public policy issues.”

When Stenhouse suggested, instead, a return to free enterprise, the crowd applauded.

“Revenue-neutral approaches are not going to be enough,” he said. “If you want a bigger economic pie in Rhode Island, we need a new recipe.”

In particular, the center and its supporters believe that taxes and spending needs to be cut. Where to start with spending cuts is a difficult question to answer, but Stenhouse said they would be looking into it in the coming months. In the meantime, he says the state should create a priority-based budget, rather than starting with the previous year’s budget and adding costs from there. It is incumbent then on department directors to justify their costs.

“A narrow-minded balancing the budget approach sees taxes as revenues. An economist … should see taxes as incentives or disincentives to do things,” Stenhouse said.

On an easel at the front of the room, two columns displayed different sets of numbers. In the first column, the numbers 75, 38 and 400 were listed without clarification. In the second column were the numbers 65, zero and 5,000.

Those numbers represent an alternative to the 38 Studios debacle. With 38 Studios, the state invested $75 million for 400 jobs that no longer exist. In the future, the center would suggest a different approach. Less money – $65 million – could be used to phase out the sales tax to zero percent, which Stenhouse argues could create 5,000 jobs by making Rhode Island more competitive, like New Hampshire.

Stenhouse added that the idea is “well researched” and is part of the reason New Hampshire has fared better economically than Rhode Island.

Barry Hinckley, a candidate for U.S. Senate challenging Senator Sheldon Whitehouse, attended the conference and said the idea of lowering taxes is always favorable.

“Everything, when it comes to reform, especially revenue reform, has to be looked at holistically. Rhode Island, by the numbers, has developed the least competitive environment to attract citizens and taxpayers, so I’d rather look at holistic reform that would bring us close to the standard-bearing states like New Hampshire, Florida and Texas,” he said.

Hinckley compared states to companies, in that they compete against one another, except instead of profits or customers, they compete for taxpayers.

“I would like a holistic approach that creates a tax package, making Rhode Island in the top five competitive states for tax attractiveness rather than the bottom five,” he said, noting that while sales taxes would be part of that package, low or no income taxes and low taxes on businesses are particularly advantageous.

In addition to eliminating sales taxes, the “Prosperity Agenda” cites repealing health insurance exchanges and Medicaid expansion as a potentially high-impact policy reform. Eliminating corporate welfare, instituting school choice through vouchers, tort reform, lowering minimum wage to federal standards and reforming collective bargaining for public employees also made the list.

Backing up the center’s positions last week was financial expert Jonathan Williams, author of “Rich States, Poor States,” from the Center for State Fiscal Reform. He believes that the public sector must be limited, and that the growth of the public sector in Rhode Island in particular is unsustainable. In his book, he argues that states must reduce the size of government and eliminate or minimize what he considers outdated taxes, like “death” taxes or high property taxes.

By making a state more desirable to live in, and making the commercial tax climate more appealing, he says that revenue, economic revival and jobs will follow.

“Government doesn’t create wealth, so therefore government doesn’t create jobs,” he said.

Though unlikely in Rhode Island, Williams also said that becoming a Right to Work state has proven successful for some states, as there are some businesses that “will not even consider a state for an investment unless they are a right to work state.”

The challenges here are vast, but Williams and Stenhouse see hope in the future.

“Not all is lost; there is hope for Rhode Island,” Williams said. “Each state gets to choose its path, and it’s not necessarily about Republican or Democrat either.”

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