PROVIDENCE, R.I. – The Rhode Island Department of Revenue, Office of Revenue Analysis this week published its biennial examination of the State of Rhode Island's tax expenditures.
The Tax Expenditure Report project is part of the state's continuing efforts to provide the citizens of Rhode Island and other interested parties with basic fiscal information and the same level of review of its tax incentives as it does for its direct spending. The report provides information on the cost of tax preference items that are mandated under Rhode Island law, federal law, or other legal mandates.
Tax expenditures are legal mandates that provide incentives to taxpayers that meet the requirements of the mandates. For each tax expenditure, that biennial report provides a brief history, description, estimated value and number of beneficiaries, when possible, for each of the state's tax expenditures. It does not evaluate whether those tax expenditures succeed in achieving their goals.
The 2020 Tax Expenditures Report was prepared by the Office of Revenue Analysis in accordance with Rhode Island General Law Chapter 44-48.1.
"Oftentimes, the estimated cost of a tax expenditure item is made only once — at the time it is passed into law," said Paul L. Dion, Ph.D., Chief of the Office of Revenue Analysis. "The Tax Expenditures Report provides for an accounting of the cost of tax expenditure items on an ongoing basis. Absent a Tax Expenditures Report it would be difficult to assess the cost of a tax expenditure compared with an appropriated expenditure."
Much of the information needed to derive estimates was provided by the Rhode Island Division of Taxation, under the direction of Neena Sinha Savage, State Tax Administrator. The production of this report is not possible without the Division of Taxation's assistance.
The 2020 Tax Expenditures Report contains information on 232 tax expenditure items enacted in the Rhode Island General Laws as of January 1, 2020. The report provides actual information on each tax expenditure item (a credit, deduction, exclusion, exemption, modification, etc.) for 2016 and 2017 and projections for 2018 through 2022. For 2016, the report shows that a total of 229 tax expenditure items resulted in $2.1 billion of revenue forgone while for 2017 the comparable figures were 231 and $2.3 billion.
Dion noted that "caution should be used when interpreting the report. The report's findings are comparative static in nature and simply indicate the maximum amount of revenue that could be realized if a given tax expenditure item was eliminated but no other changes were made to state or federal law in response to the tax expenditure item's elimination. For example, the forgone revenue from allowing a standard deduction on the Rhode Island personal income tax was $197.7 million in 2017. This estimate assumes that, without a standard deduction, taxpayers would pay tax on the standard deduction amount at the current marginal personal income tax rates of 3.75%, 4.75%, or 5.99%, an option that would likely not be politically feasible or economically desirable."