The budget passed by the House Finance committee made three significant tax policy changes that will impact the income of tens of thousands of Rhode Islanders. The estate tax, earned income tax credit, and property tax relief program were all dramatically altered in the budget.
Read the Institute’s full analysis and June 6th and June 16th press releases.
The clear winners are a small number of wealthy taxpayers whose estates will pay less in taxes and in many cases, nothing at all starting next year. The clear losers are tens of thousands of low- and modest-income Rhode Islanders who will pay more in taxes next year. Unemployed homeowners and renters are among the biggest losers, because they will no longer qualify for property tax assistance and are not eligible for the earned income tax credit. Many of the lowest-wage workers will also be negatively impacted by the loss of the property tax refund, even with an eventual boost in the EITC.
The shift in state resources from low- and modest-income taxpayers to high-income taxpayers is significant. The state will give up $9.4 million to provide large tax breaks to just over 200 estates that owe taxes. Estates worth less than $1.5 million will pay no estate tax; estates above that amount will get a tax credit worth $64,400, reducing their estate tax bill by that amount. The cost of the tax break doubles to $18 million by 2016.
At the same time, in the coming year, the state will save a net of $3.9 million by modifying the EITC and eliminating the property tax relief circuit breaker program for low- and modest-income Rhode Islanders who are not elderly or disabled. By Fiscal Year 2016, the state will spend more on the reformed EITC, but total state spending on tax assistance for low- and modest-income taxpayers will just get back to what it is today.
For some low-income taxpayers who receive both the state earned income tax credit and property tax refund, an increase in the EITC may offset the loss of the property tax refund. But others will lose out completely. For example, someone who is unemployed and qualifies for the property tax refund to help offset their property taxes will no longer receive any tax benefit. Modest-income taxpayers who qualify for the EITC will also be likely to pay more income tax as the credit is lowered from 25 percent to 10 percent.