Who pays for R.I. car-tax cuts?

By Mary MacDonald
Providence Business News

The car tax in Rhode Island is so unevenly collected and disproportionately important to town coffers that reducing it raises a host of secondary issues.

Two proposals are before the General Assembly this year. One, introduced by Gov. Gina M. Raimondo, would reduce the car tax starting in 2019 by cutting 30 percent of a car’s book valuation.

An alternative, pursued by House Speaker Nicholas A. Mattiello, D-Cranston, would eliminate the tax completely over five years.

A recent analysis by the nonprofit, nonpartisan Economic Progress Institute found both options will result in the wealthiest residents reaping the greatest benefit, more than one-third of the overall tax break.

Both would hold towns and cities harmless by reimbursing them for any lost revenue. Where the two plans diverge is in fiscal impact and application.

The Raimondo plan, by trimming the valuation, is expected to cost $58 million a year once it begins, in addition to the $10 million that towns already receive in state aid, according to the Economic Progress Institute analysis.

Her plan would generally favor the owners of older, less-valuable cars, by reducing the valuation total.

If the tax is totally phased out, as broadly outlined by Mattiello, $51.1 million would be covered by the state in the first year, on top of the $10 million in existing state aid, before rising annually to $215.4 million.

“At this point, our overriding concern has to do with the amount of revenue that is being put in jeopardy through this process,” said Doug Hall, director of economic and fiscal policy for the institute.

David Ortiz, a spokesman for Raimondo, said no specific funding stream has been identified for her plan.

Larry Berman, a spokesman for Mattiello, said his plan would begin this year, a year earlier than Raimondo’s. The specifics of the plan are still being worked out, he said.

Among New England states, Rhode Island has a car tax with a unique structure set by individual communities. Some, such as Providence, Pawtucket and Central Falls, apply a heavy burden, or tax rates in excess of $48 for each $1,000 of assessed car value.

More wealthy, property-tax-rich communities, including New Shoreham, Little Compton and Jamestown, apply a rate of less than $17 per $1,000.

Six communities apply a $6,000 exemption against the value, which releases the owners of small-value cars from any tax burden at all. Others apply only the state-required minimum exemption of $500.

The issues being raised by the two proposals – who will it most benefit, who pays for it – beg the question of purpose.

“If the purpose is to provide tax relief to Rhode Islanders who need tax relief, which we would define as people not necessarily in the top 20 percent or 40 percent, there are far more efficient vehicles for doing that,” said Hall of the proposals.