The national news outlets have picked up on the story about Rhode Island Governor Donald Carcieri’s plan to shut down the state government for 12 days by furloughing certain “non-essential” state workers in an effort to cut state expenses.  Click here and here and here.  Thankfully Rhode Island is required to balance its budget every year (unlike the Federal government) otherwise who knows what would happen.  However, even with this balanced-budget requirement, our tiny little state still seems unable to properly manage its finances.

According to the Wall Street Journal, the Democrats in the Rhode Island legislature increased spending this year by 12% while requiring the Governor to cut spending by around $68 million.  The Governor is utilizing these furloughs as part of his plan to cut spending.  Naturally, the state employees unions have vowed to fight this furlough, and they may win.  Click here for the full Wall Street Journal article.

Whether or not the unions prevail, tax experts are concerned about the impact on taxes in the Ocean State.  The Governor and the Legislature already raised the tax rate on long-term capital gains from 1.67% to 9.9%.  Given their reluctance to actually cut spending or to take any sort of business-friendly measures which would increase the base upon which the state income tax is calculated, the Legislature may see no other option than to increase the tax rate (directly or indirectly) on income.  They could, of course, increase other tax rates, such as the sales and use tax, or broaden the sales and use tax base (e.g. to include services).  The Legislature and the Governor already imposed a new tax on Amazon.com and other on-line retailers.  We are still waiting to see how much additional tax revenue the state will receive after several on-line retailers withdrew from Rhode Island.

The tax attorneys at McLaughlin & Quinn, LLC are keeping an eye open and an ear to the ground monitoring any rumors or discussions of changes to the Rhode Island tax laws.  As soon as we hear anything, we will post an entry to the M&Q Blog or send out an e-mail alert.  If you are interested in receiving our e-mail newsletters and alerts, please contact Michaela Costa by e-mail at mcosta@mclaughlinquinn.com and ask to be added to our list.

In the meantime, business owners, investors and everyone else in Rhode Island will just keep operating under the current rules, while wondering who’s running Rhode Island.