Recently, Governor Lincoln Chafee of Rhode Island suggested an increase to the states sales tax as a means to close the state’s budget gap. Currently, Rhode Island, like the rest of the nation, is suffering from a weak economy and a lack of competition with other New England states.
In a Policy Brief by the Rhode Island Center for Freedom and Prosperity, two scenarios, a sales tax increase and a sales tax cut, were outlined. In the sales tax increase scenario, Rhode Island would see reduced economic growth, less jobs, and less revenue than expected. Many in Rhode Island would also take the time to travel to New Hampshire, where there is no state sales tax, and give their business to the Granite State.
If the Governor would instead propose a sales tax cut, Rhode Island businesses would see more business and fewer Rhode Islanders would drive to New Hampshire to do their shopping. This would also result in more jobs throughout Rhode Island and more investment in-state investment.
Rhode Island only has to look to neighboring states to see the negative effects of increasing their sales tax. Studies have shown that Vermont and Maine have lost millions of dollars in retail sales to New Hampshire. The same would be true if Governor Chafee proposes this sales tax increase as he has suggested.
This sales tax increase comes at a time when politicians in Providence should be focused on relieving the tax burden and finding ways to allow for job creation in the marketplace. If Governor Chafee proposes a sales tax increase as he suggested, he will cost Rhode Island jobs and slow economic recovery in the state.