Professors Say Rhode Island Residents Are Making More Money
Rhode Islanders are getting richer.
More people are buying million-dollar homes. Fancy cars fill parking lots at the malls. Coworkers are swapping stories about their expensive summer vacations.
Besides the anecdotes, there's new data that shows some Rhode Islanders are making a lot more money. The facts come from two University of Rhode Island professors.
Mark Higgins and Joe Matoney dug through public IRS data files and found that the number of 1998 Rhode Island tax returns with more than $200,000 in income grew to 6,686.
That's 16 percent more than in 1997 and 40 percent more than in 1996.
It's an interesting fact, just like the 43 homes that have been purchased for a million dollars or more each this year -- more than in all of 1999.
But it's more than just a conversation starter around the backyard grill.
It's data that could help sort out the public policy debate about whether we should cut taxes -- and whose taxes should be cut.
Last year, it was Higgins and Matoney who carried IRS data to the State House during the debate over whether to cut taxes for the rich.
Several CEOs proposed that cutting the income tax for those making more than $200,000 would attract wealthy executives and their companies to Rhode Island. They, in turn, would create new jobs, putting more people to work who would pay more taxes, bolstering state revenues and the economy.
Higgins and Matoney pointed out that, based on the IRS data, if no new jobs were created, the proposed tax cut would cost the state $30.7 million in revenues in the first year, $38.6 million in the second and $46.6 million in the third.
Their findings were included in the final Senate report on the proposed tax cut, which, after a full airing, appears to have been shelved.
"Our whole point is that we are not for or against the tax cut, but that we tried to provide information from an academic point of view so the decision would not be made in a vacuum," Higgins said.
That sounds right. Facts from people without an agenda -- other than to do public service -- are needed at the State House. Too often, decisions made on complex issues, such as taxes, are dictated by the people lobbying for the change.
This summer, Higgins and Matoney dug deeper into 1998 IRS data and found the 16-percent jump in tax returns from Rhode Islanders who reported earnings of more than $200,000. The IRS data doesn't explain the big increase.
Higgins says it could be that more rich people are moving here, although there's little data or anecdotal evidence of that; or it could be that working husbands and wives have reached a level where they both pull down six-figure salaries, putting their joint return above $200,000.
In a tight, labor market, where employers are paying big bucks to keep employees, that could translate to more money being paid at the top.
But here's another theory.
Of the 6,680 returns reporting more than $200,000 in income, 5,619 reported capital gains -- profits from the sale of stock. Higgins suggests that money made during the bull market might be the best explanation for the jump in Rhode Islanders' income.
And the profits from trading stock probably grew last year, when the markets again yielded big returns.
Capital gains are important to the next tax debate at the State House. There's a pending proposal to eliminate the state's piggyback tax on capital gains for assets held more than five years.
The idea is to keep pace with neighboring states, such as Massachusetts, which is phasing out its capital-gains taxes by the end of next year, and encourage people who make big money in the stock market to live and invest here. Some of those people tend to be job creators and attracting those people would boost our economy.
But it's still not clear how much revenue the state would give up to cut capital-gains taxes, largely because it's uncertain how it would be phased in and the rules are not set.
The IRS data shows that the 5,619 returns, or about 1 percent of all the returns filed, reported total capital gains of $833.6 million. That's an average of $148,000 each. But there is no information about how long the asset was held before the sale -- a key component of any cut in capital gains.
"No one has hard data to indicate what it would cost," Higgins said.
There might be data available from a study of what happened during the Massachusetts tax cut. Or maybe a big accounting firm can provide some hard numbers.
To figure out and balance what the state would give up in taxes compared with what it would gain, and how the state budget would be balanced, more facts are needed.
Higgins and Matoney have provided a start. Two college profs have decided to leave the campus where they teach students about taxes to share what they know with the rest of us.
Their effort alters any image of a distant, self-contained public university with little contact with most Rhode Islanders.
It's refreshing. It's community service.
Higgins and Matoney, both certified public accountants with doctorates, say they're not doing anything special -- it's just part of the number crunching they do.
"Decisions shouldn't be made on bad or no data," said Higgins. "That's what's scary."
Source: Providence Journal, The (RI), Sep 02, 2000
More people are buying million-dollar homes. Fancy cars fill parking lots at the malls. Coworkers are swapping stories about their expensive summer vacations.
Besides the anecdotes, there's new data that shows some Rhode Islanders are making a lot more money. The facts come from two University of Rhode Island professors.
Mark Higgins and Joe Matoney dug through public IRS data files and found that the number of 1998 Rhode Island tax returns with more than $200,000 in income grew to 6,686.
That's 16 percent more than in 1997 and 40 percent more than in 1996.
It's an interesting fact, just like the 43 homes that have been purchased for a million dollars or more each this year -- more than in all of 1999.
But it's more than just a conversation starter around the backyard grill.
It's data that could help sort out the public policy debate about whether we should cut taxes -- and whose taxes should be cut.
Last year, it was Higgins and Matoney who carried IRS data to the State House during the debate over whether to cut taxes for the rich.
Several CEOs proposed that cutting the income tax for those making more than $200,000 would attract wealthy executives and their companies to Rhode Island. They, in turn, would create new jobs, putting more people to work who would pay more taxes, bolstering state revenues and the economy.
Higgins and Matoney pointed out that, based on the IRS data, if no new jobs were created, the proposed tax cut would cost the state $30.7 million in revenues in the first year, $38.6 million in the second and $46.6 million in the third.
Their findings were included in the final Senate report on the proposed tax cut, which, after a full airing, appears to have been shelved.
"Our whole point is that we are not for or against the tax cut, but that we tried to provide information from an academic point of view so the decision would not be made in a vacuum," Higgins said.
That sounds right. Facts from people without an agenda -- other than to do public service -- are needed at the State House. Too often, decisions made on complex issues, such as taxes, are dictated by the people lobbying for the change.
This summer, Higgins and Matoney dug deeper into 1998 IRS data and found the 16-percent jump in tax returns from Rhode Islanders who reported earnings of more than $200,000. The IRS data doesn't explain the big increase.
Higgins says it could be that more rich people are moving here, although there's little data or anecdotal evidence of that; or it could be that working husbands and wives have reached a level where they both pull down six-figure salaries, putting their joint return above $200,000.
In a tight, labor market, where employers are paying big bucks to keep employees, that could translate to more money being paid at the top.
But here's another theory.
Of the 6,680 returns reporting more than $200,000 in income, 5,619 reported capital gains -- profits from the sale of stock. Higgins suggests that money made during the bull market might be the best explanation for the jump in Rhode Islanders' income.
And the profits from trading stock probably grew last year, when the markets again yielded big returns.
Capital gains are important to the next tax debate at the State House. There's a pending proposal to eliminate the state's piggyback tax on capital gains for assets held more than five years.
The idea is to keep pace with neighboring states, such as Massachusetts, which is phasing out its capital-gains taxes by the end of next year, and encourage people who make big money in the stock market to live and invest here. Some of those people tend to be job creators and attracting those people would boost our economy.
But it's still not clear how much revenue the state would give up to cut capital-gains taxes, largely because it's uncertain how it would be phased in and the rules are not set.
The IRS data shows that the 5,619 returns, or about 1 percent of all the returns filed, reported total capital gains of $833.6 million. That's an average of $148,000 each. But there is no information about how long the asset was held before the sale -- a key component of any cut in capital gains.
"No one has hard data to indicate what it would cost," Higgins said.
There might be data available from a study of what happened during the Massachusetts tax cut. Or maybe a big accounting firm can provide some hard numbers.
To figure out and balance what the state would give up in taxes compared with what it would gain, and how the state budget would be balanced, more facts are needed.
Higgins and Matoney have provided a start. Two college profs have decided to leave the campus where they teach students about taxes to share what they know with the rest of us.
Their effort alters any image of a distant, self-contained public university with little contact with most Rhode Islanders.
It's refreshing. It's community service.
Higgins and Matoney, both certified public accountants with doctorates, say they're not doing anything special -- it's just part of the number crunching they do.
"Decisions shouldn't be made on bad or no data," said Higgins. "That's what's scary."
Source: Providence Journal, The (RI), Sep 02, 2000
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