The idea, says Moura, is to “fix Rhode Island's broken tax system and rebalance it and create equitable distribution of the tax burden to everyone,” by preventing over reliance on the property tax.

“It is the property tax,” Moura contends, “that is to blame for Rhode Island's high national ranking for overall tax burden, and that hits middle-class and low-income wage earners the most. When we are up here making decisions about taxes, we never truly direct our decision-making at the property tax, the root of the problem.”

Often, Moura said, it is decisions made at the state level that make things worse.

“We are killing the locals,” Moura told reporters, pointing to proposed cuts in aid to cities and towns in the supplemental budget for the current year that come on top of the first freeze in local school aid in decades. “In Pawtucket,” he pointed out “the bond rating was lowered and one of the decisions that was made by the bond rating people in that regard was based on the message that we are sending out of this building, our non-support for the locals.”

The proponents of the plan, mostly members of the advocacy group Campaign for Rhode Island's Priorities, claim that, contrary to popular perception, Rhode Island's tax structure is regressive, with the burden falling more heavily on those of middle, moderate and lower incomes.

“The poorest Rhode Islanders pay 13 percent of their annual income in taxes,” asserts Karen Malcolm, executive director of Ocean State Action, one of the groups that make up the Rhode Island priorities coalition, “while the richest pay just 6 percent. Middle income Rhode Islanders earning an average of $57,900 pay 4.4 percent of their income in property taxes while the wealthiest Rhode Islanders who earn an average of$757,000 pay just 2 percent. The sales tax is the most regressive in Rhode Island. The poorest Rhode Islanders pay 8 percent of their income in sales taxes, while the richest pay 1 percent.”

Among the changes proposed in the plan are:

--- Restore the capital gains tax, which the state has been phasing out over the years – it was was scheduled to be eliminated altogether, but was frozen at 1.67 percent this year -- back to 5 percent on items held five years or more, which Handy said is still less than Massachusetts. Also, short-term capital gains would be treated the same as wage income, which he said is also lower than Massachusetts. That would increase state revenue by about $50 million.

--- End the flat tax option adopted in 2006 for the state's highest income earners. That is slated to cost the state $21.5 million in foregone tax revenue in the current year and $33.6 million in fiscal year 2009.

--- Roll back the income tax cuts of the late 1990s so that Rhode Islanders would once again pay 27.5 percent of their federal obligation, up from the current 25 percent. No estimate was given for the amount of revenue this would generate.

--- Broaden the sales tax to include items like expensive clothing (more than $250 per item), airplane fuel, and services such as health club memberships, dry cleaning and landscaping ($75.7 million). It would also add a 2 percent gross receipts tax on accounting and legal services, which the group claim is largely made up of business-to-business transactions ($12.6 million).

--- Review “tax expenditures” like the historic tax credit and other business tax breaks to ensure they are having the desired effect.

Overall, the campaign estimates, the plan would bring in an additional $346 million in new tax revenue, hand out $180 million in property tax rebates, increase the refundable earned income tax credit to the state's lowest income earners who do not pay taxes from the current 15 percent to 25 percent at a cost of $4.8 million, add a $20 million, 3 percent increase in state school aid, leaving $141.2 million for deficit reduction.

Using as an example the typical resident in Handy's home city of Cranston with a mean household income ($51,498) and median home value (no figure given), the campaign said the restructured tax would work this way:

The current income tax is $1,200, the current property tax is $3,988 and the family pays approximately $1,175 in sales taxes for a total tax burden of $6,363. Under its plan, the group says, that same family would pay $1,320 in income tax, the same $3,988 in property tax, and $1,234 in sales tax, but would get a property tax rebate of $598, bringing the total tax burden down to $5,944, for a savings of $419.

The leaders of both chambers of the General Assembly say it is too early to pass judgment on the proposal, but that it will get hearings and debates. The actual text of the bill is still being polished and was not available on Tuesday.

The Carcieri administration takes a skeptical view of the proposal.

“Governor Carcieri has not reviewed the so-called plan,” spokesman Jeff Neal said Tuesday, “but he has already made it clear that raising taxes on Rhode Islanders is not the solution to Rhode Island's budget problems. Rhode Island is already number seven nationally in total tax burden, we should not strive to be number one.

Neal deemed the claim that 90 percent of Rhode Islanders would see a reduction in their overall taxes “highly unlikely.” He pointed out that the tax returns of those earning $75,000 or more already make up 70 percent of the income taxes collected.

The fallacy in the plan, Neal said, is that “people with the means to move to a lower-tax state will stay put and allow themselves to be taxed.” He said the proposal will “drive the wealthy from Rhode Island.
Nonetheless, Neal said, “Governor Carcieri is pleased that this proposal has been put on the table because it highlights the two alternatives to solve the budget problem – one that lowers spending to bring it in line with revenues, keeping taxes where they are to perhaps be lowered later, or to raise taxes even higher and solve only part of the budget deficit problem.

“The governor would be happy to have that debate all day long,” Neal said.