PROVIDENCE — General Assembly leaders and Governor Daniel J. McKee on Thursday announced plans to eliminate the car tax and provide a one-time child tax credit of $250 per child for Rhode Island residents making up to $100,000.
Rhode Island is flush with cash thanks to an influx of $1.1 billion in federal American Rescue Plan Act funds and a state budget surplus of $878 million for fiscal year 2022.
But Assembly leaders said the state budget will not include a reduction in the Rhode Island’s 7 percent sales tax — an idea McKee has floated. And with gas prices nearing $5 per gallon, they said the budget will not include a suspension in the state gas tax — an idea touted by officials such as Republican Senator Jessica de la Cruz and Secretary of State Nellie M. Gorbea, a Democrat running for governor.
As the House Finance Committee prepared to unveil its state budget on Thursday night, McKee joined House Speaker K. Joseph Shekarchi, a Warwick Democrat, and Senate President Dominick J. Ruggerio, a North Providence Democrat, in the State Room of the State House to announce “targeted taxpayer relief.”
“We are hopefully going to eliminate the car tax once and for all,” Shekarchi said. “Six years ago, we had the highest car tax in the country. Today, if this budget passes in the next couple of weeks, we will eliminate the car tax altogether.”
The budget provides $64 million to move up the final step in the phaseout of the automobile excise tax to this year, rather than next. The budget reimburses cities and towns for the lost revenue.
McKee, a Democrat running for a four-year term, said eliminating the car tax will be “extraordinary” for Rhode Island. “That helps not only the homeowners, it also helps our small businesses and our larger businesses,” he said. “That is a competitive advantage that is going to attract businesses and it is going to keep businesses in this state.”
The car tax cut had been championed by former House Speaker Nicholas A. Mattiello, a Cranston Democrat who lost his district seat. Shekarchi said the proposal would eliminate the car tax in all cities and towns except East Providence, which has a different fiscal year.
Ruggerio said his constituents in North Providence and Providence pay among the highest car tax rates in the state.
“I am very excited to be able to tell them they will never receive another car tax bill,” he said. “This is real relief that will be felt by every Rhode Islander who owns a car valued at more than $6,000. A $6,000 car is not a luxury car, particularly in today’s market.”
Ruggerio also announced that the state will eliminate the proposed $8 fee for issuing Rhode Island’s new license plates. And he said the Assembly plans to exempt veterans’ pensions from income tax, and increase the income tax exemption on other pensions from $15,000 to $20,000.
Shekarchi announced that the budget will provide a one-time child tax credit of $250 per child for up to three children. Those credits will apply to residents who make up to $100,000 for single tax filers and up to $200,000 for joint filers. That initiative will help about 190,000 people and cost $43.8 million.
Also, Shekarchi said the budget will include $4 million to boost the maximum property tax credit or “circuit breaker” tax credit from $400 to $600 for qualifying elderly and disabled residents.
And Shekarchi said the budget will place $100 million in the unemployment trust fund to reduce the tax rates for 2023. The trust fund took a big hit during the pandemic because so many people were out of work and because of fraud, officials said.
But the Assembly leaders said they do not plan to take immediate action on McKee’s call to make Rhode Island’s sales tax rate of 7 percent more competitive with neighboring states. Massachusetts’ sales tax rate is 6.25 percent, while Connecticut’s rate is 6.35 percent.
Shekarchi said, “The money we have right now is all one-time money. We don’t know if we are going to have that money next year.” He said that if Rhode Island lowered the sales tax this year, it might have to raise the rate next year.
While some consider Rhode Island’s sales tax rate high, he said, “It’s not comparing apples to apples and oranges to oranges.” For example, the state exempts food and clothing from the sales tax while other states do not, and other states have a county sales tax while Rhode Island does not, he said.
“I share the governor’s passion to reduce the sales tax,” Shekarchi said. But he said legislators wanted to avoid doing that with one-time revenue.
Shekarchi said suspending the gas tax also is “a lot easier said than done.” He said a gas tax pause would not necessarily result in a reduction of the price that people are paying at the pump, and the gas tax revenue helps the state secure other funding.
By contrast, Shekarchi said, the results of eliminating the car tax are “real and tangible.”
McKee said, “I am interested in lowering the sales tax. This is not the moment to do it. But I am going to continue to work in the next budget to arrive at that.”
The Rhode Island Republican Party issued a statement criticizing Shekarchi, Ruggerio, and McKee for not suspending the gas tax.
With an $878 million state budget surplus, the GOP said, “There is enough money in the state treasury to temporarily suspend the state gas tax until gas prices come down to a more reasonable level. The question is not whether we can afford to pay for a reduction in the gas tax reduction but why do the politicians running the state house refuse to reduce the state gas tax?”
Republicans asked, “Is it because these politicians are listening to radical environmentalists who do not want the price of gas to come down because they want to penalize people for driving a gasoline-powered car?” Or “Is it because they do not want to give credit to Republican Senator Jessica de la Cruz, who was the first Rhode Island elected official to come up with the idea of suspending the state gas tax in order?”
In any case, the GOP said, “Rhode Islanders are paying more than they should for gas right now. Gas is now $5 a gallon in Rhode Island. It wouldn’t be that high if McKee, Shekarchi, and Ruggerio simply agreed to suspend the gas tax.”
In a tweet, Senate spokesman Greg Pare said Connecticut suspended its gas tax, yet the price for regular gas in that state is just 4 cents less than in Rhode Island. Thursday’s average gas price was $4.96 per gallon in Connecticut, $5 in Rhode Island, and $5.03 in Massachusetts, he said. So Connecticut taxpayers are paying for “savings” that are not being passed on to consumers, he said.