PROVIDENCE — After vowing to raise taxes on big corporations, Democratic Secretary of State Nellie M. Gorbea is receiving criticism from her opponents in the governor’s race, including not only Republican Ashley Kalus but also Democratic Governor Daniel J. McKee and Democrat Helena B. Foulkes.
In a new ad, Gorbea says, “As governor, I’ll raise taxes on big corporations so we can fix this housing crisis, expand pre-K to every child, and reward small businesses that create jobs here.”
Gorbea would raise the state’s 7 percent corporate income-tax rate to match the 8 percent rate in Massachusetts, generating $39 million a year, her campaign officials said on Wednesday.
Gorbea also would raise the tax on financial institutions from 9 percent to 10.5 percent, raising $6 million. She would end “sweetheart” corporate tax loopholes, including those that benefit hedge funds.
And she would close “tax haven” loopholes that corporations exploit by using offshore tax havens to reduce their domestic tax liabilities. That would generate $43 million more in tax revenue each year, her campaign officials said.
“Nellie is the only candidate in the race that is willing to define how her administration is going to pay for fixing the issues facing Rhode Islanders,” campaign manager Dana Walton said in a statement. “For far too long, the state budget has been balanced on the backs of the middle class and small businesses, and it is time to change that.”
But McKee says Gorbea’s tax proposal would move the state in the wrong direction. “Raising taxes right now would take us backward, and it’s risky,” he told the Globe. “Just hearing that can certainly have people not interested in coming to the state or staying in the state.”
Rhode Island has economic momentum now, McKee said, with its lowest unemployment rate in more than 30 years and a budget surplus of $878 million. While Gorbea wants to use the tax revenue for housing and pre-kindergarten programs, he said, “Better off to manage the budget the way I have: create surpluses, and then we are going to find ways to invest in those things.”
McKee noted he proposed reducing the corporate minimum tax from $400 to $375, and he floated the idea of lowering the state sales-tax rate, although the General Assembly did not embrace that idea. While the governor can propose a budget, the General Assembly has the power to levy taxes.
“This is the time when things are in a spot where you can start giving some tax relief,” he said.
McKee said this is a point of distinction between him and Gorbea: “I’m looking to stabilize or reduce taxes and the cost of living in Rhode Island, and she is proposing to increase the costs,” he said.
Meanwhile, Kalus tweeted a frame of Gorbea’s ad showing the words “Raise corporate taxes.”
“Rhode Islanders are already struggling to deal with soaring inflation, and raising the corporate tax rate will result in companies passing costs along to consumers,” Kalus wrote. “These sorts of failed policies from career politicians like Nellie Gorbea have made Rhode Island the 46th worst state in the country to do business.”
Former secretary of state Matt Brown, a progressive Democrat running for governor, also opposes Gorbea’s proposal because, spokesman A.J. Braverman said, it would raise the corporate tax rate not just on large corporations but also on Rhode Island’s small businesses.
“That makes no sense,” Braverman said. “Lots of small businesses are struggling, and they shouldn’t face the same tax increases while giant corporations are making billions in profit. Matt supports a graduated tax structure so that giant corporations like Amazon and Walmart pay higher tax rates than small businesses.”
Foulkes, a former CVS executive, came out against the proposal.
“As we learn more details of Secretary Gorbea’s plan, it becomes clearer and clearer that this tax will hurt Rhode Island’s economy and small businesses,” she said. “Small businesses have already been devastated by the pandemic. It was a mistake for Governor McKee to tax (Paycheck Protection Plan) loans, and it’s a mistake for Secretary Gorbea to raise taxes on small businesses now.”
Another Democratic candidate, Dr. Luis Daniel Muñoz, said, “I support raising corporate taxes and want to offer a more thoughtful strategy around that topic than a one-off line in a TV commercial.” He said would increase the state’s corporate tax rate to 7.5 percent, keeping Rhode Island competitive with the 8 percent rate in Massachusetts.
Muñoz said he favors raising taxes on the richest 1 percent of Rhode Islanders. That would generate more than $100 million in annual revenue, providing Rhode Island with enough money to invest in housing while also phasing out the regressive tangible property taxes, which have a big impact on the smallest businesses, he said.
In an interview, Gorbea said her proposal would mostly affect big corporations and not the many small businesses that are organized as limited liability companies. “Small businesses are really the Rhode Island economy,” she said. “My proposal is to ask big corporations to pay their fair share.”
Gorbea rejected McKee’s contention that an increase in the corporate tax rate would drive companies away.
“My vision is to be investing in our people,” she said. “What will move our economy forward is having housing options across the board, having high quality education including in the early years, and addressing climate change. This moves Rhode Island forward.”