State income taxes. (Providence, Newport: sales, real estate market, car insurance)

[seanpecor]

Hi folks,

I'm doing some research on relocating back to New England and I've become rather intrigued with Rhode Island. However, in comparing RI against MA and CT with respect to state tax burdens, I'm coming up with scenarios where in my case, I'm potentially paying $23,000/year in state income tax to RI. Contrast that with Massachusetts where I would be paying $16,000/year and with Connecticut where I would be paying $15,000/year.

So then this begs the question: are there additional benefits or services that the population of RI enjoys thanks to the higher state income tax burden, that one would not enjoy in CT or MA? Or are there lightened tax/fee burdens in other areas that mitigate RI's state income tax burden? For example, while New Hampshire has no state W4 income tax, they do have a higher property tax burden. And the caveat with NH's low state tax burden is that it exists clearly to entice growth, thereby increasing property values further as their economy and population grows faster than any other New England state (and more than any state above the Mason Dixon line for that matter!). So NH as a result, in my mind, becomes significantly less appealing because it's entire fiscal strategy is not sustainable. Or if it is, the growth and resulting destruction of natural habitats becomes something I simply don't want to encourage.

I'm just concerned with RI's state income tax burden. The sate is my favorite so far. But if I save $1,000/month simply by living 20 miles to the East or West, with no clear disadvantages in services provided, then RI suddenly becomes less attractive. Am I missing something?

Sean

[Pattig]

No, you aren't missing something. RI is the 5th most taxed state in the country. Besides the beauty the state offers, there is no added benefit to living here over Massachusetts or Connecticut.
Patty

[riexpat]

Don't forget about the additional sales tax.

MA - 5%
CT - 6%
RI - 7%

Property taxes seem to be generally higher in RI than MA as well. I don't know about CT.

[Rnrboy]

I love how people throw around stats on ehre without one shred of evidence. RI is not the 5th most taxed state in the country. If you count ALL taxes are income and property taxes are high. But capital gains has just been reduced lower thant he other two states in question.

I think we need to lowe our property taxes (which affects the middle class more) and raise our capital gains (which affects the upper class primarily) if we ever want to get out of this rut.

CT and MA have both inceased their capital gains taxes in recent years and are doing better than us.

That having been said, I still love Rhode Island - and would not want to live in CT or MA instead - even though I like both of those states as well.

[Rnrboy]

Just a thought: Maybe it is also important to consider why RI is your favorite state thus far. I have to admit, I'm a little curious - although I do agree with you.

[ProvGuy]

There's really no benefit to living in RI over the other two unless you think RI has nicer scenery, beaches, etc (the roads and infrastructure are just as bad). RI income and property tax is higher, and you'll pay way more for things like car insurance in RI than in Mass. The only positive in RI is that property values are a little more affordable when compared with eastern Massachusetts and most of Connecticutt.

[Pattig]

Originally Posted by Rnrboy

I love how people throw around stats on ehre without one shred of evidence. RI is not the 5th most taxed state in the country. If you count ALL taxes are income and property taxes are high. But capital gains has just been reduced lower thant he other two states in question.

I think we need to lowe our property taxes (which affects the middle class more) and raise our capital gains (which affects the upper class primarily) if we ever want to get out of this rut.

CT and MA have both inceased their capital gains taxes in recent years and are doing better than us.

That having been said, I still love Rhode Island - and would not want to live in CT or MA instead - even though I like both of those states as well.

My error- 4th Most taxed state!!
Tax-Friendly Places 2007 | 8 | CNNMoney.com

NO problem with loving the state you live in, but don't be delusional...

[Rnrboy]

Rhode Island's Future:: More Facts Dispute the "Flight of the Elite" Theory on Taxes

[seanpecor]

Rnrboy, that's an interesting link, but it's not quite the sort of investigative reporting that I can rely on. The most obvious potential flaw that I can identify is that the household income data showing a substantial increase of families earning $100K or more from 2001 to 2005 may be misrepresented in the article. After September 11th, 2001, the markets lost alot of value, and many funds lost a good deal of money for their investors by acting too quickly. The stock market bottomed out in 2001, and by Dec-05 the DJIA had gained back 21% of its value. That rebound "created" wealth. What would be interesting would be to see the chart include statistics for wealth data for the calendar year 2000. Because the market's close in Dec-00 was as high as the Dec-05 close. Therefore, if my presumption is correct, the % of families making more than $100K would closely mirror 2005 statistics.

Furthermore, there were quite alot of people enjoying capital gains in the real estate market by taking advantage of a strong seller's market during 2004 and 2005. Alot of wealth was created. However, for example, once those country houses - originally bought for $50K in 1975 - were sold for $800K in 2005 - did many of of those sellers leave the state? In other words, did they take their equity with them? If so, that would then leave RI government more dependent on property taxes.

The planning statistics you linked to indicate a labor force population growth of 2.02% from 2001 to 2005. However, the number of employed within that population grew by only 1.19%. Only one job is being created for every two people entering the labor force. That's not a good trend. Is it poor relative to the rest of New England? Perhaps not.

A tiered tax structure that disproportionately taxes the wealthy is not a bad thing. There are ethical advantages to re-distributing acquired wealth from the top earners to the bottom. However there are economic consequences to this model particularly if competing neighbors (MA and CT) have a tax structure that is more attractive to successful individuals. In my case, we are equestrian enthusiasts. We plan on buying a nice property and further investing at least $500,000 in the construction of a stable and a 220x80 indoor riding arena for personal use. This isn't a small investment for us. Therefore, we must weigh all factors and that includes state tax burden. By relocating to CT rather than RI we might very well save $1,500/month in taxes. That would be discretionary income then made available to us to spend on private schooling, home improvement, etc.

With that said, I still lean ever so slightly toward Rhode Island. The question was asked as to why we would lean in that direction to begin with. I suppose the answer is climate and culture. Milder winters and milder summers relative to the rest of New England are appealing to us. Great schools and colleges are important. Restaurants, festivals, and hiking/nature exploration opportunities are very important. Civic minded folks are important also. Rhode Island seems to promise many of the things we are looking for.

Sean

[professorsenator]

Originally Posted by seanpecor

With that said, I still lean ever so slightly toward Rhode Island. The question was asked as to why we would lean in that direction to begin with. I suppose the answer is climate and culture. Milder winters and milder summers relative to the rest of New England are appealing to us. Great schools and colleges are important. Restaurants, festivals, and hiking/nature exploration opportunities are very important. Civic minded folks are important also. Rhode Island seems to promise many of the things we are looking for.

RI income tax works off the federal AGI, while Mass. has a (relatively) flat rate that has a different (bigger) basis than the federal AGI. The RI income tax works out to be better than MA for lower income folks, about the same for middle/upper middle folks, but a lot worse for the high end. If you've worked the numbers out and find a huge difference, my hunch is that you have a very high income and your calculations are probably right. This is an issue the current governor has talked about quite a bit (i.e. RI's tax structure pushes away high income folks) but there is deep resistance to tax cuts for rich folks in blue-collar (and limousine liberal) RI, especially during times of very tight budgets.

Why live in RI rather than MA? I think most high income people in the area do so because they work in the Providence area and the immediately surrounding MA burbs are, frankly, very unremarkable with average (at best) schools. Thus, they are willing to pay the higher taxes in RI because there are some nicer communities with better schools in RI. Oh, they could move closer to some of the nicer 'burbs of Boston to save on taxes. But then their housing costs would go up and their commute would become much tougher.

The exception to this is the money in Newport, whose rich folks don't really have to work. But Newport is a strange world of its own.