TAX NEWS - June 2010

Rhode Island Tax: RI gov signs law reforming income tax structure

PROVIDENCE, R.I. -- Gov. Don Carcieri on Wednesday signed into law a bill he says will cut taxes for most state residents and make Rhode Island more attractive to businesses.

The bill passed last week by the Democratic-dominated General Assembly cuts the state income tax rate for top earners from 9.9 percent to 5.99 percent and reduces the number of tax brackets from five to three.

The changes take effect Jan. 1.

Under the new tax structure, a single professional earning more than $45,000 per year would pay 2.84 percent of their income in taxes instead of the current 3.13 percent, according to the state Department of Revenue. A married couple making $152,450 annually would pay 3.49 percent of their income in taxes instead of 3.89 percent.

"This is a fairly significant tax reduction for a lot of our citizens," the Republican governor said at a Statehouse signing ceremony, where he was joined by Democratic legislative leaders. "We need to put ourselves in the place where we can prosper as a state."

Supporters hailed the measure as a way to make the state more business-friendly and help produce jobs in a state grappling with a 12.5 percent unemployment rate, one of the nation's highest.

"Ultimately, it's about job creation," said House Speaker Gordon Fox. "If we create jobs, I truly believe the rest of our problems will take care of themselves."

The law eliminates the alternative flat-tax option for the state's highest earners, effective in 2011, and increases the standard tax deductions.

The law's backers said they hoped it would allow Rhode Island to shed its reputation as a tax-heavy state.

"In the area of tax policy, perception is a reality and it's a critical factor of the decision makers who are deciding whether they will relocate or grow their businesses here," said Senate President M. Teresa Paiva-Weed.