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Taxes were one of the topics that WJAR-TV reporter Bill Rappleye raised when he interviewed House Speaker Nicholas Mattiello during the Jan. 18 edition of 10 News Conference. Rappleye referred to a report showing that poor people in Rhode Island pay more taxes per person than in other states. Then he asked Mattiello, Is there a way to change that? The speaker said the solution was to, Lift up the middle class. Our middle class revenue is just not what it should be, Mattiello said. Let's lift everybody up and we'll be competitive with other states. So that's my approach for dealing with it, not changing rates and not charging our more successful folks more money. I think the middle class has been squeezed for a long time. And the tax cuts for the rich don't contribute to that? Rappleye said. There haven't been tax cuts for the rich. I'm not sure when folks refer to that, I'm not sure what they're referring to. So if you can point to the tax cuts for the rich, I'll be happy to consider that, Mattiello said. But, realistically, there's never been tax cuts for the rich. That sparked an immediate request from a few readers to have PolitiFact Rhode Island check his assertion. One reason: in 2010, the General Assembly, when Mattiello was House Majority Leader, lowered the top tax rate for the state's highest earners. That rate was 9.9 percent for income that exceeded $336,550 and in state-by-state rankings, it stood out like stink bomb at a flower show. So the legislature, with the blessing of then-Governor Donald Carcieri, brought the top rate down to 5.99 percent. Thus was born the idea that Rhode Island had given a big tax break for the rich, prompting calls by some legislators to bump the rate up to 7.99 percent for all earnings above $250,000. But, as in all things taxes, it's not that simple. We'll return to the 2010 changes. But first we should travel further back to 2006, a year before Mattiello joined the General Assembly and the year a tax overhaul passed that was designed to increasingly benefit the wealthy Instead of the top tax rate of 9.9 percent, the legislature and then-Governor Donald Carcieri gave taxpayers the option of paying a flat 8.0 percent of their adjusted gross income if they gave up taking credits and deductions. Each subsequent year, that tax cap dropped another 0.5 percentage points. It would have fallen to 5.5 percent if the General Assembly hadn't done its 2010 tax overhaul. When it was proposed, the 2006 change wasn't billed as just a tax cut for the rich. In announcing the plan, then-House Majority Leader Gordon Fox told the conservative Heartland Institute , This will undoubtedly help the state's highest wage-earners. But I am proud that this tax package also helps low-income wage earners and the middle class. As Larry Berman, Fox's spokesman pointed out to Heartland at the time, the plan was designed to entice the well-to-do. These are people making $250,000 and above, and when they want to create jobs, they look at Massachusetts and see a 5.3 percent income tax, Connecticut with a 5.0 percent tax, and Rhode Island with a 9.9 percent tax. They make a choice on where to move and create jobs, and that difference in tax rates is a big factor in the choice they make. So this was clearly an effort to entice the rich and bring them to -- or keep them in -- Rhode Island. In each succeeding year, as the percentage fell, more well-off taxpayers took advantage of it. So by the time the 2010 tax law lowering the top rate was passed, many of the rich weren't paying taxes at the 9.9 percent rate anyway. On the other side of the ledger, in 2009 the rich took a hit when the legislature approved another bill, one that taxed capital gains, which is the profit from the sale of stocks and other investments, as regular income. Capital gains had been taxed at a special reduced rate. Now back to the 2010 legislation, and the tax rates now in effect. Those tax changes did more than lower the top rate. It rejiggered the whole tax structure. Instead of the 9.9 percent rate kicking in for income that exceeded $336,550, the new 5.99 percent rate applied to all income above $135,000. Five levels of taxation were transformed into three. The standard deduction went up. So did the personal exemption. The legislation also phased out most credits and itemized deductions as a person's income rose, and shifted some of the tax burden to non-residents. When we asked Mattiello's office about the Speaker's claim, Berman sent us a projection from the state's Office of Revenue Analysis done when the changes were being considered. It used tax data from 2008 and compared what people would pay under the old and new systems. We also looked at a later analysis done at the end of 2010, after passage. Both showed the same pattern. Here are the December 2010 numbers: Adjusted gross income Change in average tax paid Number of returns $1 to $12,500 $13 decrease 109,181 $12,501 to $20,000 $29 decrease 61,217 $20,001 to $30,000 $35 decrease 68,407 $30,001 to $40,000 $21 decrease 55,383 $40,001 to $55,000 $24 decrease 62,776 $55,001 to $75,000 $64 decrease 63,230 $75,001 to $110,000 $91 decrease 70,347 $110,001 to $175,000 $350 decrease 48,206 $175,001 to $250,000 $113 increase 14,322 $250,001 to $500,000 $152 increase 9,791 $500,001 to $1 million $955 increase 3,561 $1 million to $5 million $2,276 increase 2,276 $5 million to $10 million $5,159 increase 269 Over $10 million $9,562 increase 340 So compared to what the average tax bill would have been without the changes, higher-income taxpayers -- those with adjusted gross incomes of over $175,000 -- actually paid more. The average filer in that group (representing about 8 percent of filers) paid $574 extra compared to what they would have paid under the previous system. So the rich did not get a big tax break from this law. Finally, there was a major change in the estate tax that passed in 2014. Under the old system, if an estate was worth $921,655 or less, no estate tax was assessed. But if the value was even a dollar higher, the full value of the estate was taxed. Under the 2014 change, the tax only kicks in when the estate is valued at more than $1.5 million. More importantly, the all-or-nothing provision, sometimes called the cliff, was eliminated and only the portion in excess of $1.5 million is subject to the tax. In addition, the limit is now tied to inflation. The change translates into a collective tax savings of $64,400 to the heirs of someone whose estate is worth more than $1.5 million. The degree to which this change benefited the rich is a matter of debate. If you believe, to paraphrase Mitt Romney, Estates are people too, than this was a big tax break for the wealthy, saving them up to $64,400 in taxes per estate. In addition, supporters of the proposal said it was designed to prevent wealthy people from leaving the state before they die . Wealth tends to run in families, and not a lot of poor people were lobbying for this tax break. But just because someone's a millionaire doesn't mean that their heirs are rich, and the heirs are the ones who get extra inheritance, thanks to the new law. The middle income got the best break because they got rid of the cliff, said John Simmons, executive director of the Rhode Island Public Expenditure Council. I think the old system was hurting a lot of lower income people, said Patricia Thompson, former chairwoman of the federal and state taxation committee of the Rhode Island Society of Certified Public Accountants . The wealthy will get a break because the exemption is raised to $1.5 million just as everyone else would, but I wouldn't say it was geared to them at all. Thompson and other people we interviewed suggested that the best source of information on this would come from Paul Dion, chief of the Office of Revenue Analysis for the Rhode Island Department of Revenue. But Gov. Gina Raimondo's office refused to make Dion available for an interview. Our ruling House Speaker Nicholas Mattiello said, There haven't been tax cuts for the rich in Rhode Island. He later specified a time frame: Never. The 2010 tax changes -- which dropped the top tax rate by four percentage points -- is often regarded as a tax cut for the rich, but the wealthy actually paid more. They also paid more after the 2009 change, which called for taxing capital gains as ordinary income. But we only had to go back to 2006 to find tax legislation that argues against his point. Although no longer in effect, it imposed an ever-lower cap on state taxes that benefitted more and more rich people as the tax cap dropped lower and lower. And the 2014 change in the estate tax meant that wealthier estates weren't taxed as heavily. Overall, we believe the rich disproportionately benefit from this change even though all heirs, paupers and princes alike, get the same break. On balance, the PolitiFact Rhode Island judges rate his statement False . (If you have a claim you’d like PolitiFact Rhode Island to check, email us at [email protected] And follow us on Twitter: @politifactri.) (Corrections: Gordon Fox was House Majority Leader when he talked to the Heartland Institute about the 2006 tax changes. The initial version of this item incorrectly said he was House Speaker. Donald Carcieri was the governor when the 2010 tax changes were passed. The initial version said it was Lincoln Chafee.)
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