PROVIDENCE, R.I. (WPRI) — McKee administration officials acknowledged Thursday they made an error calculating the $77 each Rhode Island household would save per year if lawmakers approve the governor’s proposal to cut the sales tax from 7% to 6.85%.
Budget officials said the $77 annual savings estimate shared last month was based on the calculation that all of the $35 million in sales tax revenue the state would lose in a full fiscal year from the 15-basis-point cut would come from taxable purchases made by households.
In reality, however, businesses make about half of those purchases, meaning households would only benefit from the other half — effectively reducing the annual tax relief to somewhere closer to $39 per household.
“The initial calculation of savings from the proposed reduction of the sales tax rate from 7% to 6.85% did not account for the savings that would be realized by businesses who also pay sales tax,” State budget official Derek Gomes explained in an email. “About half of sales tax revenue is due to sales to households, and the other half is from sales to businesses.”
The mistake was first reported by The Providence Journal.
News of the error will likely embolden those who have already criticized Gov. Dan McKee’s proposed cut, with many arguing it doesn’t go far enough for Rhode Islanders to feel any tangible tax relief during a time of high inflation.
Others have argued the reduction isn’t worth the tens of millions of dollars in lost revenue that might come in handy during less flush times, while some note the 6.85% doesn’t even bring Rhode Island into line with its neighbors.
The sales tax is 6.35% in Connecticut and 6.25% in Massachusetts.
On Jan. 24, state Reps. William O’Brien and Joseph Solomon, both Democrats, came out in support of legislation that would reduce the sales tax to 6%, with O’Brien saying McKee didn’t go far enough for “residents of Rhode Island who are seriously struggling.”
On Wednesday, Senate Republicans called for an even larger cut — putting forward legislation to reduce the rate to 5% — and they criticized McKee’s cut as “negligible at best.”
“While any tax cut is welcome, the governor’s proposal is just not enough,” Senate Minority Whip Gordon Rogers said in a statement.