Can Rhode Island Really Afford To Eliminate The Car Tax?

Apr 19, 2017

Speaker Mattiello campaigning in Cranston last year. He unveiled his vow to wipe out the car tax while racing a tough re-election challenge.
Credit Ian Donnis/File Photo / RIPR

Rhode Islanders pay the highest car taxes in the nation. Now, a powerful state official is leading a move to phase-out the widely disliked tax. Yet the state went down this road once before – and then backtracked. So can Rhode Island really afford to eliminate the car tax?

The latest move to kill Rhode Island’s car tax came in the heat of a legislative campaign last year. Republican challenger Steven Frias was giving Democratic House Speaker Nicholas Mattiello a tough fight for Mattiello’s state rep seat in Cranston.

Speaking at at a campaign event, Mattiello made the case for his re-election by pointing to his support for a series of tax cuts.

"Everything we’ve done has been designed to help the business community create jobs make a better economy, and give back to the taxpayers of Rhode Island," he said.

Mattiello went on to make a bold promise. He said if voters returned him to the Statehouse, the car tax would be on the way out: “Nick, the state representative from District 15 heard from his constituents and they’ve told me they don’t like the car tax – it’s regressive, it’s unfair – and they just don’t like it."

In the end, Mattiello barely beat his Republican challenger. Mattiello won re-election as a state rep in his conservative-leaning Cranston district by just 85 votes. Once back at the Statehouse, Mattiello easily regained the speakership.

It’s a role often called the most powerful post in state government. And ever since then, Mattiello has doubled down on his pledge to wipe out the car tax over five years

Pretty much everyone drives, so lots of Rhode Islanders have an opinion about the car tax. Providence residents pay the highest car taxes in the state, $60 for every thousand of assessed value of a car. Jasmin Chapron was paying a bill at City Hall when she offered her view: “I think they’re outrageous to begin with. Extra money we have to pay every year. We already pay enough taxes. And sometimes, depending on the year of the car, I think they’re pretty high, actually."

Another Providence taxpayer, Dion Davis, says the car tax is a case of government taking multiple bites out of the taxpayer for the same product.

“It’s kind of a useless tax when you pay taxes when you buy the car, register the car and you pay it yearly, it’s kind of bad," Davis said.

Adding insult to injury is how the car tax costs a lot more in some communities than others. Providence car owners pay more than three times the rate of their counterparts in Bristol, Coventry and Jamestown.

But regardless of what people think or where they drive, the car tax generates a lot of money:  $215 million in revenue for cites and towns each year. That big stream of revenue explains why wiping out the car tax is not easy.

Mattiello and Governor Raimondo conferring during her latest State of the State address.
Credit Ian Donnis/File Photo / RIPR

Governor Gina Raimondo is raising a warning about a complete phaseout of the car tax. Instead of killing the tax over five years, her latest budget proposes a 30 percent cut in car tax bills, starting in 2018.

"I’m waiting to see the speaker’s plan," the governor said in a recent interview. "Where we’re going to get the money, what does it do to our deficit? We don’t want to do what we did last time, which is do it and repeal it."

Raimondo is talking about how the state started on the path to phasing out the car tax back in 1998. But then the state backtracked when the economy took a turn for the worse. Car tax bills went back up. Raimondo points to that as an example of what can happen if state officials cut taxes too quickly.

"Whatever we do we need to be sure it’s sustainable and we can stick with it," she said. "And that’s what I hear from the mayors as well. They say, ‘don’t do something that you can’t sustain.’ "

Here’s why the mayors care about the car tax: To completely eliminate wipe out the tax, the state will need to reimburse cities and towns for about $215 million every single year. Considering how Rhode Island faces persistent budget deficits, some observers question the state’s ability to pay that ongoing price tag.

Meanwhile, Raimondo has her own spending priority: a new program to offer Rhode Islanders two years of free college tuition at CCRI, RIC or URI.

So can the state afford to cut a $40 million chunk of the car tax and to implement all or part of Raimondo’s college tuition plan? That depends on the health of state revenues.

State officials will get a better handle on that during a revenue-estimating conference next month.

There are other questions. Some interest groups, the right-leaning Rhode Island Center for Freedom & Prosperity, say the state could get a bigger impact by cutting the sales tax, rather than the car tax.

But URI economics professor Leonard Lardaro said it’s impossible to know which tax cut would be most effective. He says that’s because the state has not taken any kind of broad look at tax policy.

"Everything around is here arbitrary and lacks context and that’s a problem," he said. "Because we don’t have in-house due diligence. So people float ideas that sound good and maybe voters like them or not, whatever … And these things never work exactly the way you think off the top of your head."

The champion of phasing out the car tax, House Speaker Nicholas Mattiello, concedes state officials haven’t studied which tax cuts would be most effective in moving Rhode Island forward: "I don’t suggest it’s the absolute best way to do it."

But Mattiello said killing the car tax makes sense.

"We’ll put more money in people’s pockets," he said. "They’ll spend the money we’re putting in their pockets. And it will help our car dealers, because I know there are a lot of folks out there that are not purchasing new cars right now, because they don’t want to pay a high excise property tax on that car."

Speaker Mattiello said he’s banking on economic growth, revenue from a new gambling facility in Tiverton and reduced costs for things like the state school funding formula.

"We’re going to count on normal economic conditions and reasonable growth and we’ll be able to get this done on behalf of the taxpayers," he said.

Lawmakers usually pass their version of the state budget in June. The House speaker has tremendous power over that process. So Mattiello could be poised to follow through on the first step of his campaign pledge to phaseout the car tax. He’s optimistic that eliminating the tax will be sustainable. Yet a time will come when Nicholas Mattiello is no longer speaker, and future leaders may have different priorities -- and less state revenue.