Satchell bills aim for better tax equity
STATE HOUSE – The Senate Finance Committee this evening will hold hearings on two bills sponsored by Sen. Adam J. Satchell to provide greater tax equity for Rhode Islanders.
The first bill (2018-S 2389) would add three new tax brackets for the highest-earning Rhode Islanders. Currently, all Rhode Islanders who earn more than $125,000 are taxed at 4.31 percent for the first $125,000, plus 5.99 percent on all income above $125,000. Senator Satchell’s bill would add three new tax brackets: 7.99 percent for income between $275,000 and $500,000, 8.49 percent for income between $500,000 and $1 million, and 8.99 percent for all income above $1 million.
“Taxing millionaires and billionaires at the same rate as middle-class families doesn’t make economic sense for Rhode Island. The vast majority of individuals and families in this state have to budget carefully to make ends meet, and for them, their state tax obligation represents a substantial burden. A tax rate of 5.99 percent doesn’t affect a millionaire the same way it affects a middle-class family, so it’s not really equitable when they are paying the same rate. We should restore greater nuance to our state income tax structure so we can fund our state appropriately while also spreading the burden more equitably,” said Senator Satchell (D-Dist. 9, West Warwick).
Rhode Island had five tax brackets prior to a tax restructuring enacted in 2010. That restructuring lowered taxes for most Rhode Islanders and reduced the system to three brackets. While Senator Satchell’s plan would give the state a total of six tax brackets, most of its rates would still be lower than Rhode Island’s tax rates were before the 2010 changes.
Senator Satchell is also sponsoring legislation (2018-S 2072) to establish a 19-percent fairness fee for investment management services in order to tax the carried interest income of hedge fund and private equity investors as traditional earned income.
The term “carried interest,” which hearkens back to the days when ship captains would receive a share in the gains of selling cargo, is now applied to partnership managers who collect large fees from their clients whose money they invest. At issue is how those fees are taxed. Hedge fund managers treat the fees as capital gains so they can pay a tax of 20 percent, whereas ordinary income is taxed at a rate of up to 39.6 percent. That way, they can use a preferential rate that was meant for actual investments, not the income of those who direct the investment.
“Carried interest is compensation for providing services,” said Senator Satchell. “It should be taxed as labor income, just like any other payment for services. Some fund managers are extremely wealthy and should not pay lower tax rates on their compensation than regular wage and salary workers. Since Congress has been slow to address this loophole, it’s now up to the state legislatures like ours.”
Both bills are scheduled for hearings before the Senate Finance Committee following today’s Senate session.
For more information, contact:
Meredyth R. Whitty, Publicist
State House Room 20
Providence, RI 02903