R.I. Rep. Peter Palumbo misses marks when reporting where state ranks in Tax Foundation ratings

It's widely known that Rhode Island doesn't rank well in national comparisons showing how much residents pay in taxes.

During an Oct. 5, 2011, rally protesting Gov. Lincoln Chafee’s positions on illegal immigration, state Rep. Peter Palumbo cited the rankings of one research group to argue that Chafee should be focusing instead on tax issues.

(The rally followed a decision by the state Board of Governors for Higher Education making undocumented Rhode Island students eligible for in-state tuition at the state’s colleges and university, a policy Chafee supported. Chafee has also raised the possibility of creating a driver’s license for undocumented immigrants.)

"The Tax Foundation figures Rhode Island as the 10th highest state for state and local tax burden per capita in the country," Palumbo told the crowd of about 500. "We're the sixth worst in the country for the business tax index. We're the third highest per capita in the country for all taxes."

We wondered whether the rankings are really that poor.

The Tax Foundation is a nonpartisan, business-backed tax policy group based in Washington, D.C. It regularly ranks states on various tax issues. Their reports can be seen at TaxFoundation.org, where we found the latest numbers.

Let's break them down.

State and local tax burden: The latest study, compiled from 2009 data and released in February 2011, ranks Rhode Island as the fifth worst in the country, not the 10th, as Palumbo told the crowd. By the Foundation's assessment, things are even worse than he asserted.

Business tax index: This is actually the "State Business Tax Climate Index," in which the foundation uses various measures to come up with a score. For the 2011 fiscal year it ranged from a high of 7.43 in South Dakota (which scored well, in part, because it has no corporate or individual income tax) to a low of 3.96 in New Jersey, which was ranked as having the worst state business tax climate.

Rhode Island ranked as the ninth worst, not sixth, as Palumbo asserted. The state has been gradually improving in the rankings since 2006, when it ranked worst. In addition, the Foundation, in its latest report, predicted that Rhode Island will rank significantly higher in its next analysis once changes to the state's income tax code have taken effect.

All taxes: The Foundation has what it calls its Tax Freedom Day, which is the number of days that must pass in a year before the average resident has earned enough to pay his or her federal, state and local taxes.

For Rhode Islanders, in 2011 that day fell on April 13. Rhode Islander had the 13th highest total tax burden. We didn't rank third, as Palumbo reported. (Mississippi residents were the first to pay them off; their Tax Freedom Day was March 26. Residents of Connecticut, had to work the longest -- until May 2 -- to earn enough. Nationally, the Tax Freedom Day was April 12.)

When we asked Palumbo for the source of his numbers, he told us in an e-mail that, "knowing that I was going to be fact-checked, I made sure that the information I had was backed up!"

His source: the Foundation's 2010 Facts and Figures booklet, which is outdated. He said it had been mailed to legislators.

When we found that booklet online, we discovered that he correctly reported the state and local tax burden from that outdated booklet, but made a common math error in stating the business tax index ranking (when you rank 44th you're seventh from the bottom, not sixth).

However we couldn't find any indication, even in the older report, that "we're the third highest per capita in the country for all taxes." In the 2010 report it says we ranked 10th. The only measure by which Rhode Island ranked third was in state debt per capita.

The 2011 version is also available online.

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Our ruling

Palumbo spoke with authority, cited specific numbers from a specific source and gave the impression that the numbers were both correct and current.

His overall point -- that Rhode Islanders are taxed well above the national average -- is supported by the Tax Foundation's rankings.

But he misread the Tax Foundation report in one -- and possibly two -- of the rankings. And those numbers don't accurately reflect Foundation data that have been available at least since the end of March.

As a result, we rate his statement as Mostly False.

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