‘Nellie Tax’? Gorbea defends plan to hike RI company tax as rivals assault

PROVIDENCE, R.I. (WPRI) — Democratic gubernatorial candidate Nellie Gorbea is defending her push to raise taxes on businesses operating in Rhode Island, as rivals assail her for what one has already dubbed “the Nellie Tax.”

Gorbea rolled out the proposal on Tuesday when she began airing her first TV ad. Her campaign said she has a four-part plan to raise taxes on companies: increase the corporate tax rate from 7% to 8%; increase the financial institutions tax rate from 9% to 10.5%; eliminate exemptions that benefit hedge funds and dividend recipients; and close a loophole involving offshore tax havens.

One of Gorbea’s opponents, former CVS executive Helena Foulkes, trained her fire Thursday on the idea of increasing the corporate tax rate, which lawmakers had lowered in 2014. While Gorbea’s commercial suggests the tax change would only target “big corporations,” Foulkes said “the devil is in the details of her plan.”

“The truth is that the Nellie Tax will affect thousands of businesses, including small businesses in our state — businesses like Big Blue Bug Solutions, Iggy’s, Chelo’s, Gregg’s and Del’s,” Foulkes said in a statement.

“Our small businesses were devastated by the pandemic and are struggling to make ends meet due to the inflation crisis,” she said. “Small businesses deserve better than the Nellie Tax.”

Gorbea’s campaign manager, Dana Walton, pointed out that Gorbea wants to use the additional state revenue generated by the tax changes — estimated at over $88 million a year — to expand government programs that will benefit voters.

“Of course a corporate CEO thinks it’s more important to preserve corporate tax loopholes than invest in our state,” Walton said. “Nellie believes that corporations should pay their fair share so that we can invest in affordable housing and expanded early childhood education, which builds a strong foundation for businesses in our state.”

She added that Gorbea’s focus is on “local small businesses.”

Under Rhode Island tax law, corporations must pay the state either 7% of their net income or a $400 minimum tax, whichever is higher. The 7% corporate tax rate is slightly lower than in neighboring states, with the rate at 7.5% in Connecticut and 8% in Massachusetts.

The corporate tax and other general business taxes are expected to generate approximately $577 million in state revenue during the current fiscal year, which ends June 30, to help fund the $13.9 billion state budget. (Federal funds cover a significant share of the budget.)

Just hours after Foulkes issued her critique of Gorbea’s plans, more criticism emerged from the campaign of incumbent Gov. Dan McKee, who was in Atlanta on Thursday attending a Democratic Governors Association event for candidates. The two were nearly tied in a 12 News/Roger Williams University poll of primary voters last month.

McKee’s campaign manager, Brexton Isaacs, argued Gorbea is making “empty promises in TV commercials.” He pointed out that the ad suggests the business tax increases would fund both universal pre-K and housing construction, but the cost of universal pre-K alone is estimated at $120 million — far more than the $88 million Gorbea estimates the tax hike would yield.

“Secretary Gorbea’s plan would put our progress in reverse and her numbers simply don’t add up,” Isaacs said. “Telling voters that her tax increase gimmick would both cover universal pre-K and ‘fix the housing crisis’ is an insult to the people of Rhode Island.”

“Either she doesn’t know the numbers or she’s knowingly misleading voters,” he continued. “This is irresponsible grandstanding, not real policy ideas. Being governor is a serious job and Rhode Islanders don’t have time for unserious proposals and empty promises.”

Isaacs said McKee’s proposed state budget, which is on track to become law next week, includes $250 million in federal funding for affordable housing, and the governor also “supports expanding pre-K.” He suggested Gorbea’s proposed tax increases are an economically harmful “gimmick.”

There was no immediate response to McKee from Gorbea.

Separately on Thursday, the Gorbea campaign released a 15-page plan to expand Rhode Island’s housing supply. Last month’s 12 News/RWU poll showed 91% of Democratic primary voters think the rising cost of housing in the state is a serious issue.

“Housing affects all areas of life — education, employment opportunities, public health, and our economy,” Gorbea said in a statement. “This is why addressing housing is my number one priority.” She added that she wants to be “the Housing Governor.”

Gorbea’s plan calls for doubling the production of new homes statewide. Her other ideas include floating a $130 million bond to fund housing development; providing municipalities state incentives to allow more affordable housing construction; and updating the loan products offered by Rhode Island Housing.

Two other Democrats, former Secretary of State Matt Brown and community activist Luis Daniel Muñoz, are also seeking the party’s nomination for governor. The primary is Sept. 13.

Ted Nesi ([email protected]) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter and Facebook