House Speaker Nicholas Mattiello will rightfully earn the title of “magician” if he can deliver on his promise to eliminate the automobile tax in the next five years as he promised during his campaign for re-election.
The motor vehicle tax is levied by cities and towns, and wiping it clean from the books would eliminate $215 million from municipal collections. That’s money that helps pay for schools, fire and police departments, public works and a host of other municipal functions.
Mr. Mattiello aims to supplant car tax revenues with state aid to municipalities. That’s a huge chunk of revenue. On an equally proportioned system, in the first year Mr. Mattiello would need to find $43 million from other sources unless he were to raise other taxes that he doesn’t plan to do to cover lost municipal revenues. The next year the amount would be twice that and on the third year three times that until the full annual replacement of $215 million is met thereafter.
Eliminating the car tax has been tried before under legislation introduced by former state Representative Antonio Pires. Under the measure, local motor vehicle tax rates were frozen (they could be reduced but not increased) and a system of increasing exemptions implemented. It worked for a while with the annual exemption increasing to $6,000. The state reimbursed municipalities for the total of the exemption, thereby ensuring they wouldn’t be shortchanged.
But when the economy made a turn for the worse and state tax revenues dropped, former Governor Donald Carcieri cut aid to cities and towns, allowing municipalities to roll back the exemptions for all but $500. The program went flat like a deflated lawn Santa and, without the exemption, car and truck owners started getting local tax bills based on values higher than they had paid for their vehicles.
Mattiello has talked about restoring the exemptions and increasing them until the tax is wiped out. Other methods could be used, including legislation requiring municipalities to reduce the tax or the state assuming levying the tax and then eliminating it. The bottom line, however, remains the same if the state is to make municipalities whole for lost revenues.
Mr. Mattiello has a track record of cutting taxes. By his calculations, reductions in the corporate and Social Security benefit taxes have saved $75 million. He’s targeted other taxes for cuts, but eliminating the car tax is the most ambitious by far.
The Speaker is confident an improving economy will generate the revenues, enabling reimbursements to cities and towns. Time will tell if he is correct, but for Mattiello’s magic to work, our bet is that he will also have to cut state spending. He has not set an easy goal.