Rhode Island Gov. Lincoln Chafee last week released a $7.66 billion fiscal 2012 budget proposal that aims to broaden the sales tax while reducing the rate by one percentage point.

Chafee, an independent, took office on Jan. 4. His $7.66 billion spending plan closes a $331 million estimated deficit by cutting $153.4 million of spending and generating $162.3 million of additional revenue, according to budget documents. The state’s fiscal year begins July 1.

“We face high unemployment and large budget deficits,” Chafee said in his budget address. “Our democracy has certainly been lively, but not always functional.”

He proposes implementing a 1% sales tax on items currently exempt from the tax. That 1% tax would terminate if Congress enacts the Main Street Fairness Act, which would enable states to collect sales tax on Internet purchases.

In addition, Chafee wants to cut the sales tax to 6% from 7% and expand it to include service items currently not subject to the levy, such as dry cleaning, hair salons, and recreational activities.

Changes to the business tax include gradually lowering the tax over three years to 7.5% from 9%. Chafee’s plan would also cut the minimum corporate tax to $250 from $500, affecting more than 30,000 small business throughout the state.

The state also would implement combined reporting, end the motion picture tax credit, and phase out the preferential corporate tax rate.

To help address the state’s $5 billion unfunded pension liability, Chafee proposes that state workers apply a 3% cost-of-living adjustment to Rhode Island’s pension fund and increase teacher contribution rates by 2.25 percentage points to 11.75%. Those changes would add $40 million into the fund.

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