‘Millionaires tax’ at a crossroads as RI’s budget finds unexpected windfall

• Rhode Island lawmakers are debating a proposed “millionaires tax” amid an unexpected $233 million state revenue surplus.
• Opponents, like the Rhode Island Public Expenditure Council, argue higher taxes could cause wealthy residents to leave the state.
• Proponents, including the Economic Progress Institute, advocate for the tax to fund critical programs and address future revenue shortfalls.

The fight over Rhode Island’s proposed “millionaires tax” is intensifying as lawmakers prepare their version of the state budget for the year with an unexpected $233 million tax collection windfall.

The business-backed Rhode Island Public Expenditure Council, one of the groups leading opposition to higher taxes on the wealthy, on May 12 released a new report arguing that states with higher income tax rates see more people leaving for states with lower rates.

“Given the experience of Massachusetts and the positive net migration of Bay State residents to Rhode Island over the last several years, it would be particularly risky to adopt a top income tax rate that could undermine this trend,” said RIPEC CEO Michael DiBiase. “Taking on this risk is even more unwise given the recent news that state revenues will be $233 million greater than expected. There is no need to raise taxes – instead the state should focus on fiscal discipline and growing the economy.” 

Massachusetts began collecting a 4% surcharge on income over $1 million in 2023 and Rhode Island leaders hoped rich Bay State residents put off by the hike would move to Rhode Island.

On the other side of the issue, the left-leaning Economic Progress Institute argued that the better-than-expected state revenue collections, while welcome, do not cover all of the money Rhode Island could be potentially losing due to cut in last year’s One Big Beautiful Bill Act.

The Economic Progress Institute is pushing for a more aggressive tax increase − a 3% surtax on income over $640,000 − than McKee’s proposal where the higher tax rate would kick in at income over $1 million.

“It remains imperative the General Assembly pass the proposed surtax on the top one percent this year,” the EPI said in a news release. ” The surtax would generate $203 million per year in revenue, which would bring us closer to: bridging the gulf of lost federal funds, preserving critical programs, and closing the many long-standing equity gaps and crises in healthcare, education, housing, childcare, public transit, and so much more.”   

Their release comes days after the Service Employees International Union Rhode Island State Council rallied at the State House in support of the “Rhode Island’s Revenue Bill,” the tax on income over $640,000. The May 7 rally could be heard during former House speaker K. Joseph Shekarchi’s farewell address.

What is in new RIPEC report?

RIPEC’s latest report finds that:

• Between 2020 and 2025, states with a higher top income tax rate saw higher net out-migration than states with a lower tax rate
• During the post-pandemic period of strong revenue collections, more states have lowered income taxes than raised them
• More residents moved to Rhode Island from Massachusetts (4,796) than any other state from 2020 to 2023 by a large margin. (New York was second at 1,924.)
• Taxpayers leaving Massachusetts in 2023 were on the wealthier side in 2023, making more than $200,000 per year, compared to 2022.

What does it not show?

The IRS data RIPEC analyzed only covers tax filers who make $200,000 or more in Adjusted Gross Income, so it does not show how Massachusetts residents making more than $1 million, the group whose taxes went up, reacted to the change.

And it does not include migration patterns and tax changes for 2024 or 2025.

In its release urging an income tax increase, the EPI said it estimates the state will lose more than $400 million in federal revenue starting in the fiscal year that starts July1, 202,7 from provisions in the One Big Beautiful Bill Act.

“Lawmakers need to be proactive for the many needs, gaps, and crises we have now as well as what’s to come – including likely more federal cuts and an upcoming fiscal cliff,” the EPI release said. “Our wealthiest Rhode Islanders can afford to do more, especially with an average annual tax break of nearly $59,000 from Washington.”

The millionaires tax in McKee’s budget is estimated to generate $135.3 million in new state revenue in a full year.

The surcharge on the 1% of earners − starting at income of $640,000 per year − is estimated to generate $203 million per year.