Should rich Rhode Islanders pay higher taxes? Here’s what’s being proposed, and why

• Progressives and union leaders say fear that millionaires will flee RI to avoid higher taxes is a “myth.”
• Massachusetts collected more from its millionaires tax than expected and did not see an exodus of the rich.
• Business groups say higher taxes would make RI less competitive.

PROVIDENCE − Rhode Island AFL-CIO President Patrick Crowley on Tuesday kicked off this year’s campaign to raise state income taxes on the top 1% of earners wearing an “Eat the Rich” T-shirt.

“You know they say that we have to have the tax policy we have because it benefits job creators,” Crowley told a coalition of groups gathered at the State House in support of the tax hike. “We say we can’t solve tomorrow’s problems with yesterday’s tax policy.”

Raising taxes on the wealthy has been a goal of Rhode Island progressives and unions at least since the state’s top tax rate was lowered in 2010.

But the idea has been a political non-starter for a series of governors and General Assembly leaders, including the current officeholders.

Post-pandemic federal aid and budget surpluses have reduced the impetus for the increased revenue that new higher taxes would bring, but the state’s fiscal picture could change quickly if there is an economic downturn or Republicans in Washington make deep cuts in Medicaid. The federal government splits the cost of Medicaid coverage with the states, and a reduction in federal funding would make states pony up more or cancel health insurance for some portion of residents.

Under those tougher scenarios, the tax plan the Revenue for Rhode Islanders coalition is pushing − a 3% surcharge on income above $625,000 − may become more politically appealing.

Advocates estimate that the tax increase would generate $190 million in annual revenue.

What about Massachusetts?

Rhode Island progressives believe their case for raising taxes on the rich has been bolstered by Massachusetts voters passing the “Fair Share” tax increase − a 4% surcharge on income over $1 million − in 2022.

Massachusetts’ higher income taxes make it less likely that wealthy residents will move across the border for tax reasons and, tax-the-rich advocates say, the Bay State’s experience with a millionaires tax is encouraging.

The Economic Progress Institute releases a policy paper Tuesday arguing that tax data shows millionaires are less likely to move than lower-income residents, and that when they do move, taxes are not usually the reason.

“There’s no evidence we’ve seen of a tax flight from Massachusetts or anywhere else, and the revenue impact is significant,” Economic Progress Institute research director Alan Krinsky said.

Andrew Farnitano, communications director for the group what campaigned for the Massachusetts millionaires tax, called the tax hike a “resounding, unqualified success” and said it had not sent Bay State millionaires and billionaires packing.

He offered as evidence that advocates had advertised that the tax would generate $2 billion per year, and in the first full year of collections Massachusetts took in $2.4 billion.

“They said the money will not show up, because multimillionaires will flee the state en masse rather than pay a new tax. And they were flat-out wrong,” Farnitano said.

In opposing a tax hike on the rich, Rhode Island Gov. Dan McKee last year said he hoped millionaires would move to Rhode Island to get away from the tax hike in Massachusetts.

How many people would pay more?

Revenue for Rhode Islanders estimates that 5,700 of Rhode Island’s 500,000 tax filers would pay more under the surcharge plan the group supports.

The tax increase is spelled out in legislation − H5473 and S329 − from Rep. Karen Alzate, D-Pawtucket, and Sen. Melissa Murray, D-Woonsocket, but would likely be folded into the state budget if passed. It is part of the slate of bills backed by the House progressive bloc and Rhode Island Working Families Party.

Business groups, including the Greater Providence Chamber of Commerce, have vehemently opposed an income tax increase for many years and are expected to fight this proposed 3% surcharge.

What would it be used for?

Alzate’s and Murray’s bills don’t specify what the new revenue generated by higher taxes would be used for, but the Revenue for Rhode Islanders coalition has a long wish list, including education, school meals and public transit.

“We could fund housing. We could fund badly needed mental health supports in our schools,” Murray said. “We could fund free school lunch for all, and breakfast. We could fund child care so parents could go back to work. We could help lift children out of poverty and so much more.”