Rhode Island Democrats Approve “Millionaire’s Tax” Despite Budget Surplus

Rhode Island Democrats have approved a fiscal year 2027 budget that includes a new “millionaire’s tax,” adding the Ocean State to a growing list of states that have turned to higher taxes on top earners to generate additional revenue.

The $15.2 billion spending plan creates a new tax tier for income above $1 million and increases Rhode Island’s top income tax rate from 5.99 percent to 8.99 percent over three years. The tax hike sends a troubling message to entrepreneurs, investors, and job creators: success will be met with higher taxes.

The timing is difficult to justify. Rhode Island is not facing an immediate budget shortfall, and state revenue estimates projected an additional $233 million in revenue beyond prior forecasts. Yet rather than using its favorable budget position to provide relief to taxpayers or improve its competitiveness, lawmakers approved a $15.2 billion budget that expands government spending while imposing a significant income tax increase on high earners.

Republican Senate Leader Jessica De La Cruz offered a different approach. Her income tax reduction proposal, S2672, would reduce income tax rates by 2 percent annually for five years, resulting in an overall reduction of roughly 10 percent, with the first rate cut taking effect in 2027.

Supporters argue the tax is necessary to prepare for future budget shortfalls tied to reductions in federal funding. Progressive advocacy groups pushed lawmakers to go even further, advocating for a broader tax increase that would have applied to taxpayers earning less than $1 million annually. Though lawmakers ultimately settled on a narrower version of the proposal, the underlying premise remained the same: when the government wants more revenue, successful taxpayers should pay more.

Business groups strongly opposed the measure. The Greater Providence Chamber of Commerce warned that the tax increase sends “an incredibly poor message for economic development and job growth in Rhode Island.” At a time of surplus, critics argue lawmakers should be focused on improving competitiveness rather than raising taxes.

Those concerns are not merely theoretical. Critics of California’s proposed wealth tax warned that higher taxes could drive residents, investment, and economic activity out of the state. Rhode Island lawmakers are now betting that a similar tax increase will generate additional revenue without undermining the state’s competitiveness.

Legislative leaders themselves acknowledged the uncertainty surrounding the proposal. House Speaker Christopher Blazejewski cited competing predictions about the tax’s impact, with some claiming it will generate significant new revenue and others warning that it could contribute to taxpayer migration out of Rhode Island. Lawmakers ultimately chose to phase in the increase over three years rather than impose it immediately.

Rather than pursuing policies that encourage economic growth, lawmakers chose to raise taxes on high earners and business investment. Rhode Island’s millionaire’s tax may satisfy advocates who view successful taxpayers as a convenient source of revenue, but it does little to improve the state’s long-term competitiveness. At a time when many states are moving toward lower and flatter income taxes, Rhode Island is moving in the opposite direction. Taxing success has never been a growth strategy, and Rhode Island is about to test that lesson once again.