PROVIDENCE – The proposal to increase Rhode Island’s top income tax rate may accelerate outmigration and weaken the state’s economic competitiveness, according to an analysis released Tuesday from the Rhode Island Public Expenditure Council.
Gov. Daniel J. McKee’s fiscal year 2027 budget proposal includes hiking the top income tax rate from 5.99% to 8.99% on income over $1 million, a 50% increase, a change that would place Rhode Island among the top 10 highest marginal state income tax rates nationally, according to the policy brief.
“Given that states compete for residents and businesses, and Rhode Island’s economy is already lagging, this proposal carries real risk for the state’s economic future,” said Michael DiBiase, RIPEC CEO and president. “Rhode Island relies heavily on a small number of taxpayers to fund a large share of services. Policies that make the state less competitive risk shifting the burden onto other Rhode Islanders over time.”
While "rarely the sole reason individuals or businesses relocate," evidence suggests taxes
influence decisions at the margin, particularly when differences between states are large or when households have greater flexibility in where they live and work," according to the report, which found a “statistically significant correlation” between outmigration and high tax rates.
Modest changes in where these taxpayers choose to live can have an outsized impact on state revenues and economic activity at a time when Rhode Island is already experiencing high net domestic outmigration, according to RIPEC, ranking 10th in the nation and trailing only Massachusetts among all New England states on a per capita basis.
Using new federal data from 2023, the policy brief finds that Rhode Island households and businesses earning $200,000 or more represented just 7% of tax filers but generated 55% of all income tax revenue.
Rhode Island has benefitted in recent years from an influx of taxpayers from Massachusetts. Between 2020 and 2023, Massachusetts was the largest source of new Rhode Island and the Ocean State saw net positive migration annually exceeding 1,500 taxpayers and $175 million in associated adjusted gross income.
McKee’s proposal “marks a key turning point for Rhode Island,” DiBiase said. “It comes at a time when state income tax policy is diverging nationally and carries a significant risk to Rhode Island’s ability to retain and attract businesses and residents.”
DiBiase said taking on the associated risks is even more unwise considering the state's most recent revenue projections have increased $233 million since November 2024.
“There is no need to raise taxes,” he said. “Instead, the state should focus on fiscal discipline and growing the economy.”
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com
Could not agree more. Taxing the rich is just politics of envy and a nice sound bite to those who don’t understand the economy. If RI truly wants to increase their tax base they would do best to lower taxes and make the state more appealing to those businesses and individuals in our neighboring states who are facing increasing tax burdens. A state cannot tax its way to prosperity.
This is 100% spot on. Rhode Island simply isn’t attractive enough as a destination to justify a tax rate the exceeds 80% of the nation. And despite claims by leaders in Mass and RI, when you raise taxes on the wealthy, THEY DO LEAVE!!
Doing it on the heels on the Taylor Swift tax to boot. Not smart to double whammy folks that are likely impacted by both. There has to be balance with these things to get it right. If you’re going to do this, then repeal the estate tax or reduce it. Throw them a bone to incent them to stay until they die if you’re going to tax them this way while they’re alive.