Rhode Island joined the growing ranks of states with a millionaire tax, moving to shore up its budget in spite of warnings that the departure of even a few wealthy residents would hurt the nation’s smallest state.
Democratic Governor Dan McKee signed a budget Friday that institutes a new tax on incomes over $1 million, lifting the state’s top rate to 8.99% from 5.99% over three years. While McKee earlier this year proposed immediately implementing the full levy, state legislators decided to phase it in to better gauge its effect on revenue.
“By asking the wealthiest Rhode Islanders to pay a little more, this budget also protects Rhode Islanders from reckless cuts by the Trump administration,” McKee said during a news conference.
Rhode Island is following Democratic-led states including Massachusetts, Washington and Maine in raising taxes on the wealthy to bolster government services at a time when top earners are prospering even as many residents struggle to afford everyday expenses. In California, a healthcare workers union and its allies are backing a ballot measure that proposes a one-time 5% tax on wealth over $1 billion.
McKee resisted the Rhode Island tax as recently as last year but embraced the measure in January as a way to fill a budget hole that he blamed on reductions in some federal spending programs under President Donald Trump. McKee, who is running for reelection this year, faces a tough primary battle with former CVS Health Corp. executive Helena Foulkes.
Earlier this year in Maine, Governor Janet Mills reversed her opposition to a millionaire tax as she fought progressive firebrand Graham Platner in the Democratic Senate primary. Platner swept to a resounding victory this week and will face Republican Senator Susan Collins in November.
Massachusetts, the first New England state to approve a millionaire tax, has raked in nearly $9 billion from the levy since it took effect in 2023, significantly more than lawmakers had counted on. The revenue generated from the surtax has increased every year. McKee’s office has projected that the Rhode Island tax will bring in about $135 million annually once fully implemented.
Business groups including the Greater Providence Chamber of Commerce oppose the measure, arguing that it removes an important advantage as Rhode Island seeks to compete with neighboring Massachusetts.
Even a limited exodus of top earners to other states could have a major economic effect, according to the chamber’s president, Laurie White. With a population just over 1 million, Rhode Island only has a few thousand residents who will be subject to the millionaire tax, she said.
“As the smallest state, we have a very fragile economy to begin with,” White said, adding that the chamber plans to prioritize legislation next session to repeal the tax.
Rhode Island lawmakers supported the tax even after a bump last month in projected revenue from personal income taxes and other sources. Higher taxes on the wealthy amount to the “fairest approach to taxation,” said a spokesperson for Rhode Island Senate President Valarie Lawson.