Rhode Island Democrats have approved a fiscal year 2027 budget that includes a new "millionaire's tax," despite state revenue estimates projecting an additional $233 million in revenue beyond prior forecasts. According to a report published June 10, 2026 by Americans for Tax Reform, 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 Ocean State joins a growing list of states that have turned to higher taxes on top earners to generate additional revenue, even when facing no immediate budget shortfall.
The $15.2 billion budget expands government spending while imposing what the report describes as a significant income tax increase on high earners. The new tax tier applies specifically to income above $1 million, and the top rate increase from 5.99 percent to 8.99 percent will be phased in gradually over three years rather than imposed immediately. Republican Senate Leader Jessica De La Cruz proposed an alternative approach through bill S2672, which 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. Progressive advocacy groups had pushed lawmakers to go even further with a broader tax increase that would have applied to taxpayers earning less than $1 million annually, though lawmakers ultimately settled on the narrower version.
According to the report, supporters argue the tax is necessary to prepare for future budget shortfalls tied to reductions in federal funding. 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," with business groups strongly opposing the measure. 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.
The report frames the timing as difficult to justify, noting that Rhode Island is not facing an immediate budget shortfall yet chose to raise taxes rather than provide relief to taxpayers or improve competitiveness. The authors point to concerns that mirror warnings from critics of California's proposed wealth tax, who cautioned 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. The report notes that legislative leaders themselves acknowledged the uncertainty surrounding the proposal, choosing a phased implementation to mitigate potential risks.
The report concludes that Rhode Island's millionaire's tax may satisfy advocates who view successful taxpayers as a convenient source of revenue, but 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. The authors assert that rather than pursuing policies that encourage economic growth, lawmakers chose to raise taxes on high earners and business investment, with the report stating that taxing success has never been a growth strategy and Rhode Island is about to test that lesson once again.