Jan. 28, 2026
Highlights:
Over the last five years, Rhode Island has moved from budget surpluses (stemming from generous pandemic-era federal aid) to structural deficits – including a projected $100 million in the coming fiscal year. Simultaneously, the state budget has increased nearly 50% since the pandemic, from $9.6 billion in 2020, to $14.3 billion in 2026.
Rhode Island’s budget challenges did not appear overnight and hard work will be needed to rein in the excess spending. But that isn’t stopping policymakers in the Ocean State from seeking a quick fix to their problems by raising the state income tax to one of the highest in the region. As The Wall Street Journal’s Editorial Board writes:
“Rhode Island has one of the lowest top tax rates in the Northeast at 5.99% on income over $186,450. The union proposal would raise Rhode Island’s top rate to nearly match the 9% next door in Massachusetts.”
Raising taxes should not be a substitute for living within the state’s means. Going after high income earners also demonstrates a misunderstanding how Rhode Island’s economy works. Many of those affected will be small-business owners and job creators whose personal income is tied directly to payrolls and investment decisions. The WSJ continued:
“Most of Rhode Island’s top earners are small businesses that pass through income to individual owners. Raising their taxes will suppress investment and hiring at a time when the state is losing jobs and population.”
Gov. McKee must control his state’s excess spending and create conditions where businesses can grow, jobs can expand, and the tax base can rise naturally. Hitting employers with higher taxes makes it less attractive to hire, expand, or even stay in the state, especially when nearby states are competing for the same talent.
Short-term revenue bumps won’t last forever, but damage to competitiveness can.
Read the full editorial below.
Next Up for Higher Taxes: Rhode Island
By The Editorial Board
The Wall Street Journal
January 14, 2026
As federal pandemic largesse ebbs, Democratic-run states are eyeing higher taxes rather than reform spending programs. The latest example is Rhode Island Gov. Daniel McKee, who is flirting with a millionaire tax. This would be an in-kind gift to Connecticut.
Mr. McKee opposed raising taxes on the rich last year. But he’s under increasing pressure from government unions to do so as he runs for re-election this November. The state faces a $100 million deficit in the coming fiscal year. Revenue hasn’t kept pace with spending, which has increased by more than 50% since the pandemic.
“We are in a spot where we’re going to have to address some of those headwinds that are coming our way from D.C.,” the Rhode Island Governor said last week, shifting blame to Washington for not continuing the Biden spending blowout. He said he’s open to a public-union proposal for a three percentage point income-tax surcharge on households with more than $1 million in income.
Rhode Island has one of the lowest top tax rates in the Northeast at 5.99% on income over $186,450. The union proposal would raise Rhode Island’s top rate to nearly match the 9% next door in Massachusetts. In November 2022, voters in the Bay State approved adding a 4% rate on income over $1 million, on top of the state’s 5% flat tax.
Progressives say Massachusetts’ millionaire tax has generated a revenue windfall and hasn’t caused the rich to flee. Not so fast. Income tax collections in most states are running higher than forecast thanks to a buoyant stock market, which has lifted capital gains. Even Rhode Island is projecting a smaller deficit than it did six months ago for this reason.
But in the event of a market downturn, much of the revenue from the higher tax will evaporate. The higher built-in spending will then lead to bigger budget gaps, prompting more tax increases. That’s the history in other states with so-called millionaire taxes such as California, New York and New Jersey.
Most of Rhode Island’s top earners are small businesses that pass through income to individual owners. Raising their taxes will suppress investment and hiring at a time when the state is losing jobs and population. The millionaire tax will a^ect whether and where small businesses choose to expand. Connecticut’s top rate of 6.99% will look relatively attractive.
A poll last November showed Mr. McKee trailing former CVS executive Helena Buonanno Foulkes, a pro-business Democrat, by double digits in the party primary. Mr. McKee may hope that endorsing a millionaire tax will increase his support among progressives, but even many Democrats understand that higher taxes aren’t a prescription for prosperity.
Read the article online here.