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Rhode Island hearing opens sharp debate over proposed "millionaires" surtax
Summary
Lawmakers and administration staff defended a proposed 3% surtax on income above $1,000,000 as needed revenue to offset federal cuts, while business groups warned the surtax and PTE withholding would harm small firms, reduce investment, and risk taxpayer migration.
The House Finance Committee on Thursday heard extended testimony on the governor's proposal to add a 3% surtax on taxable income above the inflation-adjusted equivalent of $1,000,000, part of Article 5 of the Fiscal Year 2027 budget.
Brian Daniels, director of the Office of Management and Budget, said the package responds to sweeping federal changes under HR 1 that are projected to cost the state in the coming years. "We felt we really needed to this year" to put new recurring revenue options on the table, Daniels said, citing a multi-year projection of roughly $160 million in net impacts by fiscal 2031.
Administration staff and the Department of Revenue presented the budget estimate that the surtax would affect about 2,300 resident filers (and about 5,500 nonresident filers) and produce an estimated $135 million annually assuming no large behavioral changes. Revenue analysts explained they model a 1% reduction in realized income for each 1% rise in the combined top marginal rate to capture migration and income-shifting risk.
Business groups, chambers and CPA panels urged caution. "This is a dramatic structural shift," Lori White, president of the Greater Providence Chamber of Commerce, testified, warning it would make the state less competitive and could reduce capital available to employers. CPAs emphasized liquidity and pass-through entity (PTE) mechanics, noting that withholding at the entity level can lock up working capital and produce overwithholding that businesses and owners cannot readily use.
Small-business and manufacturing trade groups repeated concerns that many Rhode Island employers operate as pass-throughs and could feel the surtax as a direct tax on business income. "This will reduce money available for wage increases," CPA David Lucia told the committee, arguing the tax would hurt small and medium-size firms.
Labor, child and anti-poverty coalitions pressed the committee in favor of the surtax as a fairness and revenue tool to preserve services facing federal cuts. Patrick Crowley of the Rhode Island AFL-CIO urged the committee to "establish some fairness" and said the highest earners have benefited disproportionately from recent federal tax changes.
Committee members requested additional technical information, including a side-by-side of neighboring states' deductions and bracket structures and further sensitivity analysis on migration and elasticity assumptions. No formal votes or actions were taken at the hearing; staff said they would provide follow-up materials.
The committee scheduled no immediate vote; members asked for supplemental data and interagency comparisons before further action.
