Rhode Island House Approves $15.2 Billion Budget with Phased-In Millionaires Tax

PROVIDENCE, R.I. — The Rhode Island House of Representatives on Friday, June 5, passed a record $15.2 billion state budget for fiscal year 2027 that introduces a significant new tax on high earners. The spending plan, approved in a 65-to-10 party-line vote, includes a 3% surtax on personal income exceeding $1 million, which will be phased in over three years.

This move in Rhode Island is a clear signal that state-level tax policy is becoming increasingly dynamic and targeted. For high-earning individuals and the business owners whose profits pass through to their personal returns, this kind of change introduces significant new planning considerations that cannot be ignored.

The budget now proceeds to the state Senate, which is expected to take up the bill next week as the General Assembly aims to conclude its 2026 session by June 12. The spending plan is approximately $900 million larger than the budget for the current fiscal year and about $300 million more than the initial proposal submitted by Governor Dan McKee in January. The increase was fueled in part by a projected $233 million mid-year surplus from stronger-than-expected tax collections.

House Speaker Christopher R. Blazejewski, a Providence Democrat, said the budget was designed to support residents while maintaining fiscal prudence. “This budget is an effort to address the concerns and struggles of everyday Rhode Islanders who need good schools, who need access to healthcare, who need to be able to pay their bills and who need to know that their government is honest and effective,” Blazejewski said in a statement. “It provides relief today while being fiscally responsible and putting our state in a better position in the years to come.”

The centerpiece of the new budget is the tax on million-dollar earners. The 3% surtax will be implemented gradually, starting with a 1 percentage point increase in tax year 2027 and adding another point each year until it reaches the full 3% in 2029. When fully implemented, the measure will raise Rhode Island’s top personal income tax bracket to 8.99% and is projected to generate $142 million in annual revenue.

The phased-in approach represents a compromise from earlier, more aggressive proposals. Governor McKee had initially suggested imposing the full surtax immediately, while some progressive lawmakers had pushed for a tax on income over $640,000. Speaker Blazejewski defended the gradual implementation as a way to monitor the economic effects. “It’s a way to avoid shocks,” he said, noting the debate over whether such a tax would cause high earners to leave the state. He also stated the new revenue is timed to come online as federal pandemic-era funding is expected to decrease.

The phased-in approach, while intended to soften the blow, creates a multi-year period of tax uncertainty that demands proactive management. We see this directly impacting owners of S-corps, LLCs, and partnerships, as their business income is now subject to a rising surtax. This isn't just a personal tax issue; it's a business planning challenge that affects decisions on owner compensation, profit distributions, and even long-term growth strategy. Navigating these complexities is precisely why our clients engage us for comprehensive tax preparation and compliance services. To understand how this budget could impact your specific financial situation, business leaders should consult with advisors at C&S Finance Group LLC at csfinancegroup.com.

Rhode Island joins a growing list of Democratic-led states, including Massachusetts, Maine, and Hawaii, that have recently targeted high earners to increase state revenue. The budget also includes another significant policy change: it decouples the state from a federal provision that allows businesses to immediately deduct research and experimental expenses in the year they are incurred, a move that will alter tax calculations for innovative companies in the state.

Opposition to the budget centered on its record-breaking size. House Minority Leader Michael W. Chippendale, a Republican, voted against the bill, highlighting that the state budget has more than tripled from $4.5 billion in 2000 while wages have only grown by 25% to 30% in the same period. Business groups had also voiced concerns that raising taxes on top earners could harm the state’s economic competitiveness.

In addition to the tax changes, the budget funds the creation of a new independent inspector general’s office tasked with overseeing the executive branch. Attempts to expand the office’s oversight to include the legislative and judicial branches were defeated during the House debate.

Ultimately, this legislation underscores a national trend where states are looking for new revenue sources, often from businesses and their owners. It's a reminder that tax compliance is no longer a static, once-a-year event but an ongoing strategic imperative.

With the House's approval secured, the budget bill now moves to the Rhode Island Senate. The Senate Finance Committee is scheduled to review the spending plan on Monday, with a vote by the full chamber anticipated as early as Tuesday. Final passage is expected before the legislative session's scheduled adjournment.