Rhode Island Senate Democrats are advancing a proposal to impose a 3 percent surtax on personal income above $1 million, a measure supporters say will generate an estimated $120 million annually for education and infrastructure but which critics warn will drive the state's highest earners and most productive businesses across the border to Massachusetts, Connecticut, or Florida.

The bill, sponsored by Senate Finance Committee Chair Louis DiPalma, would make Rhode Island's effective top marginal income tax rate one of the highest in New England at approximately 8.99 percent when combined with the existing 5.99 percent rate. Proponents argue that the wealthy can afford to pay more and that the revenue is desperately needed to address crumbling school buildings and deteriorating roads.

But the Rhode Island Public Expenditure Council, a nonpartisan fiscal watchdog, released a report this week warning that the tax could backfire. The report found that Rhode Island lost an estimated 340 high-income households to out-of-state migration between 2020 and 2024, taking with them more than $890 million in adjusted gross income. "Every time we raise taxes on our most productive residents, we make it easier for them to justify leaving," said RIPEC President and CEO Michael DiBiase. "The millionaire tax sounds appealing in theory, but the evidence from other states suggests it often produces less revenue than projected."

The Rhode Island chapter of the National Federation of Independent Business joined the opposition, noting that many small business owners file as pass-through entities and would be directly affected by the surtax even if their business income is not what most people would consider "millionaire" wealth. "A plumber who had a great year, a contractor who sold his business — these are the people who get hit by taxes like this," said NFIB Rhode Island Director Christopher Carlozzi.

Governor McKee has not taken a public position on the bill, though his budget office has indicated it was not included in the executive budget proposal. The measure faces an uncertain path in the House, where Speaker Joseph Shekarchi has historically been more cautious about tax increases.