Gov. McKee’s Tax Increase Criticized in Study of Proposed Budget

Gov. McKee’s Tax Increase Criticized in Study of Proposed Budget

An analysis by the Rhode Island Public Expenditure Council (RIPEC) of Governor Dan McKee’s FY 2027 budget gives the proposal credit for slowing the pace of spending but criticizes McKee’s new tax hike on the state’s top earners.

RIPEC states, “If enacted, the governor’s proposed millionaire’s tax rate of 8.99 percent would be the 8th highest top income tax rate among U.S. states and would essentially match the 9.0 percent rate in Massachusetts for the highest rate in New England. Last April, RIPEC published a policy brief finding that a sharp increase in taxes on the state’s higher earners would risk negative long-term consequences for state revenues and the economy.” READ HERE

“McKee’s spending plan [is] relatively restrained after a period of extraordinary growth, but the expenditures rely on a new millionaire’s tax that would sharply increase taxes on income over $1.0 million,” says RIPEC.

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“With federal aid and state revenues growing at a relatively stable rate, state policymakers should consider the risks to the state’s competitiveness that would result from imposing a 50 percent tax increase on high-earning individuals and businesses. Instead, the state should be scrutinizing the return of investment of the extraordinary increase in state tax dollars and spending that have accumulated over the past several years,” said Michael DiBiase, RIPEC’s President & CEO.

Under the governor’s FY 2027 budget proposal, state general revenue spending is projected to grow by 2.5 percent over the current year budget. In comparison, the current year budget authorized a state general revenue spending increase of 10.9 percent over the past two years. Spending from all sources in the governor’s spending plan would increase by 3.6 percent, driven by a surge in federal aid, which will increase by 7.8 percent over the level in the current year enacted budget. 

“Governor McKee deserves credit for a spending plan that moderates the rate of state spending growth after a period in which expenditures have been growing at a relatively high rate,” said DiBiase. “However, while there have been major changes in federal programs like Medicaid and SNAP, expenditures from federal sources continue to expand substantially under the governor’s proposal.”

The growth in federal Medicaid spending under the governor’s budget for FY 2027 is expected to be lower than the extraordinary rate of growth over the last several years, primarily due to eligibility changes under H.R. 1. However, state spending on Medicaid is still increasing at about the same pace as state spending overall in the proposed budget, according to RIPEC’s analysis.

The governor’s budget includes a proposed bond referenda package totaling $600 million, which would be the largest in the state’s history and $200 million higher than the next highest bond offering. “This level of borrowing deserves scrutiny by the General Assembly. After reducing the state’s debt in relation to personal income and general revenues over the past several years, the governor’s proposed bond package would appear to reverse this trend,” DiBiase said.