Tax Burdens Are Not Spread Equally in RI - Alan Krinsky
Alan Krinsky - Guest MINDSETTER™
Tax Burdens Are Not Spread Equally in RI - Alan Krinsky
According to WalletHub, Rhode Islanders have a tax burden of 10.08%, “the proportion of total personal income that residents pay toward state and local taxes.” This includes personal income tax, property taxes, and sales and excise taxes. However, what WalletHub misses is that Rhode Islanders do not all pay the same rate.
The Institute on Taxation and Economic Policy (ITEP) looked at a similar measure in their 2024 report, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. What ITEP did that WalletHub did not do was look at tax burden by income group within each state. And here are the results for Rhode Island:
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This chart shows that the lowest-income Rhode Islanders pay much more than the other 80% of filers. They pay 13.3% of their income in state and local taxes. This is 55% more than the Top 1% pay as a portion of their income. This top 1% pays less than the other 99% of tax filers. Indeed, the income disparities are greater after collecting state and local taxes than before.
A more balanced tax system would see a more even distribution of percentages.
One way to move toward this balance would be to increase personal income taxes on the state’s highest earners, the Top 1%. Right now, Rhode Island’s highest marginal tax rate is 5.99%, and it has been that way since 2011. This means that someone with an income of $2 million pays the same top rate as someone with an income of a little under $200,000. With legislation proposed by Representative Karen Alzate (H-5473) and Senator Melissa Murray (S-329) and supported by the Revenue for Rhode Islanders coalition, a 3% surtax would be applied to taxable income above approximately $625,000, affecting an estimated 5,700 filers out of well over 500,000 Rhode Island filers.
For a filer with $500,000 or $600,000 in taxable income, this would result in no additional taxes. For a filer with $650,000 in taxable income, this would mean only an extra $750 per year. For someone with a million dollars in taxable income, this would mean only an extra $11,250 per year. Furthermore, given the Congressional push for renewal of the 2017 federal tax cuts, the Top 1% are likely going to receive tax cuts of many thousands or tens of thousands of dollars each year, and with this tax break they will easily be able to absorb a modest Rhode Island surtax of 3%.
In terms of a more balanced tax system, ITEP estimates that the measure would raise the 8.6% tax burden on the Top 1% to 9.2%. While this still preserves a big gap with the lowest 20% in income, it does at least put the Top 1% in the same range of the rest of the state’s filers.
Despite repeated claims the highest-income Rhode Islanders will flee the state in a mass exodus if we make such a move, I can assure you this will not happen. A few weeks ago, EPI published my policy brief Moving Beyond the Mass Exodus Tax Flight Myth, and I showed the receipts: decades of data for Rhode Island and the nation without any evidence of such a mass exodus happening anywhere else in response to changing tax rates.
Indeed, despite predictions and hopes that Massachusetts millionaires would cross the border in vast numbers after voters passed by ballot in 2022 the Fair Share Amendment to establish a 4% tax on income over $1 million, no such exodus has taken place. And revenue estimates have far exceeded initial expectations, with over $2 billion in new revenue collected each year. The state is investing hundreds of millions of dollars in public transit and education – and even providing free school breakfasts and lunches for all students.
For Rhode Island, the Top 1% proposal would result in an estimated new revenue of $190 million per year, which could help prevent cuts in critical services in these times of looming budget deficits and likely federal aid cuts. We have an opportunity to narrow a budget gap, to fund critical programs and services, and to make Rhode Island’s tax system a little fairer. The Institute on Taxation and Economic Policy provides the data and insight not available in the WalletHub study. The differences among income groups are important and should inform how we make decisions about state tax policy. That the highest-income Rhode Islanders pay a noticeably lower percentage of their income than all other Rhode Islanders is critical information that should propel us to act now.
