The Rhode Island Public Expenditure Council is praising Gov. Dan McKee for restraining the rate of spending growth in his new $14.9 billion budget proposal, while also renewing concern about McKee’s proposed tax hike on income above $1 million.
RIPEC, a business-backed fiscal watchdog, notes in a new analysis that the governor’s latest spending plan raises state general revenue spending 2.5% – a far lower rate than the 10.9% increase in that category over the last two years.
RIPEC also finds that despite concern about the Trump administration’s changes to Medicaid and food aid programs like SNAP, federal aid would climb by 7.8% in McKee’s budget proposal.
“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,” Michael DiBiase, president/CEO of RIPEC, said in the new analysis. “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.”
RIPEC expressed the most concern about McKee’s proposal to tax income above $1 million at 8.99% – 3 percentage points higher than the current top rate in the state.
It says that the rate 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.”
During a Statehouse interview last week with Ocean State Media, McKee downplayed concerns that the higher tax rate could lead affluent residents to leave the state. Supporters typically call higher taxes on the richest Rhode Islanders a matter of fairness and an important revenue source.
The Rhode Island Working Families Party, a progressive group, and some lawmakers favor a proposal that would generate more revenue by imposing higher taxes on people earning more than $640,000 a year.
RIPEC maintains that McKee’s millionaire’s tax proposal could cut into state revenue and hurt Rhode Island’s economy.
“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,” DiBiase said. “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.”
State law requires the budget to be balanced on an annual basis.
RIPEC also underscored, however, that future projected deficits will rise from $237.4 million in fiscal 2028 to $537 million in fiscal 2031, due to the use of one-time funds for recurring costs and expenditure growth outpacing increases in state revenue.
The General Assembly this week began the process of holding months of hearings to review and hear testimony on McKee’s budget proposal.
The legislature will make a series of changes and pass its revised version of the spending plan in June.
