Rhode Island Chooses Tax Hike Death Spiral

www.americanthinker.com

Rhode Island just enacted a tax increase that will chase the highest-earning households out of the state and ensure revenue shortfalls as long as it remains in place.

These millionaire taxes are an increasingly popular idea that benefits low-tax states while punishing everyone who remains stuck in high-tax ones.

Gov. Dan McKee on Friday signed a state budget that raises the tax rate on annual income above $1 million to 8.99 percent, up from the current 5.99 percent. That is a 50 percent tax hike on the state’s most successful people.

McKee, a Democrat, is up for reelection this year and is in a tough primary battle against wealthy opponent Helena Foulkes. That explains his support for a monster tax increase he opposed last year.

I am by no means convinced that all these governors and state legislators really believe that these tax hikes will raise additional money. Some dimwitted true believers certainly do imagine that people are so enamored of their current places of residence that they will accept anything as the price of remaining there. New York City mayor Zohran Mamdani, Los Angeles political boss Karen Bass, and Seattle chief executive Katie Wilson are apparently among these.

At a news conference early this month, Wilson “laughed off warnings of a millionaire exodus even as a new survey shows many business leaders are considering leaving the state,” the New York Post reported. “I still think that claims of a large exodus of rich people due to our statewide millionaire tax that the legislature passed this year are overblown,” Wilson told FOX 13 Seattle with a laugh.

Just a few days later, the Downtown Seattle Association issued a report stating the “JumpStart” business taxes Seattle passed in 2020 have resulted in the loss of 30,000 jobs, a near-quintupling of the downtown office vacancy rate to 32 percent, and a 21 percent decline in the value of office properties. As a result, “the taxable value of its office buildings has fallen 48% -- even as Bellevue [Washington], which has no comparable tax, added jobs and saw commercial values rise 7%,” Geekwire reported.

The report clearly shows these taxes do not increase affordability or lower the burden on low- and medium-income residents. They do the opposite, in fact. “Since 2020, King County’s tax base has shifted further toward residential property (1–4 units), which grew from 59.3% of total taxable value to nearly 67% in 2025 -- an increase of more than six percentage points,” the report states.

Meanwhile, Los Angeles has become a hellscape under Bass, who took office in 2022 and is up for reelection this year. Businesses are leaving, and the city now leads the nation in the annual number of people moving out: “Los Angeles County is losing residents at a pace that now leads the nation, according to recent census data, Los Angeles Magazine reports. “The county has lost more than 300,000 people since 2020, a shift large enough to affect federal funding, infrastructure planning and long-term economic strategy.”

Bass’s own brother is suing the city for damages from “a series of cascading failures” by local and state-level agencies in dealing with the 2025 Palisades fire. In short: Los Angeles is in a death spiral.

In New York City, Mamdani is openly warring with business leaders, notoriously telling them, “Well, today, we're taxing the rich!” in a bizarre video explicitly naming Citadel CEO Ken Griffin as a target. Griffin responded by expanding his investment operations in Miami.

The flight from oppressive regimes with sky-high taxes is gaining speed. From 2012 to 2023, the state of New York lost 13.4 percent of its population in net migration to other states, Illinois lost 9.22 percent, California 6.14 percent, Massachusetts 6.2 percent, and New Jersey 5.66 percent.

Those people are moving to low-tax states such as Florida (gain of 12.35 percent), Texas (up 7.55 percent), North Carolina (8.44 percent), Arizona (10.99 percent), Tennessee (up 8.42 percent), and South Carolina (15.43 percent).

And what about Rhode Island, with its top tax rate of 5.99 percent and sales tax of 7.0 percent? The Ocean State lost 3.69 percent of its population during those years. Those people took their talents and taxes with them.

Rhode Island’s population loss has not been nearly as bad as those of the worst-ravaged states, as the state lowered its top income tax rate in 2010 from 9.90 percent to today’s (still too high) 5.99 percent. State income tax revenue rose by 52 percent from 2010 to 2019 because of the tax “cut.”

With the state in a budget crunch caused entirely by overspending, McKee’s genius idea is to compound the problem by charging the dwindling number of high-income Rhode Islanders even more in taxes, thus encouraging them to leave as well. They will take successful businesses with them.

That will cause even greater revenue shortfalls and further money grabs that will make the state even less attractive.

No matter how hard the politicians may wish and how much they bluster, there is simply no way to reverse this kind of death spiral by increasing tax rates. Spending cuts are the only way to change the dynamic, as unpleasant as that prospect may be for those who get to dole out the cash.

Instead, Rhode Island will now rejoin those loser states while government services deteriorate, crime rates and homelessness rise, infrastructure falls into disrepair, and the people who are left suffer.

S. T. Karnick (https://stkarnick.substack.com/) is a senior fellow at The Heartland Institute and author of the Life, Liberty, Property weekly e-newsletter.