PROVIDENCE — Rhode Island Governor Daniel J. McKee on Thursday unveiled a nearly $15 billion state budget proposal that includes two big items he didn’t mention during Tuesday’s State of the State speech: a millionaires tax and a line-item veto.
If approved, it would come three years after Massachusetts imposed a 4 percent “millionaires tax” on top of its 5 percent income tax, raising billions in revenue. Now, McKee is proposing an 8.99 percent tax rate on personal income of more than $1 million — a 3-percentage point increase over the current top bracket that would generate $67 million in fiscal year 2027.
McKee opposed prior proposals to tax the rich, but Office of Management and Budget Director Brian Daniels said President Trump’s “One Big Beautiful Bill Act” is costing Rhode Island “tens of millions of dollars” and that “really forced our hand on this.”
Daniels said Rhode Island has had the lowest top income tax rate among New England states other than New Hampshire, which has no state income tax, but now McKee is proposing essentially the same top rate as Massachusetts.
The millionaires tax would affect 2,300 filers who live in Rhode Island and 5,500 non-resident filers, state Budget Officer Joseph Codega said, who said 80 percent of the tax burden falls on resident filers.
McKee, a Democrat seeking reelection in 2026, also is seeking line-item veto power, which would allow him to strike specific items from the budget without having to approve or veto the entire bill.
Daniels said 44 states now give their governors some level of line-item veto authority to control spending, and legislators would still be able to override any vetoes with a three-fifths vote in both chambers.
Last year, McKee refused to sign the state budget approved by the General Assembly because it raised taxes and fees, but he did not veto the bill.
Former governor Gina M. Raimondo also pushed for line-item veto power. But legislators, would have to ask voters to approve an amendment to the state Constitution on the November ballot, never agreed to take such a step.
Overall, McKee is proposing a budget of $14.89 billion — an increase of $522.6 million — for the fiscal year that starts July 1.
“The $15 billion headline I realize gets attention,” Codega said. But he said that number includes all funds, including federal funds for transportation and other projects carried forward from previous years.
The amount of state general revenue derived from state taxpayers stands at $5.95 billion, Codega said. “And that is growing quite modestly,” he said. " It’s under 3 percent. It’s within our means."
In August, the business-backed Rhode Island Public Expenditure Group warned that the state’s rate of spending was not sustainable. And in the Republican response to McKee’s State of the State, House Minority Leader Michael W. Chippendale said the state budget has grown by 200 percent since 2000, when it was about $4.5 billion.
The five-year forecast released Thursday projects a structural budget deficit that will rise to $537 million by fiscal year 2031. The document says the “Big Beautiful Bill Act” will “contribute sizably to outyear deficits.”
Daniels said that federal bill is jacking up the state’s share of administrative costs for the Supplemental Nutrition Assistance Program, or food stamps, which will cost about $9 million.
Plus, the state will need to cover some of the cost of the actual SNAP benefits for the first time in 2027, based on the “error rate” — the percentage of recipients that are over or underpaid — which could cost the state $50 million if the current 12 percent error rate doesn’t improve.
McKee is proposing a record $600 million in bond questions on the November ballot, including:
- $215 million for the state’s three public colleges, including $105 million for the University of Rhode Island College of Nursing; $50 million to renovate Rhode Island College’s Adams Library; and $60 million for a workforce innovation center at the Community College of Rhode Island.
- $120 million for housing, including $25 million for producing housing units for homeownership.
- $115 million for economic development, including $70 million to site development at the Quonset Business Park and I-195 District.
- $50 million for Career and Technical Education.
- $50 million for the “cultural economy,” including $45 million for a State History Center that would display the state’s founding documents.
- $50 million for the “green economy and clean energy bonds.”
McKee is calling for the elimination of state personal income taxes on Social Security benefits over three years.
About 43,000 Rhode Islanders are already exempt from Social Security tax if they have reached full retirement age and their adjusted gross income is less than $107,000 for single filers or $133,750 for joint filers. But McKee wants to extend that exemption for 32,000 more residents.
“If you’re on a fixed income, those rising healthcare costs can eat into your into your disposable income,” Daniels said. “So we want to make sure that Rhode Island seniors stay here, that they’re able to afford living here.”
The governor is proposing to create a new child tax credit that will refund families $325 on their taxes per child, per year.
The tax credit replaces an existing tax deduction for dependents that results in higher-income families getting a better benefit, since they pay a higher tax rate, while thousands of low-income families make too little to qualify for the existing deduction.
With the new credit, even families with no taxable income would get a $325 credit for each child, Daniels said. The highest earners would get about the same benefit as they do now with the deduction, he said.
“This is important because children in higher-income households don’t cost more,” Daniels said.
In the State of the State, McKee vowed to “reform and reduce” the 25 percent of energy bills the state can control, like taxes and fees.
That doesn’t mean Rhode Islanders will see a 25 percent cut to their bill. McKee is proposing changes to multiple renewable energy and energy efficiency programs that will either cut or slow the growth of multiple charges on energy bills, said Linda George, Division of Public Utilities and Carriers administrator.
She said the average family would be $180 “better off” each year, though that doesn’t mean their bill would decrease by that amount.
For example, the renewable energy standard, which is part of the supply charge, is currently projected to quadruple by 2033 if no changes are made, officials said.
McKee’s budget would eliminate the 2-cents-per-gallon increase in the state gas tax that legislators approved last year to help fund the Rhode Island Public Transit Authority. The decrease from 40 cents to 38 cents per gallon is projected to save Rhode Islanders $8.6 million in fiscal year 2027.
RIPTA is expecting a budget deficit of $13.8 million in fiscal year 2027. But McKee has proposed covering that budget gap in part by tapping highway maintenance account revenue and providing more money for bus purchases.
The budget would increase the per-pack cigarette tax from $4.50 to $5.25 to provide $6.6 million in revenue.
The state’s beleaguered truck tolls, which haven’t charged a toll since 2022, still hasn’t been turned back on after a federal court decision allowed the state to resuming tolling large tractor-trailers.
Daniels says the budget assumes $20 million in truck-toll revenue, even though there is no projected date for when the tolls will be turned back on. Technology and equipment upgrades have delayed the process of turning them back on.
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