Rhode Island Income Tax: The Decline of the Ocean State

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Rhode Island, the smallest state by area, is on its way to joining that distinction by population, too. Although the state has traditionally been densely populated for its size—it’s a mere 48 miles long and 37 miles wide with a population of just over one million—it has lost much of its populace since 1971, when the Rhode Island income tax was implemented.

People Are Leaving Rhode Island

Between 1966 (five years before the Rhode Island income tax) and 2012, Rhode Island’s population declined by a whopping 36 percent, according to “Wealth of States” (p. 3). Rhode Island is one of five states in the Northeast that jumped on the state income tax bandwagon after 1960. The other states are Connecticut, Maine, New Jersey, and Pennsylvania. In fact, only one state in the entire Northeast doesn’t have a state income tax (apart from taxing income from dividends and interest): New Hampshire.

Where Are Residents Going?

The number one destination for residents leaving Rhode Island is Florida, a state with no income tax, according to a report by the Ocean State Policy Research Institute. Texas, another state that charges no income tax, is also a popular choice. The institute estimates that Rhode Island lost more than $1 billion between 1995 and 2007; “How Money Walks” estimates $1.82 billion lost between 1992 and 2011. If that $1 billion had stayed in Rhode Island, the state would have collected more than $9.1 million each year. And when people leave a state, that state doesn’t suffer the loss for just one year; it loses money during future years, too.

The Entire Northeast Is Shrinking

People are leaving northeastern states to move to places with lower costs, such as Florida and Texas. Manufacturing businesses are leaving the Northeast in favor of southern states, and businesses in general are relocating to states that have fewer regulations and lower taxes. Rhode Island in particular ranks 47th out of the 50 states on the Small Business and Entrepreneurship Council’s 2011 Small Business Survival Index, as highlighted by the December 2012 Rhode Island Data Book. In fact, seven of the nine states in the Northeast rank in the bottom 10 for entrepreneurship-friendly regions. The exceptions are Pennsylvania and New Hampshire.

More Hard Data

Data from “Wealth of States” reveals that Rhode Island suffered a 22 percent loss of total state and tax revenue from 1966 to 2011 (p. 3). And no wonder: The state ranks dead last, 50th place, for population growth from 2002 to 2012 (p. 6). Here are some additional statistics about Rhode Island:

  • Among the 11 states that have implemented a state income tax since 1960, Rhode Island saw the greatest decrease in health and hospital workers: a 53.9 percent decline between the adoption of the Rhode Island income tax and 2011 (p. 18).
  • Violent crime increased by 16 percent between 1971 and 2012 (p. 19).
  • Poverty increased by 13 percent during those years (p. 21).
  • The Rhode Island state highway system has fared poorly since 1984. The state was ranked 46th at that time but dropped even lower to 49th in 2009 (p. 22).

The statistics show that Rhode Island has practically been pushing people out—but its loss is Florida’s and other states’ gain.