Seattle tech leaders are warning that a new income tax proposal could stall the region’s momentum in artificial intelligence.
In a letter sent Monday to Gov. Bob Ferguson, a group of AI researchers, founders, and investors argue that higher taxes on high earners and investment gains would push top talent and future startups elsewhere.
They urge state leaders to “pause” work on the so‑called “millionaires tax” — a state income tax that would impose a 9.9% levy on personal income above $1 million — as well as an increase to Washington’s capital gains tax.
“These policies would materially undermine Washington’s ability to keep growing the tech sector, which is a core driver of our economy, and would slow the AI innovation and investment momentum that we should be accelerating, not discouraging,” the letter reads.
The group frames the issue as an AI competitiveness problem, writing that Washington is “competing for the talent required to build and scale AI products, companies, and jobs” but is “starting to lose momentum” compared to rival hubs.
“AI is at a critical moment, and a hasty decision now would do serious damage to the future of Washington’s innovation economy,” they wrote.
Citing Silicon Valley Bank’s recent State of the Markets report, they say Seattle has seen a “significant” downturn in startup formation over the past three years, while San Francisco benefits from a deeper AI ecosystem and Texas is attracting companies with what they describe as a more favorable tax climate.
The report shows that VC-backed company formation in Seattle has fallen 30% since 2022. San Francisco is the only tech hub to see growth in company formation, according to the report, driven by the AI boom.
Signatories of the letter include Pedro Domingos, professor emeritus of computer science and engineering at the University of Washington; Brian Hall, a former executive at Microsoft, Amazon Web Services, and Google; Oren Etzioni, former CEO of the Allen Institute for Artificial Intelligence; Read AI co‑founder and CEO David Shim; CloudMoyo CEO Manish Kedia; Founders’ Co‑op general partner Aviel Ginzburg; AZX CEO Aaron Goldfeder; LaunchDarkly CTO Cameron Etezadi; Salesforce engineering leader Paul Brown; AJW Services managing director Adam Wray; and longtime software engineer and author Vijay Boyapati.
The Wall Street Journal’s editorial board cited the letter, writing that “Democrats are putting their economy and jobs at risk if they follow the California ratchet of tax, spend, and tax some more.”
GeekWire reached out to Gov. Ferguson’s office for comment.
The proposed income tax, Senate Bill 6346, was approved by Washington’s Senate earlier this month and is being debated by House lawmakers. Gov. Ferguson has criticized the proposal for doing too little for small businesses and lower-income residents in the state. Democrats have made subsequent changes but the governor told the Washington State Standard on Friday that the bill “still has a long way to go.”
The tax would take effect in 2030 and is expected to generate an estimated $3.7 billion annually.
An analysis from the Tax Foundation concluded that the tax “would make the state increasingly undesirable for high earners, particularly in the state’s crucial tech sector.”
Another proposal in Washington, SB 6229, would apply the capital gains tax to profits from the sale of qualified small business stock, or QSBS, even when gains are fully exempt under federal law. It’s not clear if that bill will advance in this year’s legislative session.
Others in Seattle’s tech ecosystem have pushed back on the idea that higher taxes on top earners would trigger an existential threat to the startup economy.
Washington state has the second-most regressive state and local tax system in the country, according to the Institute on Taxation and Economic Policy.
The debate over taxes on high earners comes as the state is struggling to plug a budget deficit above $2 billion with spending cuts and a slate of potential tax changes. Meanwhile, many large tech employers are cutting thousands of jobs.
The legislative session is scheduled to end on March 12. Read the letter in full below.
