Washington state Democratic leaders on Tuesday at last unveiled their so-called “millionaires tax” — a proposed 9.9% tax applied to taxable, personal annual income that exceeds $1 million.
For the first time in decades, the lawmakers are advancing a personal income tax aimed at high‑income residents that would go into effect in two years, and pairing it with small business and low‑income tax breaks.
The action comes as the state is struggling to plug a more than $2 billion budget hole with spending cuts and a slate of potential tax changes, while at the same time some of Washington’s largest employers are cutting thousands of jobs from their payrolls.
The combined pressures — set against a backdrop of ongoing uncertainty around federal policies and funding — has leaders in the business community concerned about additional financial burdens in an increasingly shaky economy.
“Proposing a personal income tax is a major economic move for our state — one that will have consequences — and it’s not something that we, or anyone in Washington, is taking lightly,” said Rachel Smith, president of Washington Roundtable, nonprofit representing business executives, in a statement.
Others were more blunt.
“This tax is just another brick in the wall of anti-entrepreneurialism from state and local legislators. The average Amazon employee probably won’t mind, but this stuff is devastating to company creation,” Kirby Winfield, founding general partner at Seattle venture capital firm Ascend, said via email.
The message, said Winfield, is that “Washington does not value job creation or wealth creation for risk-taking founders and startup employees.”
GeekWire contacted Microsoft and Amazon for comment, and we’ll update if we hear back.
In a state that has historically relied heavily on property, sales and business taxes to balance its books, Gov. Bob Ferguson has repeatedly expressed support in recent months for an income tax on the state’s highest earners.
In December, he said that a tax similar to what has been proposed would apply to fewer than 0.5% of Washington residents and would raise more than $3 billion each year. An official fiscal note on the bill has not been released.
But the governor on Tuesday said the draft legislation fell short in supporting small businesses and lower-income residents in the state. The bill is “a good start, but we still have a long way to go,” he said in a press conference.
“We are listening and hearing the voices of many, many Washingtonians who are struggling right now and having a lack of affordability in our state,” Ferguson said. “And we need to address that head on.”
Tax increases and new deductions
The proposed tax, which is being introduced as Senate Bill 6346 and House Bill 2724, includes multiple provisions:
- A 9.9% tax on Washington taxable income above a $1 million standard deduction per individual, built off of federal adjusted gross income.
- It allows up to $50,000 a year in charitable deductions per filer (or per couple), and nonrefundable credits to avoid double‑taxing income already hit by Washington’s B&O, capital‑gains taxes, or other specific exemptions.
- There are multiple definitions of residents subject to the tax, including someone who lives here more than 183 days per year.
- It would apply to income earned beginning Jan. 1, 2028, with the first payments dues in April 2029.
Supporters of the tax say it brings more fairness to the state’s tax structure. Washington is one of nine states that lack an income tax, and has prohibited the taxation of personal wages.
“Washington’s antiquated tax code is the second-most regressive in the country, which means that working people pay more, while the gap between rich and poor continues to widen,” Invest in Washington Now, a Seattle nonprofit supporting progressive tax policy, said in a statement.
The measure includes targeted tax breaks:
- The small business B&O tax credit doubles, so businesses with annual gross receipts of less than $250,000 would no longer pay that tax.
- The temporary B&O surcharge on high-grossing companies would end one year early, in 2028.
- The Working Families Tax Credit removes the age limit for participation.
- A new sales tax exemption for grooming and hygiene products would take effect Jan. 1, 2029.
At his press conference Tuesday, Ferguson called for bigger benefits for small businesses and families. The governor said he wants to devote $1 billion of tax relief to small business owners, while the proposed bill provides a little more than $100 million. Ferguson also called for expanded eligibility for the family tax credit and to provide larger amounts to recipients, plus more extensive sales tax relief.
Now comes negotiations on a tight timeline. This year’s 60-day legislative session is scheduled to end March 12.
“So it’s a challenge for something this big and this complex” to find solution, Ferguson said, but added that he sees potential for “a lot of collaboration.”
If approved by lawmakers, the governor said the proposed tax was certain to go before voters for approval and would face legal challenges as well.
Nixing Washington’s ‘tax advantage’
While the new income tax has worried some on the business community, it’s not the only controversial tax being considered in Olympia this year.
Tech industry leaders have been up in arms over a separate proposal that would broaden the state’s capital gains tax to apply to profits from the sale of qualified small business stock (GSBS) even when gains are exempt under federal law. The change, codified in SB 6229 and HB 2292, would impact startup company founders, early employees and investors.
Aviel Ginzburg, a Seattle-based venture capitalist at Founders’ Co-op and leader of the startup community Foundations, recently posted a satirical video to highlight his opposition to the QSBS and millionaires tax.
“People are happy to pay more taxes. I am too, especially when the …. money is spent well,” Ginzburg said, asserting that’s not the case here. “We’re about to kill the golden goose.”
Another piece of legislation that’s modeled on Seattle’s payroll tax, which targets Amazon and other big companies, was floated unsuccessfully last year and is not gaining traction this session.
Other states are likewise struggling with affordability issues and looking to raise income taxes on the highest earners, with Colorado moving toward a ballot measure and Michigan considering a similar move. California, meanwhile, is exploring a one-time, 5% tax on residents a net worth exceeding $1 billion — which has caused some billionaires to flee the state.
Winfield of Ascend dismisses comparisons between Washington’s and California’s tax burdens given other, outsized strengths in the state to the south.
“Given the choice between paying absurd taxes here or California, founders will just move to the Bay Area,” he said. The billions of dollars of venture capital, massive tech talent and tolerance for risk are beyond comparison.
“Seattle is great but it doesn’t come close,” Winfield said. “And when you remove the tax advantage you lose your biggest draw.”
