Washington’s “Millionaires Tax” Sparks Fierce Debate as Lawmakers Seek to Close $2 Billion Budget Gap

In a move that has sent shockwaves through Washington state’s business community, Democratic lawmakers have unveiled a controversial proposal to implement a 9.9% income tax on residents earning over $1 million annually. The bill, introduced as Senate Bill 6346 and House Bill 2724, represents the first serious attempt in decades to establish a personal income tax in a state that has historically relied on sales, property, and business taxes to fund government operations.

The proposal comes at a critical juncture for Washington, which faces a daunting $2 billion budget shortfall. With major employers like Amazon, Microsoft, and Boeing implementing widespread layoffs, and federal policy uncertainty looming, the timing of this tax initiative has amplified concerns about economic stability and business competitiveness.

The Mechanics of the Proposed Tax

The legislation would impose a 9.9% tax on Washington taxable income exceeding a $1 million standard deduction per individual, calculated based on federal adjusted gross income. The tax would apply to income earned beginning January 1, 2028, with the first payments due in April 2029.

Key provisions include:

• A $50,000 annual charitable deduction limit per filer
• Nonrefundable credits to prevent double taxation on income already subject to Washington’s Business & Occupation (B&O) tax or capital gains taxes
• Multiple definitions of tax residency, including individuals spending more than 183 days per year in the state
• Targeted tax breaks for small businesses and low-income residents

Business Community Sounds Alarm

The reaction from Washington’s business community has been swift and largely negative. Rachel Smith, president of the Washington Roundtable, a nonprofit representing business executives, acknowledged the gravity of the proposal: “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.”

However, others have been far more critical. Kirby Winfield, founding general partner at Seattle venture capital firm Ascend, minced no words in his assessment: “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.”

Winfield’s concerns echo throughout the startup ecosystem. “The message, said Winfield, is that ‘Washington does not value job creation or wealth creation for risk-taking founders and startup employees.'” This sentiment reflects a broader anxiety that the state’s reputation as a business-friendly environment is eroding.

Governor Ferguson’s Mixed Response

Governor Bob Ferguson, who has repeatedly expressed support for taxing high earners, offered a nuanced response to the proposal. While acknowledging it as “a good start,” he emphasized that “we still have a long way to go” in addressing affordability concerns for Washington residents.

Ferguson’s press conference highlighted the tension between raising revenue and maintaining economic competitiveness. “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,” he said. “And we need to address that head on.”

However, the governor also criticized the bill for not going far enough in supporting small businesses and lower-income residents. He called for $1 billion in tax relief for small business owners, compared to the bill’s provision of just over $100 million, and advocated for expanded eligibility and larger amounts for the family tax credit.

The Fairness Argument

Supporters of the tax, including the nonprofit Invest in Washington Now, argue that the current tax structure is fundamentally unfair. “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,” the organization stated.

The proposed bill includes several measures aimed at addressing these inequities:

• Doubling the small business B&O tax credit, so businesses with annual gross receipts under $250,000 would no longer pay that tax
• Ending the temporary B&O surcharge on high-grossing companies one year early, in 2028
• Removing age limits for the Working Families Tax Credit
• Implementing a new sales tax exemption for grooming and hygiene products starting January 1, 2029

The Legislative Timeline and Challenges Ahead

With the 60-day legislative session scheduled to end March 12, lawmakers face a compressed timeline to negotiate and pass complex tax legislation. Governor Ferguson acknowledged the challenge: “So it’s a challenge for something this big and this complex” to find a solution, but expressed optimism about potential collaboration.

Even if the legislature approves the tax, it would face additional hurdles. The governor confirmed that the proposal would “certainly” go before voters for approval and would likely face legal challenges as well.

The Broader Context: Washington’s Tax Advantage at Risk

The millionaires tax proposal comes amid broader concerns about Washington’s competitive position. Tech industry leaders have been particularly vocal in opposing a separate proposal to broaden the state’s capital gains tax to include profits from qualified small business stock (QSBS), even when those gains are exempt under federal law.

Aviel Ginzburg, a Seattle-based venture capitalist at Founders’ Co-op, has emerged as a prominent critic of both tax proposals. In a satirical video that gained traction in the startup community, Ginzburg argued that while people are willing to pay more taxes when the money is spent well, “We’re about to kill the golden goose.”

This sentiment reflects a growing fear that Washington is eroding its competitive advantage. As Kirby Winfield noted, “Seattle is great but it doesn’t come close” to Silicon Valley in terms of venture capital, tech talent, and risk tolerance. “And when you remove the tax advantage you lose your biggest draw.”

National Trends and Competitive Pressures

Washington is not alone in considering tax increases on high earners. Colorado is moving toward a ballot measure, Michigan is exploring similar options, and California is considering a one-time 5% tax on residents with net worth exceeding $1 billion. The California proposal has already prompted at least six billionaires to relocate to tax-friendlier states like Texas and Florida.

These national trends underscore the competitive pressures facing states as they grapple with budget shortfalls and affordability concerns. However, Washington’s proposal is particularly significant given the state’s historical aversion to income taxes and its reliance on a tax structure that disproportionately impacts lower and middle-income residents.

The Path Forward

As negotiations continue in Olympia, the outcome of this debate will have profound implications for Washington’s economic future. The state must balance the need for revenue to address budget shortfalls and fund essential services against the imperative to maintain a competitive business environment that attracts and retains talent and investment.

The coming weeks will be critical as lawmakers, business leaders, and community advocates work to find common ground on a tax structure that can support the state’s needs while preserving its economic vitality. With the legislative session ending in March and a potential voter referendum on the horizon, Washingtonians can expect intense debate and significant political maneuvering as this landmark proposal moves through the legislative process.

Tags

Millionaires tax, Washington state income tax, capital gains tax, small business tax relief, Washington budget deficit, tech industry taxes, startup ecosystem, venture capital, economic competitiveness, tax fairness, progressive taxation, business climate, job creation, wealth creation, entrepreneurship, affordability crisis, legislative session, Governor Ferguson, Washington Roundtable, Ascend VC, Founders’ Co-op, Foundations, QSBS, B&O tax, Working Families Tax Credit, tax reform, economic policy

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A new sales tax exemption for grooming and hygiene products is included

The Working Families Tax Credit would remove age limits

The temporary B&O surcharge on high-grossing companies would end early

The governor wants $1 billion in tax relief for small business owners

The bill currently provides just over $100 million in small business relief

Washington’s tax structure disproportionately impacts lower and middle-income residents

The proposal includes multiple definitions of tax residency

Charitable deductions would be limited to $50,000 annually

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Nonrefundable credits would prevent double taxation

The legislation is being introduced as SB 6346 and HB 2724

The millionaires tax has worried some in the business community

Tech industry leaders are up in arms over the QSBS proposal

A separate payroll tax modeled on Seattle’s was floated unsuccessfully

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The state faces a daunting $2 billion budget shortfall

Major employers like Amazon, Microsoft, and Boeing are implementing layoffs

Federal policy uncertainty is looming over the state’s economy

The timing of the tax initiative has amplified concerns about economic stability

Business competitiveness is at the forefront of the debate

The reaction from Washington’s business community has been swift and largely negative

The governor acknowledged the proposal as “a good start”

Ferguson emphasized that “we still have a long way to go”

Affordability concerns for Washington residents are central to the debate

The tension between raising revenue and maintaining economic competitiveness is evident

Supporters argue the current tax structure is fundamentally unfair

The proposed bill includes measures aimed at addressing inequities

Lawmakers face a compressed timeline to negotiate and pass complex tax legislation

The governor acknowledged the challenge of finding a solution

He expressed optimism about potential collaboration

Even if the legislature approves the tax, it would face additional hurdles

The governor confirmed the proposal would “certainly” go before voters

Legal challenges would likely follow any legislative approval

The outcome will have profound implications for Washington’s economic future

The state must balance the need for revenue against maintaining a competitive business environment

The coming weeks will be critical as lawmakers work to find common ground

Washingtonians can expect intense debate and significant political maneuvering

The landmark proposal moves through the legislative process

The debate highlights the challenges of tax reform in a competitive economic environment

Washington’s historical aversion to income taxes is being tested

The state’s reliance on a regressive tax structure is under scrutiny

The proposal represents a fundamental shift in Washington’s approach to taxation

The business community is mobilizing to oppose the tax

Tech industry leaders are particularly vocal in their opposition

The startup ecosystem is expressing significant concern

Venture capitalists are warning about the impact on entrepreneurship

The competitive advantage of Washington’s tax structure is at risk

National trends are influencing the debate in Olympia

Other states are grappling with similar budget and tax challenges

Washington’s proposal is particularly significant given its historical context

The debate reflects broader questions about tax fairness and economic competitiveness

The outcome will shape Washington’s economic trajectory for years to come

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