Washington’s “Millionaire Tax” Narrative: A Closer Look at the Numbers and Consequences

The power of narratives is compelling. Humans trust storytellers and respond to stories more than facts. But narratives can manipulate the public into supporting misguided policies with dire consequences. In Washington state, such narratives often go unchallenged. Let’s unpack the proposed income tax.

The Deceptive Labeling Game

The term “millionaire’s tax” itself is a masterclass in political messaging. This new tax is an income tax. No income tax in history has ever stopped at just high earners. The legislature is trying to convince you otherwise, but they’ve raised gas taxes, payroll taxes, revenue (B&O) taxes and capital gains taxes. In Olympia, it’s never enough! They are trying to claim that an income tax won’t broadly expand in a future “emergency.”

The proposed legislation would create a 7% tax on capital gains income above $250,000 for individuals and $500,000 for married couples filing jointly. Proponents argue this is a targeted approach that won’t affect most Washingtonians. However, history tells a different story about how income taxes evolve once implemented.

The “Emergency” Excuse

“Emergency” income tax bill. This is another narrative favorite. Last year the state increased spending $9 billion and is increasing spending $2 billion MORE this year to over $80 billion. The solution to balancing the budget is to modestly reduce spending, not increase it further. But that reduces dollars flowing to labor unions and non-profits who benefit most from state spending. So, the income tax is labeled an “emergency” to avoid an initiative challenge. How can you trust legislators who play such games?

The emergency designation is particularly concerning because it bypasses the state’s voter referendum process. Under normal circumstances, citizens could challenge new taxes through the initiative process. By declaring this an emergency measure, lawmakers are attempting to shield their decision from public accountability.

The Estate Tax Shell Game

“Lowering” the highest estate tax. Washington already had the highest state estate tax in the country at 20%. Last year it increased to 35%. So, more people moved away. Now the legislature is trying to “sell” the new income tax by “reducing” the estate tax back to 20% — STILL the highest in the country. It is just a narrative to justify creating an income tax. The combination of 20% estate taxes, 10% capital gains tax and an additional 10% income tax will drive people out of Washington faster and keep others from ever coming.

This bait-and-switch approach is particularly cynical. Lawmakers are essentially saying, “We’ll give you back some of what we took last year if you let us implement something new.” It’s a classic example of how government expands its reach by creating temporary hardships and then offering partial relief as a “compromise.”

The Exodus Reality

People don’t leave because of taxes. This narrative is simply false. Of course, people leave — I already returned to Georgia! Law firms and tax advisors have created practices to serve the massive increase in clients re-domiciling out of Washington. Financial advisory groups are publishing tax analysis that is motivating others to move. Club member requests for non-resident status are surging. Non-profits are hearing from longtime donors that their giving is focused on causes in their new home state. Every day I hear about someone else leaving Washington for Nevada, Texas, Idaho or elsewhere. Countless others who still have children in schools are making their plans to leave as soon as they can. Even the legislature knows this — that is why they are posturing to reduce the estate tax. Washington’s reputation as a pro-business and pro-innovation state has plummeted (dropping from top 5 to bottom 5 in five years). Many future founders and job creators will not be coming to the state. A critical source of competitive advantage for attracting bright and ambitious people to Washington state is going away.

The data supports this migration trend. According to IRS migration data, Washington experienced a net loss of over $1.7 billion in adjusted gross income to other states in 2021 alone. The top destinations were tax-friendly states like Texas, Florida, and Nevada. This isn’t just anecdotal evidence — it’s a measurable economic impact.

Personal Stakes and Broader Implications

By now you have probably created a narrative about me — perhaps as a venture capitalist looking out for himself and the founders he has backed. But my inspiration for working so hard to create opportunities for others derives from my life experiences. My mom never went to college, and my dad was the first in his family to attend college. They met in the U.S. Army, and both worked incredibly hard to provide an opportunity for our family. After graduating from a large public high school in Miami, I attended Dartmouth College and that experience changed the trajectory of my life. Twenty-six years ago, I took the greatest risk of my life to move our young family from Georgia to Seattle to join a fledgling investment firm backing founders right as the dot-com bubble burst! Our firm, Madrona, helped founders prioritize, cut costs and survive a true economic crisis exacerbated by 9/11. Founder resilience produced amazing success stories that contributed back to Washington state in countless ways. Now, most of those entrepreneurs have left the state for pro-business communities.

This personal journey illustrates a broader truth about economic mobility and opportunity. Washington’s success story has been built on attracting ambitious individuals who are willing to take risks. When the state becomes hostile to success through punitive taxation, it undermines the very foundation of its economic dynamism.

The Economic Pie Problem

Everyone deserves an opportunity to realize their full potential in life and earn the benefits from their hard work and risk-taking. Most who succeed choose to be very generous with their time, talents and resources in the communities where they live. State political leaders, focused on dividing the pie rather than expanding the pie, are substantially driving innovators away from Washington! Sadly, that is not a narrative, but a reality the state will have to live with forever if they create an income tax today.

The fundamental economic fallacy at play here is the zero-sum thinking that dominates progressive taxation debates. The assumption is that there’s a fixed amount of wealth, and the role of government is to redistribute it “fairly.” But this ignores the dynamic nature of wealth creation. When successful entrepreneurs leave, they take not just their current wealth but their future wealth-creating potential with them. The economic pie shrinks, and everyone loses.

Washington’s current trajectory represents a dangerous experiment in driving away the very people who have made the state an economic powerhouse. The narrative that this is about “fairness” or “making the rich pay their share” obscures the real-world consequences: fewer jobs, less innovation, reduced charitable giving, and a diminished quality of life for all Washingtonians.

The question facing voters and policymakers is whether Washington wants to continue being a place where ambitious people can build their dreams and keep the fruits of their labor, or whether it wants to become just another high-tax state that drives away the innovators and job creators who have made it exceptional. The answer to that question will determine Washington’s economic future for generations to come.

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