Washington State Considers "Millionaires Tax" Amid Legislative Debate and Gubernatorial Conditions
Washington state is currently considering a bill that proposes a 9.9% income tax on annual earnings exceeding $1 million. While reports differ on its exact legislative status, the proposal has generated significant debate regarding its potential economic impacts and implications for high-income earners and businesses. Governor Bob Ferguson has expressed support for the concept but has specified significant amendments he requires to enhance affordability for residents before he would sign the legislation.
Proposed Legislation Details
The proposed "millionaires tax" bill suggests a 9.9% tax on annual income exceeding $1 million for individuals or couples.
- Projected Scope: The new tax is projected to affect approximately 21,000 residents statewide.
- Effective Date: The bill is set to become effective on January 1, 2028, with tax payments commencing in 2029.
- Intended Use of Funds: Funds generated are intended to address the state's budget deficit, support programs aimed at improving affordability for working families and small business owners, and allocate funds for free breakfast and lunch for K-12 students across Washington.
Legislative Status
Reports offer conflicting accounts regarding the bill's legislative progress:
- One account states the bill passed the State Senate by a vote of 27-22 and is currently under consideration in the House of Representatives.
- Conversely, another report indicates the bill has passed both the State House and State Senate.
The legislative session is scheduled to conclude on March 12, by which time a final version must be approved by both chambers.
Governor Ferguson's Position and Proposed Amendments
Governor Bob Ferguson has stated his support for the concept of a tax on incomes over $1 million, describing it as "historic progress in rebalancing our unfair system."
"The tax would apply to less than one half of one percent of Washingtonians while potentially making life more affordable for millions."
However, Governor Ferguson has indicated that he requires "significant amendments" to the current legislation before he would sign it into law. He explicitly stated that he will not support any form of income tax for individuals earning less than $1 million annually.
His proposed amendments focus on addressing affordability challenges for Washington residents and small business owners, and include:
- Allocating approximately $1 billion in tax revenue for small business tax reductions.
- Expanding sales tax exemptions to include essential items such as diapers and baby products.
- Implementing a twice-a-year sales tax holiday, eliminating sales tax on items priced under $1,000.
- Dramatically expanding the Working Families Tax Credit, which provides financial relief to low- and moderate-income workers and families.
When asked if he would veto the bill if these changes are not incorporated, Ferguson declined to answer directly, reiterating the necessity of his proposed amendments. His stated objective is to enhance affordability for Washingtonians.
Economic Concerns and Criticisms
Critics of the tax proposal have expressed concerns that it could lead to high earners and businesses relocating from Washington to states with more favorable tax environments.
A Tax Foundation analysis indicated that the proposed tax, combined with existing taxes, could result in a top rate exceeding 18% on wage income and restricted stock units (RSU) vesting in Seattle, potentially making it the highest rate in the U.S.
Jared Walczak, a senior fellow at the Tax Foundation, commented that such a tax could harm Washington's economy by driving jobs and economic opportunities elsewhere, particularly impacting the state's technology sector.
Republican lawmaker Andrew Barkis warned that companies like Starbucks or Boeing might reduce their presence in Washington, potentially leading to a loss of high-paying jobs. Collin Hathaway, founder of Skylight Capital, indicated awareness within the business community of individuals and businesses already moving within the state, such as from Seattle to Bellevue, citing tax policies, homelessness, and crime. He also stated that the "millionaires tax," alongside the capital gains tax and estate tax, contributes to Washington becoming a more challenging environment for business expansion, and confirmed that while his businesses are not yet moving out of state, the possibility is increasing.
Former Starbucks CEO Howard Schultz recently announced his move from Seattle to Florida, though he did not explicitly link his relocation to the new tax.
In response to these concerns, Governor Ferguson stated he does not see evidence supporting claims of high earners relocating based on his discussions with businesses, noting that the broader concern often relates to the cumulative effect of various taxes.