Washington State Just Passed a 9.9% Income Tax on Those Making $1 Million
· Reason
Washington state has beaten California and New York in their race to soak the rich.
On Thursday, the state Legislature passed a "millionaires tax" along party lines. Starting in 2028, households making at least $1 million will be subject to a 9.9 percent income tax. The money raised from this duty will allow the state to eliminate sales taxes on diapers, over-the-counter drugs, and select hygiene products; provide free school breakfast and lunch; and to generally "fund K–12 education, health care, [and] higher education." Unless Gov. Bob Ferguson unexpectedly vetoes the bill, it will automatically become law in April.
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In passing this law, the Evergreen State has implemented the most regressive wealth tax in the country, at least for now. In November, Californians will vote on a proposed 5 percent billionaire wealth tax ballot initiative (which Gov. Gavin Newsom opposes). Meanwhile, New York City Mayor Zohran Mamdani has called on state legislators to impose an additional 2 percent income tax on millionaires and is considering proposals to increase the city's corporate tax rates and lower its threshold for death (estate) taxes from $7.1 million to $750,000.
While California and New York have, respectively, the highest and third-highest state income tax rates, Washington's millionaires tax "is probably one of the biggest changes in Washington state political history since our founding," state Rep. Chris Corry (R–Yakima) told Komo News.
As Jared Dillian recently explained for Reason, Washington did not tax any kind of income until 2021, when it passed a 7 percent tax on long-term capital gains above $250,000, which encouraged Jeff Bezos' relocation to Florida. In 2023, the Washington state Supreme Court upheld this law despite the state's constitution explicitly requiring "all taxes [to] be uniform" and "the aggregate of all tax levies…[to] not in any year exceed one percent of the true and fair value of [taxed] property."
Because the state's property taxes must be applied at a uniform rate instead of bracket-specific rates, like the federal income tax, Washington households with a gross annual income of $1 million or more would have to pay a 9.9 percent duty on all their income, not just the income made in excess of $1 million.
This means that a household is better off if it stops working after earning a gross wage of $999,999 per year, unless it expects to earn at least $1,109,877—the point at which the after-tax income would match $999,999, thanks to the new law. This will discourage six-figure income earners from continuing to earn $1 million, so that they don't trigger the flat tax on all their income, or encourage them to work elsewhere.
Seattle Seahawks General Manager John Schneider said the tax is "going to sting from a recruiting standpoint." Starbucks founder Howard Schultz has already left.
On Tuesday, Schultz announced that he and his wife would be relocating to Florida to enjoy their retirement, and expressed their "hope that Washington will remain a place for business and entrepreneurship to thrive." Kristofer Johnson, president of the Association of Washington Business, is not optimistic; he says "this move…will unfortunately cause more small- and medium-sized business owners to seriously consider starting, growing or moving their business to other states with a more stable tax environment."
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