Who will weep for the millionaires?
A 9.9 percent tax on annual earnings upward of $1 million could become reality in Washington state. A Senate bill is up for a full vote as soon as next week, and its companion in the House is still in committee. If either bill reaches Gov. Bob Ferguson’s desk with enough tax relief for small businesses and low-income households, he’s likely to sign it. With his pen stroke, we’ll join the ranks of futuristic societies such as New Jersey and Minnesota that have achieved the impossible: taxing income, perhaps fairly.
This is a good thing. The state needs new revenue. Over the next two years, we’ll have a $2 billion budget deficit. Across the next four years, we’re seeing double that. If the Leg hadn’t passed the biggest tax increase in state history and cut spending (even in areas they really shouldn’t have, like behavioral health, higher education, and healthcare) last session, we’d be dealing with a $16 billion deficit. When people complain that our ass tax code is the second most regressive in the nation behind Florida (a state that cannot decide if disease is bad), this is why that matters. We don’t have enough money for the basics and are still in a hole.
The millionaire’s tax will help dig us out. Democrats project it to siphon $3.5 billion from Scrooge McDuck-esque pools of money each year. The state will use that cashflow to expand the eligibility criteria for a low-income tax credit (basically, a sales tax rebate), fund public defenders (we’ve got a shortage), and extra padding for the scrawny general fund. It also cuts taxes on hygiene products, much to the amusement of esteemed doofus Danny Westneat. But is it enough?
With President Trump picking our state pocket book, maybe not. His Big Beautiful Bill, HR-1, will cut at least $3 billion in federal funds annually starting next year ($3.5 billion – $3 billion = goddamn it). And the millionaire’s tax won’t begin to offset that until 2029, the year we see our first payments.
The millionaire’s tax also comes with sweet savings for the Business Community—a juicy $600 million we’d otherwise collect. Similar to the Seattle Shield Tax passed last year, the millionaire’s tax would exempt thousands of small businesses from paying state Business & Occupation (B&O) taxes. To appease big business, the bill ends a B&O surcharge a year earlier than planned, unspooling work the Legislature did last session. A lot of people are not happy about this. But, we might not have been able to get a millionaire’s tax without this penance.
Sen. Jamie Pedersen (D-Seattle), sponsor of the Senate bill, says the millionaires tax is our only option.
“It’s the proposal in front of us that we actually can have the votes to get out of the legislature,” he says. Plus, it’s broadly supported by 60 percent of voters, according to public opinion pollsters GBAO and DHM Research (which conducted polling for The Stranger last year). Their enthusiasm could make all the difference when the referendum enthusiasts, hedge fund millionaire Brian Heywood and anti-tax goblin Tim Eyman, come begging for signatures.
The people aren’t as jazzed about the business-friendly cuts. Pedersen says they’re “necessary” to dissuade big business from going to war with the bill. Last session, the People for an Affordable Washington PAC, which was made up of businesses not people, accumulated nearly $2.7 million to warp public opinion on new taxes. Behind the scenes, the businesses were “girding for battle” last session and preparing “to take the legislature’s tax increases to the ballot.” As he put it, “some deal” stopped them from doing that.
For years, Pedersen has sponsored or co-sponsored bills for progressive taxation—solutions that give Washington another revenue source other than sales taxes, business taxes, or property taxes. Pedersen has attempted to get some version of an income tax passed for years. The partial capital gains tax, which passed in 2021 was the closest he’s gotten. Last year, he sponsored bills for a wealth tax and a payroll tax, and they died tragically from a lack of votes. It’ll be the same fate for other progressive revenue taxes proposed this year, Pedersen says, pointing to Rep. Shaun Scott’s proposed state payroll tax, the Well Washington Fund. Pedersen, who shares a district with Scott, did not support the bill, modeled after Seattle’s JumpStart tax, because “it’s politically not feasible in the legislature” right now.
Scott, who must have wronged the Pedersens in a past life, says that’s “too bad, because people of our district deserve leaders who believe in collaboration.” He signed onto the House version of Pedersen’s bill, even though he didn’t like the B&O cuts, and he saw other shortcomings.
“Senator Pedersen’s income tax bill would barely skim the reductions we’ll be seeing to K–12 schools, housing, healthcare, and higher education,” says Scott.
He says the Well Washington Fund would prevent cuts to those essential services while making big companies pay their fare share and begin to fill the budget holes in 2027, two years before the millionaire’s tax kicks in.
“If Senate Majority Leader Pedersen had chosen to engage in the discussion around [the payroll tax bill] he would know that the Employment Security Department (ESD) has confirmed that my payroll tax could start being assessed by 2027, perhaps as soon as late 2026,” Scott wrote in an email.
“That is not true,” says Pedersen. “He either has not interacted with the agency or he’s not representing that correctly.”
Except it is true. The ESD confirmed Scott’s payroll tax could be up and running by August 2027.
As it stands now, the payroll tax is stalling out, but as Eli Goss from the Budget and Policy center says, bills aren’t truly dead until the session is over. The millionaires tax, meanwhile, is moving to the full Senate next week. The millionaires are unhappy. The Republicans are bristling. Tim Eyman keeps sending emails with AI images of mud-splattered pooches to represent the “Godless dirty dog Democrats.”
Pedersen isn’t counting it as a win yet. Not until it passes the legislature, survives the inevitable referendum campaign and Supreme Court challenge. “Those are the three big gates to pass through, before we can actually start to make a significant change in the second worst tax system in the country,” he says.
Nathalie Graham
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