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, household income over $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.
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."
The millionaires tax circumvents the state's prohibition on graduated tax rates by applying a $1 million standard deduction to individuals' taxable income, effectively taxing income from $0 to $1 million at 0 percent and income made over $1 million at 9.9 percent. Without this deduction, an individual earning $999,999 per year would take home the same amount as someone earning $1,109,877.*
Still, even with this deduction, 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."
*CORRECTION: This article originally misstated the income to which the tax applies.
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