Washington State's Century-Long Tax Battle: Millionaire Levy Faces Legal Hurdles
After nearly a century of attempts, Washington state Democrats are on the verge of passing an income tax, but only targeting approximately 30,000 top earners. A proposed 9.9 percent tax on incomes exceeding US$1 million has a strong likelihood of approval during the remaining 28 days of the state legislative session. This measure would fundamentally reshape the revenue structure in a state known both for its glittering tech wealth and its status as a rare liberal bastion with historically low taxes.
Challenging a 93-Year Tradition
Washington is one of only nine states without an income tax, maintaining this position since 1933 when the state Supreme Court invalidated an income tax approved by voters. Over the subsequent decades, ten additional attempts were rejected by courts, lawmakers, or voters. The current proposal represents the latest effort to break this long-standing tradition, with supporters arguing it addresses systemic inequities in the tax system.
Supporters contend this shift is long overdue, moving away from reliance on sales taxes that disproportionately burden low earners who spend more of their income on necessities. "I understand why proponents want to see one," said Robert Mahon, head of the tax practice at Perkins Coie in Seattle. "My concern is that I think we've built up a bit of a competitive advantage that we're squandering now."
Legal Challenges and Competitive Concerns
Even if lawmakers pass the millionaire's levy, it will certainly face legal challenges all the way to the state Supreme Court. Detractors argue the tax would undermine the value proposition that made Washington attractive to entrepreneurs who founded globally recognized companies like Microsoft, Starbucks, Costco, and Amazon.
The tax debate follows other moves by Washington state lawmakers to find new revenue sources. Governor Bob Ferguson included a version of the millionaire's tax in his December budget proposal, though he recently stated he won't sign it unless more of the estimated US$3.5 billion in revenue is used to:
- Exempt certain products from sales taxes
- Reduce business obligations
- Expand the Working Families Tax Credit
Legislative Timeline and Business Response
After making some changes in committee, the state Senate could vote as soon as next week. In recent committee hearings, speculation emerged about potential deals between business leaders and Democrats to prioritize the income levy over two other measures: a wealth tax and a payroll-expense tax modeled after a Seattle measure blamed for pushing thousands of Amazon jobs to the suburbs.
Unlike the payroll measure, the individual income tax wouldn't be paid directly by companies, though it could potentially impact compensation and recruitment strategies. A coalition of business lobbyists including the Washington Roundtable stated they were "carefully reviewing" the proposal.
Pro-tax advocates hope this attempt will differ from previous failures by narrowly targeting only individuals or couples filing jointly who earn at least US$1 million. This approach echoes similar proposals from Colorado to Michigan to Rhode Island that seek to raise taxes on the wealthy while maintaining broader tax structures.
