Washington Set to Implement State’s First Income Tax Targeting Millionaires

Following a marathon legislative debate, Washington state lawmakers have approved a controversial “millionaire tax,” marking the first time in nearly a century that the state has moved to tax personal income. The bill, which has received the backing of Governor Bob Ferguson, is poised to reshape Washington’s long-standing reputation as a no-income-tax state.+1

Key Components of the New Legislation:

• Tax Rate and Threshold: The policy imposes a 9.9% tax on annual household income that exceeds $1 million. Supporters argue this targets only the state’s wealthiest residents while generating significant revenue for public services.
• Funding Priorities: Revenue from the tax is earmarked for several high-priority social programs, including universal free school meals, childcare expansion, and potential relief for small businesses through adjustments to the Business and Occupation (B&O) tax.
• Legal Challenges: The tax faces immediate legal scrutiny. Opponents point to a 1933 Washington Supreme Court ruling that classified income as property, which by law must be taxed at a uniform rate. Critics argue this new graduated tax is unconstitutional and will likely be settled in court.+1
• Economic Debate: Proponents claim the measure will help fix one of the nation’s most “regressive” tax codes, where lower-income residents pay a higher percentage of their earnings in sales and excise taxes. Conversely, business leaders warn that the tax could trigger an exodus of high earners and tech startups to states with more favorable tax climates.+1

The enactment of this tax represents a major shift in Washington’s fiscal policy and is expected to be a central issue for voters and the judiciary in the coming months.