The Washington State Senate gave final approval Wednesday to a bill that would impose an income tax on very high earners. The measure now goes to Democratic Governor Bob Ferguson, who is expected to sign it in the coming weeks. Under the law, income above $1 million per year will be taxed at a rate of 9.9%. The first payments are not expected to reach the budget until 2029.
The new tax is expected to generate $3 billion to $4 billion annually for the state. The bulk of those funds will go to the state’s general fund, which finances K–12 schools, social services, and universities. In addition, 5% of the revenue collected will be allocated to childcare and preschool programs.
The Senate vote was 27 to 21, largely along party lines. Democrats, who authored the initiative, said the bill improved during debate. In particular, they praised an amendment requiring part of the funds be used to provide free school lunches to all students in public schools. Democrats, who hold a sizable majority in both chambers of the state legislature, can advance initiatives aligned with their platform with relatively little obstacle.
Republicans strongly opposed the measure, arguing that over time the tax would affect more people than just millionaires. They also warned that tax increases, including this one, could spur wealthy residents to move to states with lower tax burdens. Citing a high-profile example, they pointed to the symbolic move of businessman and former Starbucks CEO Howard Schultz to Florida, which has no state income tax. That departure of one of Seattle’s best-known business leaders underscores concerns that high taxes could push affluent residents out of Washington, potentially reducing state revenues.
A key part of the bill includes offsetting tax relief for broad segments of the population. These measures include eliminating the sales tax on diapers, over-the-counter medications, and personal hygiene products, as well as expanding the Working Families Tax Credit. This is a refundable state tax credit that provides cash payments to low- and middle-income families. Its expansion will make assistance available to an additional 460,000 households. Small businesses will also receive some relief.
Governor Ferguson said he is confident the law will ultimately help the state’s economy and dismissed concerns about capital flight. Nevertheless, opponents have already vowed to challenge the law in court and to put the issue on a statewide referendum ballot in an effort to repeal it before it takes effect in a few years.
Based on: WA income tax passes Senate, Ferguson expected to sign into law