Washington Governor Bob Ferguson has for the first time laid out in detail the conditions he wants met before he will sign a bill to impose an additional tax on annual income over $1 million. He previously criticized the initial version of the bill, saying it did not do enough to help ordinary state residents, whose tax system has historically relied on regressive taxes such as the sales tax and the business & occupation (B&O) tax because of a constitutional ban on an income tax.
Ferguson now calls the senators’ revised plan “a good start,” but insists on three key conditions. He wants about $1.9 billion of the expected revenue directed to targeted support measures: provide $1 billion in tax relief for small businesses, significantly expand the Working Families Tax Credit (WFTC), and institute two annual “tax holiday” periods during which purchases up to a certain amount would be exempt from sales tax. The WFTC, modeled on the federal Earned Income Tax Credit (EITC), is a separate state priority to reduce the regressivity of the tax system and provide direct support to low-income families.
The governor said he does not support the lawmakers’ approach of funneling most of the new revenue straight into the state treasury. Instead, he proposes to “substantially increase” assistance to small businesses. He estimates the proposed relief could fully exempt about 170,000 small businesses from the B&O tax whose total revenue does not exceed $2.5 million.
Expanding the Working Families Tax Credit is another Ferguson priority. He wants to increase both the size of the payments and the number of recipients, which he estimates would cost about $380 million a year and help an additional 460,000 families. Currently about 350,000 households receive the credit.
Additionally, the governor backed senators’ proposal to exempt hygiene products from the sales tax and suggested adding diapers and other baby items to that list. He also proposes holding two “tax holiday” weekends each year: one three-day and one two-day weekend during which purchases under $1,000 would be exempt from sales tax.
Ferguson also acknowledged that some tax changes adopted last year may have gone too far and expressed support for legislative fixes. “Maybe the consequences weren’t exactly what we expected — we need to change that,” he said.
Nearly all Democratic lawmakers support the idea of a tax on ultra-high incomes, while Republicans are unanimously opposed. They criticize the bill as a first step toward imposing an income tax on all state residents and warn it could prompt wealthy citizens to leave Washington. Ferguson’s political base as a Democrat relies on progressive voters, and his stance bolsters support among left-leaning constituencies, though it may provoke opposition from business interests and affect upcoming elections.
Lawmakers have less than a month to reconcile a final version of the tax proposal, accommodate the governor’s conditions, and pass a budget supplement for 2025–27. The proposed millionaire’s tax could diversify revenue for a budget that today is funded largely by sales taxes, B&O, property taxes and excise taxes, making the system more progressive. The current legislative session ends March 12, increasing pressure to reach a compromise.
Based on: Ferguson outlines his requirements for WA ‘millionaires tax’