Key facts
- Washington state voters will decide in November on an initiative to repeal the state's 9.9% income tax on earnings over $1 million.
- The tax, signed into law in March, is projected to raise $3.5 billion annually for education and healthcare.
- Opponents, including hedge fund executive Brian Heywood, argue the tax is a 'slippery slope' and could cause capital flight.
- Advocates for the tax cite historical regressive tax structures in Washington and a mandate for progressive revenue.
- Recent polling suggests 57% of Washington residents oppose repealing the tax, with growing support for income taxes on lower thresholds.
- The state supreme court will hear a legal challenge to the tax's validity early next year.
Voters in Washington state are set to decide the future of a 9.9% income tax on earnings exceeding $1 million, a law enacted in March that faces a significant repeal effort backed by conservative groups. The initiative, slated for the November ballot, aims to overturn the tax, with proponents warning it could set a precedent for taxing lower-income households.
Supporters of the tax, including a coalition of advocacy groups and unions, argue that taxing the state's approximately 20,000 highest-earning households could generate about $3.5 billion annually. This revenue is intended to fund essential services like education and healthcare, and to expand existing tax credits and sales tax exemptions. Washington, like other states with substantial wealth concentrated in sectors like technology, is turning to its wealthiest residents for revenue, following similar measures in Massachusetts, Maine, and New York.
The debate over income tax in Washington has a long history, dating back to the 1930s when state supreme court rulings classified income taxes as property taxes. A 2002 commission led by Bill Gates Sr. identified the state's tax code as uniquely regressive. Despite voter rejection of a proposed tax on high earners in 2010, which saw significant opposition from figures like Steve Ballmer and Jeff Bezos, Washingtonians have more recently approved progressive revenue streams, including a 7% capital gains tax in 2021.
Brian Heywood, a conservative hedge fund executive and founder of Let's Go Washington, is a key figure behind the repeal initiative, having invested millions in various proposals. He contends that the new tax risks driving away businesses and wealthy residents, potentially harming the state's economy. Academic research suggests a small percentage of affected residents might leave the state.
Recent polling by DHM indicates that 57% of Washington residents oppose repealing the millionaire tax, and there is growing openness to income taxes on lower thresholds. However, if the tax is overturned, lawmakers may need to resort to less favorable revenue alternatives, such as increasing sales or payroll taxes. Conversely, if the tax survives, it could pave the way for reforms to other regressive taxes in the state.