A wealth tax is being reconsidered in Washington state.
Washington Gov. Jay Inslee introduced his final budget proposal on Tuesday, which includes a 1% tax on residents whose worldwide wealth exceeds $100 million.
This tax would affect approximately 3,400 residents and is expected to generate $10.3 billion over four years, according to the governor’s office.
Inslee described it as the “fairest way to safeguard the state’s advancements in programs that support the safety and economic well-being of the entire state.” The state is facing a budget shortfall, with increased costs and reduced revenues.
“Our economy is among the strongest in the nation, and we’ve created a lot of millionaires — thousands of them,” Inslee noted in a statement. “Even with recent tax reforms, they continue to pay very little in taxes compared to the average working family.”
Democrats in Washington state have been attempting to enact a wealth tax for several years, but none have become law. A 2023 proposal aimed to introduce a 1% tax on financial assets such as stocks and bonds, excluding the first $250 million.
Critics argue that taxes targeting wealthy individuals can deter businesses from relocating to the state and could negatively impact the region’s reputation as a tech hub.
Unlike most states, Washington does not have an income tax; it relies instead on sales and property taxes to fund government programs.
The state implemented a 7% capital gains tax in 2021. An initiative to repeal that tax was decisively rejected by Washington voters in last month’s election.
Some have highlighted the capital gains tax following Amazon founder Jeff Bezos’ announcement in November 2023 that he was departing his longtime home of Seattle, where Amazon is headquartered, for Miami.
Bezos has sold billions of dollars worth of Amazon stock since moving to Florida, which does not impose a capital gains tax or wealth tax.
In an Instagram post announcing the move, Bezos cited a desire to be closer to his parents and Blue Origin operations in Florida. He did not mention taxes.
Massachusetts enacted a “millionaire tax” in 2022. Evan Horowitz of the Center for State Policy Analysis at Tufts University told NPR that while the tax may have caused some individuals to leave, the “risks of a total breakdown in the state economy are fabricated.”
Business tax increase
Inslee also suggested a 20% increase in the B&O tax rate (from 1.75% to 2.1%) for certain businesses from October to December 2026. This change would apply to approximately 20,000 companies with an annual income exceeding $1 million in the “service and other activities category.”
According to the state, this category includes professionals such as accountants, dentists, lawyers, and real estate agents, as well as “consulting services.”
We contacted the Department of Revenue for more clarity on the impact this tax could have on tech startups. Here’s what they shared:
“It really depends on what the business is reporting under because tech startup isn’t a specified NAICS. Businesses that provide informational, financial, insurance, real estate, personal, professional, scientific, technical, educational, health, and social services, and other activities not specifically assigned a B&O classification in law are subject to the Service and Other Activities B&O.”
Inslee’s proposal would increase all B&O taxes by 10% starting in January 2027, with some businesses exempt based on their tax filing threshold and eligibility for small business tax credits.
Inslee will leave office next month and will be succeeded by Governor-elect Bob Ferguson, the state’s current attorney general.