Washington's New Income Tax Plan Has People Furious

Indexado: 2026-05-22

[00:00:00]So, a week after Let's Go Washington launched an initiative campaign aimed at repealing the newly passed income tax, the organization tells me today they have never had a response. This many people reaching out to them in this short period of time, just a week since they launched, saying, "We want to be a part. How do I get petitions? How can I help with this effort?" It's been an overwhelming response. I didn't get any specific numbers. They haven't released those yet. Simply to say, they've had an overwhelming response, nothing like they've ever seen before.

[00:00:37]>> Washington state just passed a 9.9% income tax after voters rejected income taxes multiple times over the past 93 years. And the same legislature that banned them in 2024 is the one that created this one in 2026.

[00:00:56]Billionaires are already packing up and leaving. Credit rating agencies have downgraded the state's outlook. And nearly 1 in four businesses say they are thinking about getting out.

[00:01:08]Washington used to be one of the safest places in the country for high earners.

[00:01:12]A state where income taxes simply did not exist. Voters shot down income tax proposals at the ballot multiple times over the decades. Back in 1933, the state supreme court struck one down entirely. And as recently as 2024, the legislature itself passed a law that explicitly banned any form of income tax in Washington, clearing the House 76-2 and the Senate 38-11 with bipartisan support.

[00:01:46]What happened next would have been unthinkable just a few years earlier.

[00:01:51]Those same lawmakers carved out an exception to their own ban and approved a 9.9% tax on every dollar of household income above 1 million. Governor Bob Ferguson signed it into law on March 30th, 2026, and the backlash started almost immediately. So, how did Washington go from banning income taxes to imposing one in just 24 months? And what does that mean for the state's economy going forward?

[00:02:21]You have to start with the money because the financial hole Washington fell into is what drove this entire debate.

[00:02:28]Heading into the 2025 legislative session, state officials described a budget shortfall of somewhere between 12 and 16 billion stretched over 4 years.

[00:02:40]That is not a gap you patch with spending cuts alone. Lawmakers responded with what the Washington Policy Center called the largest tax increase in state history. More than $9 billion in new revenue. They expanded the sales tax to cover more services, added a search charge on businesses pulling in over $250 million, and pushed the estate tax up to 35% which at the time ranked as the highest in the entire nation. On top of all that, they tacked on a new 9.9% tier on capital gains exceeding $1 million.

[00:03:20]None of that closed the gap. Governor Ferguson's own 2026 supplemental budget still faced a $2.3 billion shortfall, and the fix came from a patchwork of rainy day fund withdrawals, agency spending cuts, transfers from other accounts, and some creative accounting.

[00:03:40]Even after pulling every available lever, the projected deficit for the 2027 to 2029 budget period sits at roughly 4.3 billion.

[00:03:52]That was the pressure that pushed the millionaire's tax across the finish line.

[00:03:57]Senate Bill 6346, the law Ferguson signed on March 30th, 2026 imposes a flat 9.9% tax on household income above $1 million regardless of filing status.

[00:04:13]Every household receives the same $1 million deduction, which means a married couple, where each spouse earns $600,000, gets treated identically to a single person pulling in 1.2 2 million.

[00:04:28]Critics have called that a marriage penalty built into the structure of the tax itself. Collection does not begin right away. January 1st, 2028 is when the tax takes effect with first returns due in April 2029.

[00:04:45]State estimates put the number of affected filers at about 21,000, which is less than half of 1% of Washington's population. and the projected annual revenue lands at approximately $3 billion.

[00:05:00]What gets lost in the outrage is that Senate Bill 6346 is not purely a tax increase. The same legislation delivers free breakfast and lunch for every public school student in the state.

[00:05:13]Expands the working families tax credit to reach roughly 460,000 additional households with rebates ranging from $300 to $1,300.

[00:05:24]and exempts the first $300,000 of business income from the gross receipts tax, which eliminates or reduces that burden for about 138,000 small businesses. Sales taxes on diapers, hygiene products, and over-the-counter drugs disappear under the law as well.

[00:05:43]Ferguson's office put the number at over 41% of revenue, flowing back to families and small businesses in the first full year.

[00:05:52]supporters built their case around one core argument that Washington's tax system punished the wrong people. The Institute on Taxation and Economic Policy, Y Soho, ranked Washington as having the second most regressive tax structure in the country as of 2024.

[00:06:11]Families in the bottom 20% were handing over 13.8% 8% of their income in state and local taxes, while the top 1% paid just 4.1%, a gap of more than 3:1.

[00:06:23]Ferguson framed it exactly that way at the signing ceremony, calling the disparity unfair, and saying it was not right. Senator Jaime Person, the bill's lead sponsor, went further, describing the tax system as a historic wrong that had plagued Washington for nearly 100 years.

[00:06:43]That is one side. The opposition tells a very different story and they are fighting on multiple fronts. A constitutional lawsuit landed in Clickat County Superior Court on April 9, 2026.

[00:06:58]Former Washington Attorney General Rob McKenna leads the legal challenge with former state supreme court Justice Phil Talmage serving as co-consel. Their plaintiff roster includes individual taxpayers, the ethnic chamber of commerce coalition, the Yakama Clickat Farm Association, the Building Industry Association of Washington, and the National Federation of Independent Business. Their entire case rests on a 1933 state supreme court decision called Cullatin versus Chase, which ruled that income qualifies as property under the Washington Constitution and property must be taxed uniformly with a 1% cap.

[00:07:40]A 9.9% rate hitting only income above $1 million, McKenna argues, violates both the uniformity requirement and that rate ceiling. He told reporters the Constitution is clear and that courts have been equally clear for nearly a century. Tomage called the legislation not a close call and described it as a direct conflict with settled constitutional law.

[00:08:05]Democrats are betting the court will follow the same reasoning it used in 2023 when it upheld Washington's capital gains tax 7 to2 by calling it an excise on the transaction of receiving income rather than a property tax. Senator Person has openly argued the income as property theory is outdated, saying most courts treat income taxes as taxes on doing something, not on having something.

[00:08:32]Whether the current court agrees remains an open question, and that is exactly why November 2026 matters so much. Five state Supreme Court seats are on the ballot that fall. Brian Haywood, the conservative activist who founded Let's Go Washington, has framed those races as a referendum on the income tax itself, telling voters they will have the income tax on the ballot six times, not once.

[00:08:59]Heywood also tried to force a faster public vote through a referendum, but Democrats had already blocked that path.

[00:09:06]When they passed the tax, they inserted a necessity clause declaring it essential for the support of state government and its existing public institutions.

[00:09:16]Under the state constitution, that language shields a revenue measure from referendum. Secretary of State Steve Hobbes refused to process Haywood's referendum filing and on May 4th, 2026, the state supreme court upheld that decision. Haywood's reaction was blunt.

[00:09:35]He accused the ruling of removing any guardrails from the people on runaway spending and he pivoted to a citizen initiative, a harder route that requires twice as many signatures. His organization launched initiative IP26-645 on May 12th, 2026, needing roughly 309,000 valid signatures by July 2nd, 2026 to land a repeal question on the November ballot.

[00:10:05]And then there is the Exodus, which is the part of this story generating national attention. Howard Schultz, the former CEO of Starbucks with a net worth estimated by Forbes at roughly $3.5 billion, announced his move from Seattle to Miami on LinkedIn on March 10, 2026, the exact same day the Washington House passed the tax bill. His stated reason was retirement and wanting to be closer to family on the East Coast, but the timing spoke louder than the explanation. Jeff Bezos had already relocated to Miami back in 2023, and that single departure cost Washington an estimated $954 million in tax revenue in 2024 alone when he sold 50 million Amazon shares from a Florida address. They are not the only ones. Mark Baros, CEO of Seattle Startup Moment, announced plans to relocate his company to Wyoming. Jesse Proudman, founder of AI startup Venice.

[00:11:12]Told reporters that everybody he knows in this income bracket who runs companies is looking to move and name Texas, Tennessee, and Florida as destinations.

[00:11:23]Zack Abraham of Bullwwork Capital Management, a firm overseeing $1.1 billion, declared he is pulling his business out of the state entirely. Even Starbucks announced it will open a new corporate office in Nashville and shift dozens of positions away from Seattle.

[00:11:41]The Association of Washington Business put hard numbers behind these stories when it released its spring 2026 employer survey on May 4th, 2026.

[00:11:52]Out of 407 member employers surveyed in April, 24% reported they are now considering moving their business out of Washington, that figure stood at just 9% in winter of 2025, which means it nearly tripled in 16 months.

[00:12:10]55% of business leaders reported they are weighing a move of their personal residents out of state as well and 72% identified the tax burden as their single biggest business challenge. Only 7% rated the state's economy as strong or very strong. AWB president, Chris Johnson, called the situation a 9/11 emergency for the state's economy and warned that it would be a mistake for lawmakers to dismiss these findings and assume businesses will not actually leave. And then came a moment that shook the political establishment. Former Democratic Governor Christine Gregoire, who led Washington from 2005 to 2013, publicly broke with her own party at the AWB spring summit on May 6th, 2026.

[00:13:00]Her words cut straight to the point. She told the room she would suggest they do not really have an income problem, they have a spending problem, and they keep answering it by stacking one more tax, one more rule, one more regulation.

[00:13:15]Gregoire noted that the state operating budget grew from roughly $33 billion when she left office to about 80 billion today. On the wealthy departures, she did not hedge. Those people are not homeless, she told the audience. They will not pay and they are leaving.

[00:13:33]Credit rating agencies delivered their own verdict within weeks. Moody's revised Washington's outlook from stable to negative on April 23rd, 2026, and Fitch followed 6 days later with the same downgrade. Moody's projects that total state reserves will drop to 1.4% of spending by the end of fiscal year 2028, which would rank as the lowest in the nation as a share of the budget.

[00:14:03]Supporters of the tax push back hard on the Exodus narrative and they point to Massachusetts as their strongest evidence. A similar 4% sir tax on income over $1 million took effect there in January 2023. In its first fiscal year, that tax generated approximately $2.46 billion. And by fiscal year 2025, the number climbed to nearly 3 billion, far above the 1.3 billion officials had originally projected. Massachusetts actually gained two additional Forbes 400 billionaires after passing the tax, and the share of households worth over $1 million grew between 2022 and 2025.

[00:14:47]Washington's own millionaire population grew 46.9%.

[00:14:52]from 2022 to 2024, jumping from 463,000 to 681,000 individuals. Though critics counter that those gains reflect rising stock prices rather than retention and that aggregate growth can mask selective departures by the ultra wealthy.

[00:15:14]All of this leaves Washington in a genuinely uncertain position as of May 2026.

[00:15:21]A constitutional lawsuit is working through the courts with a likely state supreme court argument expected in early 2027.

[00:15:29]A signature drive for a repeal initiative faces a July 2nd deadline.

[00:15:35]Five Supreme Court seats go before voters in November. Moody's and Fitch are both watching with negative outlooks on the state's credit and the tax itself does not even take effect until January 2028 with first payments not due until 2029.

[00:15:52]Nobody knows yet whether this tax will generate, the revenue lawmakers are counting on, whether wealthy residents will leave in large enough numbers to undercut those projections, or whether the courts will strike the entire law down before a single dollar gets collected. What we do know is that Washington went from being one of the most taxfriendly states in the country for high earners to imposing a 9.9% income tax in the span of 2 years. The same legislature that banned income taxes in 2024 created one in 2026.

[00:16:29]And the political, legal, and economic consequences of that decision are only beginning to take shape.

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