Washington state’s outgoing Governor Jay Inslee unveiled his final budget proposal on Tuesday, introducing a controversial wealth tax targeting the state’s wealthiest residents. The proposed measure would implement a 1% tax on individuals possessing worldwide wealth exceeding $100 million, potentially affecting approximately 3,400 Washington residents and generating an estimated $10.3 billion in revenue over a four-year period.
The proposal comes as Washington faces budgetary challenges, with rising costs and declining revenues prompting the governor to seek new funding sources. Inslee defended the measure as the most equitable approach to maintaining vital state programs, highlighting the state’s robust economy and its role in creating numerous millionaires who, he argues, contribute disproportionately little in taxes compared to average working families.
This isn’t the first attempt to establish a wealth tax in Washington. Democratic legislators have previously introduced similar measures, including a 2023 proposal that sought to impose a 1% tax on financial assets while exempting the first $250 million. However, none of these attempts have successfully become law.
The proposal has faced opposition from critics who warn that such taxation could discourage business development and potentially compromise the region’s position as a technology industry hub. Washington’s tax structure is unique among states, operating without an income tax and primarily relying on sales and property taxes for government funding.
In conjunction with the wealth tax, Inslee’s proposal includes a significant modification to business taxation. The plan calls for a temporary 20% increase in the Business and Occupation (B&O) tax rate, raising it from 1.75% to 2.1% for certain businesses during the period from October through December 2026. This increase would impact roughly 20,000 companies earning more than $1 million annually in the “service and other activities category,” encompassing professionals such as accountants, dentists, lawyers, and real estate agents, as well as consulting services.
The timing of this proposal coincides with recent developments in the state’s tax landscape. Washington residents recently voted to maintain the state’s 7% capital gains tax, implemented in 2021, by defeating a repeal initiative in the previous month’s election. This context gained additional attention following Amazon founder Jeff Bezos’s announcement of his relocation from Seattle to Miami, Florida – a state without capital gains or wealth taxes. While Bezos attributed the move to family considerations and Blue Origin operations, the timing sparked discussions about tax implications.
Looking ahead, Inslee’s proposal includes a broader tax adjustment, calling for a universal 10% increase in B&O taxes beginning January 2027, though some businesses would be exempt based on tax filing thresholds and small business tax credit eligibility.
The proposal emerges during a period of transition in state
leadership, as Inslee prepares to hand over the governorship to Bob Ferguson, the current state attorney general. The wealth tax initiative reflects similar measures implemented in other states, such as Massachusetts’s “millionaire tax” enacted in 2022. While some experts, including Evan Horowitz from Tufts University’s Center for State Policy Analysis, acknowledge that such taxes might influence some residents to relocate, they generally dismiss concerns about severe economic consequences.
The Department of Revenue has noted that the impact on technology startups would vary depending on their specific business
classification, as the tax applications are determined by business activities rather than industry categories.