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 alongside increased business tax rates. The proposed 1% tax would apply to individuals possessing worldwide wealth exceeding $100 million, potentially affecting approximately 3,400 Washington residents.
The initiative, which Inslee’s office projects would generate $10.3 billion in revenue over a four-year period, comes as the state grapples with budget shortfalls amid rising costs and declining revenues. Inslee defended the proposal, highlighting Washington’s robust economy and its creation of numerous millionaires while noting that wealthy residents currently contribute relatively little in taxes compared to average working families.
This latest attempt at implementing a wealth tax follows several unsuccessful previous efforts by Washington Democrats. A similar proposal in 2023 sought to impose a 1% tax on financial assets like stocks and bonds, with an exemption for the first $250 million. However, opponents argue that such taxation measures could deter businesses from establishing themselves in the region and potentially compromise its position as a technology industry hub.
Washington’s tax structure is unique among U.S. states, operating without an income tax and relying instead on sales and property taxes for government funding. The state did successfully implement a 7% capital gains tax in 2021, which voters strongly supported by rejecting a repeal initiative in recent elections.
The timing of the proposal coincides with Amazon founder Jeff Bezos’s recent relocation from Seattle to Miami, Florida – a state without capital gains or wealth taxes. While Bezos cited proximity to family and Blue Origin operations as motivations for his move, some have speculated about tax implications, particularly as he has sold billions in Amazon stock since relocating.
Accompanying the wealth tax proposal is a significant business tax modification. Inslee’s 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 between October and December 2026. This increase would impact roughly 20,000 companies earning more than $1 million annually in the “service and other activities category,” affecting professionals such as accountants, dentists, lawyers, and real estate agents.
The proposal further outlines a broader 10% increase in all B&O taxes beginning January 2027, though some businesses would be exempt based on tax filing thresholds and small business tax credit eligibility. The exact impact on technology startups remains somewhat unclear, as classification depends on specific business activities and reporting categories.
Massachusetts’s experience with its “millionaire tax” implemented in 2022 offers some perspective. According to Evan Horowitz from the Center for State Policy Analysis at Tufts University, while the tax may have prompted some departures, claims of severe economic consequences appear overblown.
As Inslee prepares to leave office, the fate of these proposed tax changes will likely fall to Governor-elect Bob Ferguson, currently serving as the state’s attorney general. The proposal represents a significant shift in Washington’s tax policy landscape, potentially affecting both high-net-worth individuals and thousands of businesses across the state.