OLYMPIA, Wash. — The Washington State Senate passed a bill on Monday that would establish a 9.9% tax on individuals earning more than $1 million a year.
The legislation, frequently called the “Millionaire’s Tax,” passed with a 27 to 22 vote but still faces several hurdles before it can become law.
The proposal aims to generate revenue by taxing the state’s wealthiest to provide relief for small businesses and other Washingtonians.
Gov. Bob Ferguson said that while progress has been made over the last two weeks, he is seeking further changes regarding how the revenue will be distributed back to the public.
Under the proposed plan, the 9.9% tax would apply only to income exceeding $1 million. For example, a household with $1.2 million in income would be taxed on the $200,000 that sits above the threshold. But this calculation includes combined household income and certain small-business earnings.
A resident’s home value and retirement savings would not be counted toward the $1 million threshold.
Gov. Ferguson defended the proposal, stating it targets a very small portion of the state’s population.
“If you’re a small business under my proposal, you’ll be receiving a massive tax break,” Ferguson said. “If you’re an individual making over a million dollars, you’ll be paying that. There are one-half of one percent of Washingtonians that will pay it.”
Some business owners in the state expressed support for the measure, arguing that tax reform is necessary for community growth.
Jed Fowler, a business owner who supports the tax, described the move as an investment.
“Fixing our upside-down tax code does drive that shared prosperity because investing in our community is fundamentally pro-business,” Fowler said at a recent hearing.
However, the National Federation of Independent Business (NFIB) reported that the vast majority of its members are against the legislation.
Patrick Connor, the NFIB Washington state director, said the organization surveyed its members to gauge their stance.
“We sent out a ballot to try and gauge their interest in supporting or opposing it,” Connor said. “And right now, it’s running 98% opposed, less than 2% in favor.”
The NFIB expressed concern that the tax would impact small businesses that operate as pass-through entities, such as LLCs or S-corporations.
Lois Cook, who owns a four-person company called America’s Phone Guys in Vancouver, Wash., said her business structure would subject her to the tax.
“We’re an LLC that files as an S-Corp,” Cook said. “So, all the business’s earnings get passed through to our income tax.”
Because the earnings are treated as personal income, Cook’s business would fall under the Millionaire’s Tax bracket. She says she and her husband would consider moving to Oregon to avoid the higher tax, since Oregon’s tax is one-third of the proposed Washington millionaire’s tax.
“Our primary concern is that a small-business owner could be taxed on their business earnings, not their personal income, making it difficult to keep those small businesses here in Washington state,” Connor said.
The NFIB also noted that the tax relief provided in the bill would primarily benefit smaller startups that gross $250,000 or less per year.
Gov. Ferguson said he wants to see more changes to the bill before it reaches his desk for a signature.
He specifically requested that approximately $1.9 billion of the generated revenue be redirected back to Washingtonians.