Washington Governor Backs 9.9% Millionaire Tax as Critics Warn It Could Drive Wealthy Residents Out of the State
Washington Governor Bob Ferguson has endorsed a proposal from legislative Democrats to impose a 9.9 percent income tax on annual adjusted incomes above $1 million. The measure represents a significant shift for a state that has historically avoided personal income taxes, positioning the proposal as both a fiscal and political flashpoint as lawmakers prepare for the upcoming legislative session.
The proposal arrives as state leaders attempt to address growing budget concerns and affordability challenges across Washington. Critics warn the tax could prompt wealthy residents to leave Washington, raising concerns about potential revenue losses if top earners follow relocation trends seen among some billionaires in recent years.
Why Washington Leaders Say the Tax Matters
Washington is currently grappling with a $2.3 billion budget deficit and rising cost pressures tied to federal government policies, according to Ferguson. Speaking at a news conference, he framed the millionaire tax as part of a broader effort to stabilize the state’s finances and support residents facing higher living costs.
On the same day, Ferguson unveiled a spending proposal for the remainder of the current two-year budget cycle, aiming to close a projected $2.3 billion shortfall through mid-2027. The governor has emphasized that new revenue streams could help sustain key public services without placing additional burdens on middle- and lower-income residents.
Ferguson Frames Tax as Fix for “Outdated” System
Ferguson has argued that Washington’s current tax system places disproportionate pressure on lower-income households, relying heavily on sales taxes rather than income-based levies.
“We are facing an affordability crisis,” Ferguson said. “It is time to change our state’s outdated, upside down tax system to serve the needs of Washington today. To make our tax system more fair, millionaires should contribute more toward our shared prosperity.”
The governor has suggested that restructuring the tax system could help address long-standing inequality concerns while generating new funds for public programs.
Proposal Includes Potential Relief for Lower-Income Residents
Ferguson has emphasized that revenue generated by the millionaire tax would not simply increase state spending. Instead, he said part of the funding could be directed toward tax relief and economic support for lower-income residents.
He has suggested expanding the state’s working families tax credit or reducing sales taxes as possible ways to redistribute revenue. Ferguson also reiterated that he does not support any income tax on residents earning less than $1 million annually.
In a post on X, formerly Twitter, Ferguson said that tax cuts approved earlier this year by President Donald Trump have “made our state’s unfair tax structure even worse.”
Washington’s Unique Position Among States Without Income Taxes
Washington remains one of nine states without any personal income tax, joining Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. However, many states have adopted special tax brackets targeting high earners.
California, for example, imposes an additional 1 percent tax on income above $1 million on top of its standard high rate. According to TurboTax, several states and Washington, DC, currently operate millionaire tax systems, including California, Connecticut, Massachusetts, New Jersey, and New York.
Supporters of Washington’s proposal argue the state is lagging behind others that have adopted similar revenue models.
How Many Residents Would Be Affected
Although Washington ranks among the top states nationwide for millionaire households, the tax would impact a relatively small portion of residents. Statista estimates that 7.85 percent of Washington residents qualify as millionaires.
However, according to a report by the Washington State Standard, the proposed tax would only affect less than 0.5 percent of Washingtonians. Legislative leaders have also estimated that roughly 30,000 taxpayers could fall under the new bracket if enacted.
Expected Revenue and Budget Implications
Democratic lawmakers estimate the millionaire tax could generate between $3 billion and $3.7 billion annually. Ferguson has proposed using some of those funds to support education, healthcare, and targeted tax cuts for working families.
Last month, Ferguson introduced a supplemental budget proposal to address the deficit, combining $1 billion from the state’s rainy day fund with roughly $800 million in spending reductions. If approved, the operating budget would increase to $79 billion per biennium, surpassing previous spending records.
Democratic leaders have acknowledged that revenue from the millionaire tax would likely not be available until 2029 if it survives legal challenges, making it a long-term fiscal strategy rather than an immediate budget fix.
Republican Lawmakers Warn of Spending and Economic Risks
Republican leaders have strongly opposed the proposal, arguing that Washington’s budget problems stem from excessive spending rather than insufficient revenue.
Representative Travis Couture, the ranking Republican on the House Appropriations Committee, said: “If record revenue couldn’t balance the budget, a ‘millionaire’ income tax won’t either. This is a spending problem, not a revenue problem.”
Republican lawmakers have also expressed concern that the measure could negatively impact small businesses and encourage wealthy residents to relocate to lower-tax states.
The “Bezos Effect”: Relocation and Revenue Realities
In late 2023, Jeff Bezos announced his departure from Seattle; his home of nearly 30 years, to relocate to Miami, Florida. Publicly, Bezos attributed the move to personal logistics, citing a desire to be closer to his parents and the Florida-based operations of Blue Origin. However, the timing was conspicuous; it occurred shortly after the Washington State Supreme Court upheld a 7% capital gains tax. By shifting his primary residence to Florida; a state with no income or capital gains tax; Bezos effectively shielded his massive stock liquidations from Washington’s reaching hand.
The Risk of a Counterproductive Exodus
The financial consequences for Washington’s treasury were immediate and staggering. By selling roughly 50 million Amazon shares as a Florida resident in early 2024, Bezos saved himself an estimated $600 million in taxes. Critics of the Millionaire Tax argue that this is just the beginning of a “wealth flight” that could cause the bill to have the opposite of its intended effect. Because Washington’s tax revenue is so heavily concentrated among a few hundred ultra-wealthy individuals, the departure of even a small percentage of high-earners can erode the tax base faster than the new rates can replenish it.
The Concentration Risk: One analysis suggested that a wealth tax exclusively targeting billionaires would have seen 97% of its revenue come from just five individuals. When the tax base is that narrow, the relocation of a single “whale” like Bezos doesn’t just lower revenue; it can create a massive structural deficit.
Furthermore, opponents warn of a “domino effect” among the state’s tech and startup sectors. With the proposed tax potentially pushing Seattle’s effective top rate to over 18% (when combined with local payroll taxes), founders and executives may choose to scale their next ventures in tax-friendly hubs like Austin or Miami. If the “Millionaire Tax” triggers a steady migration of high-value residents, Washington could find itself in a paradoxical trap: passing higher tax rates only to realize lower total collections as the state’s most mobile taxpayers—and the economic activity they generate; disappear across state lines.
Debate Intensifies Over Potential Expansion of Income Taxes
Opponents have warned that implementing a millionaire tax could open the door to broader income taxation in the future. Critics have pointed to Washington voters rejecting income tax proposals ten separate times.
Sen. Chris Gildon expressed skepticism about the long-term implications of the measure, saying, “I don’t think any of us should ever call this a millionaires’ tax again, because we know where this is heading. They want to get it into the courts, they want to pass the income tax, let it work its way through the courts and then eventually expand it to each in every person in Washington.”
Ferguson has attempted to ease those concerns but declined to clarify whether he would support lowering the $1 million threshold in the future.
“I don’t support [a threshold] less than $1 million a year,” Ferguson said. When pressed further, he added, “I can’t answer any more clearer than that.”
Democratic Leaders Argue Measure Targets Regressive Tax Structure
Democratic budget leaders have defended the proposal as a targeted policy designed to correct what they describe as one of the nation’s most regressive tax systems. They emphasize that fewer than 1 percent of households would pay the tax while millions could benefit from tax relief and expanded services.
Democratic Senate Majority Leader Jamie Pedersen said: “Our state is wonderful for so many reasons, but our broken, nearly century-old tax structure is holding us back. We have an opportunity to take a giant step forward by funding public schools, health care, and services that people across the state are counting on by increasing taxes on a few thousand very wealthy people and cutting taxes for millions more.”
Rep. Timm Ormsby also downplayed concerns about capital flight, saying lawmakers should focus on the current policy proposal rather than speculate about future tax expansions.
“Let’s focus on the policy that’s in front of us, not speculate about what that means in the future,” he said. “That would come in the future, and it would go through the same scrutinizing and unpacking process that any legislation in any committee that has any fiscal impact whatsoever would go through.”
Legal and Political Hurdles Ahead
The proposal is expected to face significant legal scrutiny, with many observers predicting the Washington Supreme Court could ultimately weigh in if lawmakers approve the tax. The state has long-standing legal restrictions on income taxation, which could complicate implementation.
If passed by the Legislature, the measure could also be sent to voters for approval. Lawmakers have scheduled hearings and aim to advance the bill during the 60-day legislative session, which is set to conclude March 12.
As debate intensifies, the millionaire tax proposal is shaping up as one of Washington’s most consequential economic policy battles, with the potential to reshape how the state funds public services.
Critics warn that higher taxes on top earners could push more wealthy residents and business owners to relocate to lower-tax states, potentially weakening Washington’s tax base and slowing job creation tied to investment and small business growth.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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