OLYMPIA—After 24 hours 30 minutes and 30 seconds of heated debate with over 80 amendments, the Democratic-led Senate Bill 6346, known as the Millionaires’ Tax, passed the Washington State House Tuesday, March 10, with a vote of 51-46 without any Republican support. The measure could reshape the Evergreen State’s regressive tax system but faces fears of economic fallout with “capital flight” and possibly millions of dollars to be spent in legal hurdles. Eight House Democrats joined Republicans in voting against the measure.
Senate Bill 6346 would impose a 9.9% levy on household adjusted gross income exceeding $1 million annually, starting in 2028 with payments due in 2029. The measure, which cleared the Senate last month and is advancing in the House, is projected to generate about $3.5 billion a year from roughly 30,000 taxpayers — less than 0.5% of households — to fund education, health care and other services.
It’s a bold push in a state that has long prided itself on having no personal income tax, relying instead on sales and business taxes that hit lower-income residents hardest.
The bill starts with federal adjusted gross income, making tweaks like excluding most long-term capital gains (unless already hit by the state’s capital gains tax), adding back certain deductions for state and local taxes, and offering a $1 million standard deduction per household that adjusts for inflation after 2030. There’s also a $50,000 charitable deduction cap, later bumped to $100,000 for donations to Washington nonprofits in the revised version. Non-residents pay only on Washington-sourced income, apportioned by in-state activity, while visiting pro athletes and performers get taxed on earnings here — though those working fewer than five days are exempt.
Gov. Bob Ferguson, a Democrat who initially hedged on the proposal, threw his full support behind a rewritten version last week, sealing a deal with Rep. April Berg, D-Mill Creek, who chairs the House Finance Committee. The overhaul sweetens the pot with pledges for free school breakfasts and lunches for all K-12 public school students, an expansion of the Working Families Tax Credit to cover 810,000 households (up from 350,000), and sales tax exemptions on essentials like diapers, shampoo and over-the-counter drugs.
It also earmarks up to $150 million annually for early learning and child care under the Fair Start for Kids Act, and exempts small businesses grossing under $300,000 from the main business tax.
“I will sign this version of the Millionaires’ Tax,” Ferguson declared, calling it a “historic step forward in rebalancing our unfair system and making life more affordable for Washington families and small business owners.”
He was “especially pleased” with the school meals provision, noting, “Hungry kids can’t learn, and this funding puts money back in the pockets of Washington families.”
Rep. Berg, who spearheaded the 107-page amendment, hailed it as “truly historic legislation to right-size our tax code.”
The tax primarily targets top earners, including tech moguls and executives in Seattle’s booming innovation hub. But it applies to combined household income, creating what critics call a “marriage penalty” — a single person earning $999,999 escapes the tax, but a married couple with $600,000 each would owe on $200,000 of their combined haul.
Sen. Keith Wagoner, R-Sedro-Woolley, slammed it as “anti-marriage” during hearings, arguing it unfairly burdens dual-income families.
Small businesses feel the pinch too, especially those structured as pass-through entities like partnerships or S-corporations, where profits flow to owners’ personal returns. Owners could face the 9.9% hit on business earnings over $1 million, even if undistributed, squeezing cash for growth or hires.
Ryan Likkel, owner of Western Refinery Services in Ferndale, told lawmakers the tax would leave him with “less cash to spend on business growth and new equipment investments,” since much of his pass-through income “is not cash I ever see.”
Tech founders like Brent Frey of Smartsheet and TerraClear warned it could “destroy” incentives and prompt relocations, with over 50 high-earner couples already fleeing the state.
Supporters counter that credits for business and occupation taxes (0.47% to 1.75%) could offset much of the liability, and the relief for small firms under $300,000 in revenue helps most entrepreneurs.
Yet the bill’s backers admit it’s not locked in stone. Sen. Jaime Pedersen, the lead sponsor, acknowledged during a February hearing that “we don’t have the ability to bind future legislatures,” leaving the door open for expansions to lower brackets — a fear critics liken to California’s slide from a 2004 millionaires’ surcharge to broader taxes that spurred wealth flight.
Rep. Travis Couture, R-Allyn, warned it’s a “generational shift and a seismic change in our tax system.”
Looming largest are legal questions rooted in a 1933 state Supreme Court decision, Culliton v. Chase, which struck down a Depression-era graduated income tax as violating the constitution’s uniformity clause for property taxes. The ruling deemed income as “property” taxable at no more than 1% uniformly, a precedent that’s blocked income taxes ever since despite almost a dozen failed voter attempts.
Former Attorney General Rob McKenna, a Republican, dismissed the bill’s viability, saying it “doesn’t pass the laugh test” and “to pretend income is not property just doesn’t pass the laugh test. Voters will think that’s crazy.”
The Millionaires’ Tax bill also includes a “necessity clause” to shield it from referendums, potentially forcing challenges straight to court or the ballot via initiative.
The bill now heads to the Senate for a concurrence vote. If it passes, it is with near certainty, Governor Ferguson will sign the historic legislation defining his gubernatorial legacy.
Author: Mario Lotmore
