Brian Heywood’s initiative to repeal Washington’s new income tax poses a much bigger financial threat to the state’s finances and social programs than meets the eye. It’s not only what’s in Initiative 645’s fine print. It’s what is intentionally left out of the fine print.
Heywood, a wealthy hedge fund founder, tinkered with and filed more than a dozen versions of a voter initiative to repeal the Legislature’s new income tax before he settled on I-645. One version would have repealed the state capital gains tax, and others would have halted sales tax relief and other tax reductions that Gov. Bob Ferguson had demanded before agreeing to the millionaires tax.
The reason Heywood tested so many versions of an anti-tax initiative was probably because he wanted to try out likely voter reaction to the ballot title and ballot measure summary that the attorney general’s office prepared for each one. The summary and ballot title are on the initiative petition, and the ballot title is what voters see when they fill out their ballots.
The tax on annual capital gains over $250,000 was supported by almost two-thirds of the voters in 2024, so proposing its repeal might have soured voters on an initiative. Eliminating the tax relief that accompanied the 2026 millionaires tax legislation also might have encountered pushback. After all, who wants to reinstate the sales tax on diapers, over-the-counter medications and hygiene products? All those taxes were eliminated as part of the millionaires tax package.
So, the fine print of I-645 repeals most of the Legislature’s income tax bill but leaves 12 crucial sections in place, including expansion of the Working Families Tax Credit; elimination of the sales taxes on diapers and other products; sections reducing the business and occupation tax on healthcare providers and wholesale food sales; and various other tax reforms.
But the Legislature meant those tax reforms to be funded by part of the new high-earners income tax — to the tune of approximately $3.7 billion through 2032. I-645’s proposed repeal of the millionaires tax would not just eliminate those new tax revenues, totaling $12.9 billion by 2032 and marked for education, healthcare and human services. The initiative would also burden the state with an extra $3.7 billion in unfunded liabilities.
Heywood should have bitten the bullet and proposed repealing the entire tax legislation. Keeping $3.7 billion in tax reductions without identifying a new funding source is fiscally dangerous and highly irresponsible.
There is another big risk tucked away in I-645’s fine print, a danger voters need to be aware of. The initiative would ban taxes on individual income but would also forbid taxes “measured by an individual’s income.” The problem is that other important taxes for popular programs are measured by income, including unemployment insurance, paid family and medical leave, and long-term care insurance. Each of these programs is funded by employer taxes and contributions based on employee wages. There’s a risk that opponents of these programs could later assert that their revenue sources are banned by I-645 because they are “measured by income.”
Further, although Heywood left a capital gains tax repeal out of I-645, there is a plausible argument that the levy on capital gains from the sale of securities is also a tax “measured by an individual’s income.” Washington voters have been supportive of the capital gains tax and might not want to see it challenged later. Defenders of the capital gains tax and the other programs listed above would certainly counter that I-645 cannot be the basis of their repeal because it did not expressly remove them from law. The state constitution requires that changes to statutes be explicitly outlined in amendatory legislation.
These are all true risks hidden in I-645. Voters need to think about each of them before voting for it in November.
