As Democratic leaders in Olympia celebrated the passage of an income tax on millionaires this week, they repeated their two principal promises for breaching a policy barrier that voters have rejected repeatedly in the last 90 years.
First, they state that the tax will finally provide sufficient revenue they need to cover a state budget that’s doubled in the last decade. Second, they claim they’re reversing a regressive state tax code that’s too easy on the wealthy and too hard on the poor.
Voters should be concerned whether the Democratic leadership can deliver on either promise.
This year, in supplementing a nearly $80 billion two-year operating budget, Democrats have used the equivalent of duct tape and chewing gum to sustain the state until that income tax funding arrives in 2029 — assuming the tax survives inevitable court and ballot challenges. They tapped $880 million from the rainy-day fund, more than $3 billion from an overfunded pension and used cap-and-trade auction funding raised from the state’s largest carbon polluters to bridge the fiscal gap.
And after all that? An $878 million budget hole to begin the 2027 legislative session.
These budget maneuvers don’t inspire confidence that they’ll be able to live within their means — even if they end up with $4 billion more a year in an income tax. But in the future, they will have a quicker way to tax the rest of us: lowering the new income tax’s standard deduction of $1 million.
On the second vow — to create a fairer tax code — Democrats did too little this session to tackle the affordability crisis facing the state. Yes, at Gov. Bob Ferguson’s insistence, House Democrats expanded the Working Families Tax Credit to nearly half a million state residents. But despite efforts by Republicans and a handful of pragmatic Democrats, the income tax didn’t realize enough tax relief to help offset the state’s sky-high cost of living.
Implementing a long-banned income tax is a consequential change. Yet, most residents here won’t notice any difference, save for some nickels and dimes back each time they buy Rolaids (over-the-counter drugs will be exempt from the sales tax).
Washington’s existing tax code, described by Sen. Jamie Pedersen, D-Seattle, as a Cayman Islands-like tax haven, has been too generous to the wealthy. But this state desperately needs a deeper, more strategic conversation about how to both strengthen economic growth and sustainably generate revenue.
That conversation is not yet happening. Last year, some of the more than $9 billion in new taxes were rushed through in just nine days. The sales tax on services, including information technology, is being rolled back because legislators finally recognized how damaging it was to businesses, nonprofits and even school districts. And while few might be sympathetic to the estates of the wealthy, even the most progressive lawmakers now admit they erred in raising Washington’s top estate tax rate to 35% — far higher than any other state. They lowered it back to 20%
Enough with the perennial crisis-to-crisis budget process.
As for genuine tax reform that actually benefits the middle class, a few lawmakers bravely pitched worthwhile amendments during Monday and Tuesday’s marathon income tax debate in the House. Rep. Kristine Reeves, D-Federal Way, stood as a rare voice willing to tackle this challenge honestly, even when it means being at odds with her own party leadership. Her proposal to direct 49% of the new income tax revenue toward affordability and tax relief narrowly failed, 47-49. In a sign that more Democrats are open to her pragmatic approach, nine Democrats joined all Republicans to vote for it.
Reeves also exposed a serious flaw in the income tax measure that penalizes married couples whose combined incomes exceed $1 million. She proposed a standard deduction of $1.5 million to correct the inequity, which again failed 47-49. The Legislature will have to confront this issue — why should marriage be punished under tax law?
Rep. Amy Walen, D-Kirkland, likewise deserves recognition for defending working families, married couples and small businesses. She introduced her own income tax bill with a constitutional amendment and sought to reduce the state’s regressive sales tax — a change that would immediately have made Washington more affordable. That proposal also failed, 43-54.
To make matters worse, legislators denied voters a direct say on the income tax. Rather than allowing a straightforward up-or-down vote, they declared the tax a “necessity,” forcing opponents to mount a costly repeal initiative instead.
Ruling Democrats in the legislature must realize the income tax is not a panacea for what ails the state budget. They will have to reduce their habitual spending increases. Either they commit to zero-based budgeting that reins in state government expenditures, or the next tax increase will be around the bend — another “crisis” of their own making.
The income tax should serve as a starting point to further reform tax policy and budget sustainability in Washington. The Legislature has much more work to do in providing further tax relief to the middle class and to business, in a way that is fair, predictable and equitable for all.
