The current political and legislative battle traces back to a series of procedural maneuvers executed by Washington lawmakers in early 2024. Rather than allowing voters to directly weigh in on a filed ballot measure that would have constitutionally prohibited any state or local jurisdiction from taxing personal income, the legislature overwhelmingly approved the measure themselves. While this move initially appeared counterintuitive, it carried significant strategic weight under Washington state law. Amending language adopted by a public ballot measure requires a two-thirds legislative supermajority for the first two years.
Had voters approved the measure in November 2024, lawmakers would have been barred from considering any form of an income tax until the 2027 legislative session. By taking the measure off the ballot and passing it themselves during the early 2024 session, lawmakers effectively started the clock much sooner. This allowed them to return during the 2026 session and do precisely what the original citizen-led measure sought to prevent: adopt a targeted individual income tax on high-earning residents.
To further insulate the tax from public pushback, Washington lawmakers incorporated an emergency clause into the legislation. They asserted that the new high-earner income tax—which is structured not to take effect until 2028, with a first official tax filing date in 2029—was strictly "necessary for the support of the state government and its existing public institutions." This specific procedural tool shielded the measure from a vital provision in Washington law that routinely allows citizens to review and challenge major tax changes through a public referendum. With that traditional avenue effectively blocked, opponents of the income tax mobilized and successfully qualified their own initiative for the upcoming November ballot, designated as Initiative 645, which aims to repeal the legislature’s decision and completely prohibit state and local income taxes.
The unfolding controversy is especially intense because Washington has historically lacked an individual income tax, and its state constitution has long been interpreted by legal scholars and courts as largely prohibiting income taxation—a legal precedent that sits at the heart of the pending litigation. Under the new framework, some high earners residing in Seattle could face a combined state and local top marginal rate reaching a staggering 18.037 percent, split between employers and employees. This unprecedented rate compounds the state’s new 9.9 percent income tax with existing local levies, including the 5 percent Seattle Social Housing Tax, the 2.557 percent Seattle JumpStart Tax, and the 0.58 percent WA Cares tax, giving Seattle some of the highest tax burdens on targeted income in the United States.
The tax itself is officially targeted at individuals or married couples with annual incomes exceeding $1 million. In practice, however, this threshold will fall disproportionately on small business owners and highly compensated technology sector workers. Very few individuals earn straightforward annual salaries over $1 million. Instead, income at that level typically flows through three primary mechanisms: capital gains and dividend income, pass-through business earnings, and the vesting of restricted stock units (RSUs).
The mechanics of RSU vesting create a particularly volatile tax exposure for tech workers. When a privately held startup eventually goes public, an employee may experience years of accumulated stock shares vesting all at once. An individual might work diligently at a startup for five years at a modest salary, only to have all five years of accumulated stock value vest simultaneously during an Initial Public Offering. This single event can easily push their taxable income above the $1 million threshold in that specific year, even though their average annual compensation over the entire five-year period was significantly lower.
Beyond technology employees, the tax exerts a powerful and direct impact on pass-through businesses, which include sole proprietorships, partnerships, and S corporations. According to data from the U.S. Small Business Administration, Washington is home to 672,472 small businesses, the vast majority of which operate as pass-through entities. Together, these small businesses employ 1.4 million people, accounting for roughly 48.4 percent of the state’s entire workforce. Imposing a 9.9 percent tax on the income of small business owners places one of the nation’s heaviest tax burdens on entrepreneurial income within a state that already levies a high-rate gross receipts tax—known as the Business & Occupation Tax—and subjects an unusually high share of fundamental business inputs to the retail sales tax.
Washington’s broader tax architecture has long leaned heavily on business-side taxation, largely because the state has traditionally abstained from implementing a broad-based individual income tax. However, unlike other states that also forgo an income tax, Washington does not maintain a low-tax, limited-government philosophy. This structural reality forces local businesses to shoulder a disproportionate share of the overall public revenue burden. By layering a high-rate income tax exclusively on high earners, critics argue that Washington is creating the worst of all possible worlds for its small business community, actively restricting their capacity to expand operations and dampening long-term job creation.
The unexpected tax exposure extends well beyond tech workers and small business owners. Individuals who decide to sell a business they have spent decades building, or homeowners who realize significant capital gains from selling a primary residence or property, can similarly find themselves unexpectedly thrust across the $1 million threshold in a single calendar year, triggering massive tax liabilities without the cushion of predictable annual earnings.
Compounding these structural concerns are several unusual and rigid design elements embedded within the tax legislation itself. For instance, the tax features a strict charitable deduction cap set at $50,000. Furthermore, the framework treats joint filers and single filers with identical stringency above the $1 million mark; two single earners making $600,000 each will face zero tax liability, whereas two taxpayers filing jointly at those exact individual levels would be fully subject to the tax.
Crucially, the legislation includes no safe harbor provisions for individuals who unexpectedly cross into taxable status due to sudden spikes in income. Under federal tax law and the statutes of most other states, underpayment penalties are routinely waived if taxpayers remit at least 90 percent of their current year tax liability or 100 to 110 percent of their prior year liability throughout the year via withholding or quarterly estimated payments. Washington’s new tax completely lacks any such safe harbor mechanism, meaning that taxpayers who failed to anticipate becoming filers or miscalculated their volatile capital gains could face severe financial penalties.
Overturning the new tax through a statewide ballot measure remains an uphill political battle. The challenge is further complicated by controversial ballot language drafted by state officials warning voters that a successful repeal would necessitate immediate cuts to public education funding, even though the tax is years away from taking effect and no state budget has incorporated its anticipated revenues. Under a 2002 state law, the attorney general is authorized to supply a fiscal impact statement for ballot measures, but critics of the statement attached to Initiative 645 point out the inherent dishonesty of warning about funding cuts for a revenue stream that does not yet exist.
Nevertheless, as state lawmakers already begin debating proposals to expand the tax to lower thresholds—such as a recent proposal by a state legislator to reduce the threshold to $250,000—many voters may ultimately decide to follow a well-established historical pattern in Washington politics and reject the implementation of a state income tax once again at the ballot box.
