Even though Washington’s newly enacted income tax targeting high earners is not scheduled to take effect until 2028, the measure has already ignited a fierce political, legal, and economic firestorm across the state. As the legal system prepares for oral arguments in a high-profile constitutional challenge, the political landscape is shifting rapidly. State lawmakers are already discussing aggressive expansions of the policy—including proposals to dramatically lower the tax threshold—while voters prepare to decide a consequential ballot measure this November that could repeal the tax before it ever collects a single dollar.
The path that brought Washington to this contentious juncture involves a series of complex procedural maneuvers by the state legislature. In early 2024, lawmakers overwhelmingly approved a measure stipulating that neither the state nor any county, city, or local jurisdiction may tax any individual person on any form of personal income. Rather than allowing the measure to go directly to a public vote, the legislature advanced it themselves. This was largely a procedural strategy: under Washington law, amending language adopted by a ballot measure requires a two-thirds legislative supermajority for the first two years.
Had voters approved the statutory protection against income taxes in November 2024, lawmakers would have been legally barred from considering an income tax until the 2027 legislative session. By taking the initiative off the ballot and enacting it themselves early in 2024, the clock started much sooner. This tactical maneuver allowed lawmakers to return during the 2026 session and do precisely what the original measure sought to prohibit: adopt a targeted income tax on high earners.
In another strategic procedural move designed to insulate the policy from public pushback, Washington lawmakers attached an emergency clause to the legislation. The clause asserted that the new tax—which does not officially take effect until 2028, with its first filing date in 2029—was immediately necessary for the support of the state government and its existing public institutions. This declaration effectively shielded the measure from a standard provision in Washington law that allows voters to review tax changes through a referendum. With the referendum avenue blocked, frustrated opponents of the income tax organized and successfully placed Initiative 645 on the upcoming November ballot to repeal the legislature’s decision.
The stakes of the upcoming debate are particularly high given Washington’s unique tax history. The state has traditionally lacked an individual income tax, and its state constitution has long been interpreted by legal scholars and courts as largely prohibiting income taxation, which sits at the heart of the pending litigation. Under the newly enacted proposal, some high-earning residents in Seattle could face a combined state and local top rate reaching an astronomical 18.037 percent, split across employers and employees. This staggering figure is the product of combining the new 9.9 percent state income tax with a 5 percent Seattle Social Housing Tax, a 2.557 percent Seattle JumpStart Tax, and a 0.58 percent WA Cares tax, potentially leaving Seattle with one of the highest combined top income tax burdens in the country.
Designed to apply to individuals or couples with annual incomes exceeding $1 million, the tax will primarily impact small business owners and highly compensated technology sector workers. Because very few salaried workers earn more than $1 million annually, incomes at that level typically flow through three primary channels: capital gains and dividend income, pass-through business earnings, and restricted stock unit vesting events.
Restricted stock units, or RSUs, present a particularly acute flashpoint for tech sector employees. Under the mechanics of RSU vesting, years of accumulated company stock shares can vest all at once, particularly when a private startup goes public. For instance, an employee who works at a technology startup for five years might see all five years of accumulated stock vest simultaneously during an initial public offering. This single event can easily yield an income above $1 million for that specific year, even though the worker’s average annual compensation over the multi-year period remains well below the taxable threshold.
Beyond tech workers, the tax carries profound implications for Washington’s vibrant small business community. 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 where business income flows directly to the owners’ personal tax returns. These small businesses collectively employ 1.4 million people, representing roughly 48.4 percent of the state’s total workforce.
Imposing a 9.9 percent tax on small business owners subjects them to one of the highest personal income tax rates in the nation. This burden is particularly acute because Washington already levies a heavy gross receipts tax—known as the Business and Occupation Tax—and subjects an unusually high share of essential business operational inputs to the state sales tax.
Critics argue that Washington’s existing tax code is already heavily skewed toward business taxation, largely because the state forgoes a broad-based individual income tax. However, unlike other states that also lack an individual income tax, Washington has not cultivated a low-tax, limited-government fiscal ethos. Instead, this policy combination forces businesses to shoulder a disproportionate share of the state’s financial burden. By layering a high-rate income tax exclusively on high-earning small business owners, critics warn the state is creating the worst possible environment for entrepreneurial growth, potentially stifling business expansion and dampening job creation.
The vulnerability to the tax extends beyond routine business operations and stock vesting. Individuals who sell a small business they spent decades building, or homeowners who realize significant capital gains from selling a primary residence or other real estate, could unexpectedly find themselves pushed across the $1 million threshold in a single year, subjecting their windfall to the heavy new levy.
Economic analysts have also pointed out several unusual structural design flaws within the tax code itself. For example, the legislation features a charitable deduction that is strictly capped at $50,000. Furthermore, joint filers face tax rates above $1 million calculated identically to single filers, creating a marriage penalty where two single earners making $600,000 each would incur zero tax liability, while a married couple with the exact same combined income would be heavily taxed.
Compounding these design concerns is the total absence of a safe harbor provision for taxpayers who unexpectedly cross the income threshold. Under federal tax law and in most other states, underpayment penalties are waived if taxpayers remit at least 90 percent of their current year tax liability or a designated percentage of their prior year liability throughout the year via withholding or quarterly estimated payments. Washington’s new tax includes no such safety valve, meaning taxpayers who fail to anticipate crossing the threshold or misjudge their liability face immediate financial penalties.
As the legal battles proceed and the November ballot approaches, repealing the tax via Initiative 645 remains an uphill political battle. The challenge is compounded by controversial ballot language supplied by the state attorney general’s office, warning voters that repealing the tax would force deep cuts to public education funding—despite the fact that the tax is not yet implemented and no official state budget has incorporated its anticipated revenues.
Nevertheless, as state lawmakers openly discuss lowering the tax threshold even further—such as a recent proposal by a state legislator to drop the trigger down to $250,000—many voters may find themselves motivated to follow a historical precedent set in previous Washington elections and reject the establishment of a state income tax once again.
