Seattle venture capitalist Nick Hanauer rips Inslee wealth tax

SEATTLE – Gov. Jay Inslee’s “wealth tax” proposal is drawing fire from a usual Democratic political ally – Seattle venture capitalist Nick Hanauer.

Hanauer, a politically influential progressive who generally supports taxing the rich (including himself), torched Inslee’s proposal as an unserious and “boneheaded” distraction in a series of social media posts on X on Thursday.

“This proposal is impractical, has serious legal issues and likely wouldn’t survive a ballot challenge,” Hanauer wrote. “It is not a serious proposal and won’t solve our budget problems because it is unlikely to bring in revenue.”

Inslee included the plan in his final budget proposal this week. It would assess a 1% annual tax on worldwide holdings of more than $100 million for Washington residents, affecting roughly 3,400 of the state’s richest people. Inslee’s budget office estimated it would bring in more than $10.3 billion over the next four years, helping to balance the state budget and forestall potential cuts.

But a recent report from the state Department of Revenue predicted a wealth tax would be “daunting” to administer, citing obstacles including legal challenges, how to value the far-flung assets of billionaires, and the risk that rich people would simply move assets or relocate. Despite such issues, the department concluded it “could administer the tax if it were signed into law.”

Hanauer was skeptical and argued Inslee’s proposal would not solve the state’s multibillion-dollar budget hole.

“Even if it clears the legal, implementation & other legal challenges, it’s unlikely to raise much $ given every wealthy person I’ve spoken to in the last few days has said they will leave the state. I believe them. Thoughtful taxes don’t actually drive people away, boneheaded taxes do,” Hanauer wrote.

Asked about Hanauer’s comments, Inslee spokesperson Mike Faulk replied in an email: “The governor has always welcomed ideas for progressive solutions. Everyone will have an opportunity to work with the Legislature on alternative ideas.”

In a news conference this week, the governor touted the wealth tax as another step in trying to make the state’s tax code less regressive, while also staving off budget cuts.

State Sen. Noel Frame, D-Seattle, who has sponsored previous wealth tax bills in the Legislature, said Hanauer’s criticisms were off-base.

Frame said the revenue assumptions built into the proposals have been “very conservative” and that most of the assets taxed are publicly traded stocks and similar holdings that are not difficult to assess.

“It is the right thing to do. It is legal. It is implementable. And I believe the revenue will come in,” Frame said in an interview.

The details of Inslee’s wealth tax are somewhat unclear as his office has not released an actual bill proposal.

But Frame said she expects it to be similar to her Senate Bill 5486, which was introduced for the past two years and received a public hearing but did not advance. That measure sought to tax “intangible” assets of more than $250 million such as stocks, cash and corporate holdings of while exempting other assets that could be more difficult to value, such as trademarks, customer lists and patents.

The criticisms from Hanauer are significant given his progressive leanings and general support of efforts to reform Washington’s tax code to make the rich pay more. He also played a key role in pushing for and defending Seattle’s groundbreaking $15-an-hour minimum wage.

Hanauer contrasted Inslee’s wealth tax proposal with the state’s capital gains tax on stock and other investment profits by the very wealthy, which he supported. That tax, approved by lawmakers in 2021, was signed into law by Inslee and survived an initiative challenge in November.

Instead of an untested wealth tax, Hanauer pointed to other options such as a high earners tax, similar to Seattle’s “JumpStart” payroll tax, and raising taxes on “super-profitable corporations.”

Majority Democrats are weighing such options as they prepare for the 2025 legislative session, where they’ll wrestle with a projected budget shortfall that has been estimated at between $10 billion and $16 billion over the next four years. Republican lawmakers have opposed tax increases, saying the state has a spending problem, not a revenue shortage.

Hanauer is a co-owner of Second Avenue Partners, a Seattle venture capital firm that invests in startups and companies involved in software, social media, clean energy and other sectors.

He got rich first by running his family’s pillow company, and then by becoming an early investor in Amazon. He has become a prominent advocate nationally of what he calls “middle-out” economics, which rejects the notion that tax cuts for the rich will trickle down and instead demands major investments in schools and services benefiting the majority of Americans.

Those ideas, including a higher minimum wage, have become popular at the highest levels of the Democratic Party. Hanauer writes books on the subject and recently hosted President Joe Biden on his “Pitchfork Economics” podcast.