Washington senate approves income tax on millionaires; House vote is up next

OLYMPIA – The Washington Senate approved a 9.9% income tax on those who make more than $1 million per year on Monday, the latest step in a push by Democratic lawmakers to overhaul the state’s tax code through one of the most closely watched legislative proposals in years.

The legislation passed on a 27-22 vote, with three Democrats joining the chamber’s 19 Republican members in opposition.

“Today was a momentous step forward,” sponsor State Sen. Jaimie Pedersen, D-Seattle, said following the bill’s passage. “For Washington’s 1.1 million school kids, people struggling to afford health care and small businesses looking for help, that help is on the way.”

Democrats argue the state’s tax system is outdated, disproportionately impacts those on the lower end of the income spectrum by making them pay the same sales tax as wealthy people and impacts the state’s ability to provide adequate resources. As they spoke on the Senate floor through hours of debate, Republican lawmakers expressed concern that the proposal is unconstitutional and bucks the state’s longstanding tradition of not taxing income.

“This bill is wrong for our economy. And when something is wrong for our economy, it’s wrong for families, it’s wrong for communities, and it’s wrong for our state,” State Sen. John Braun, R-Centralia, said Monday. “If we truly want reform, then let’s reform our tax system in a way that’s broad based, stable and competitive. Let’s create a system that grows the pie, instead of redistributing a shrinking one.”

Following the bill’s passage, the bill now heads to the House of Representatives for further consideration.

The proposal released by House and Senate Democrats calls for a 9.9% income tax on those who make more than $1 million in income a year, not those who have more than $1 million in assets. According to Democratic lawmakers, it would apply to fewer than 0.5% of state residents.

The tax is estimated to raise a projected $3.7 billion a year once it takes effect in 2028.

“My ‘why’ at this point in my career in the Legislature is about making sure that we have a fantastic, well-funded system of public schools in our state,” Pedersen said Monday. “There is no path for us to make the kinds of investments we want and need to make in the public schools of Washington state without having the kind of revenue this bill offers us the opportunity to collect.”

As part of the plan Democratic lawmakers unveiled, the state would exempt hygiene products from Washington’s sales tax. The legislation would also eliminate the Business and Occupation Tax on businesses that earn less than $250,000 a year.

The legislation also calls for expanding the state’s Working Family Tax Credit and distributing 7% of the revenue collected to counties for their public defense system and “increasing public safety.”

Ahead of final passage, lawmakers passed an amendment put forward by state Sen. Marko Liias, D-Edmonds, that also repeals the sales tax expansion passed by the legislature last year. The amendment removes the income tax on services, including live presentations, temporary staffing, armored car services and custom website development, that lawmakers adopted last year.

The amendment, however, leaves in place the sales tax on advertising that lawmakers approved last year.

“I think as we consider this bill, we need to think not just about how we turn our upside-down tax system upside right, but we also need to think about the people on the ground,” Liias said.

The Senate, however, rejected a number of amendments put forward by Republican lawmakers, including one that would have removed the “necessity clause,” included in the legislation that makes it immune from a voter referendum. Pedersen said Monday he expects voters to have the opportunity to weigh in through an initiative.

Lawmakers also rejected an amendment that would have increased the standard deduction for joint filers from $1 million to $2 million, in what detractors have dubbed the “marriage penalty.”

State Sen. Mark Schoesler, R-Ritzville, said Monday he worried that while the tax in its current form would solely apply to millionaires, the tax would eventually be expanded so that it becomes applicable to more people.

Schoesler also said he doubted the money would provide the adequate funding for education and health care that supporters say it would.

“Why would the public trust government with the state income tax?” Schoesler said.

While the Senate appeared likely to give the legislation its stamp of approval, the attention now turns to the House of Representatives and Gov. Bob Ferguson. Shortly before Democratic lawmakers unveiled the legislation earlier this month, the governor said he could not support the bill in its current form and called for more of the revenue collected to go back to citizens.

“If people don’t think that what’s inside this bill is enough,” State Sen. Noel Frame, D-Seattle, said, “by the way, we’re going to do other reductions. Literally on this floor today.”