Critics of Washington’s new “millionaires tax” argue it’s a Trojan horse that will lead to a broader state income tax on most workers.
It’s a potent issue in the fight over Initiative 645, which would repeal the new income tax, as polls show support erodes if voters believe they’ll eventually have to pay it too.
Gov. Bob Ferguson and other I-645 opponents have tried to put such fears to rest, insisting the tax will remain focused on millionaires. The governor pledged in May he’d “veto any attempt” to lower the $1 million threshold.
Union-funded campaign ads against I-645 emphasize “millionaires and billionaires” who’d get a “tax break” if the initiative scuttles the tax from being collected starting in 2029.
But some prominent Democrats haven’t stuck to the script.
They’ve talked — openly and behind the scenes — about eventually broadening who pays the income tax as part of a wider tax reform.
During a recent debate, state Rep. Cindy Ryu, D-Shoreline, said she supports expanding the tax to households with incomes as low as $250,000 — albeit at a lower rate than the 9.9% that applies to millionaires.
“Can we live well on $250,000 a year?” Ryu said during the debate, hosted by KUOW.
Conservative tax opponents seized on Ryu’s comments, portraying them as smoking gun evidence that Democrats will expand the income tax if voters uphold it on Nov. 3.
“It’s kind of an open secret for anybody paying attention — they’re going to expand it,” said Steve Gordon, the trucking business executive who chairs the I-645 campaign.
April Sims, president of the Washington State Labor Council, pushed back in a Seattle Times-KING 5 televised debate Thursday, saying an expansion of the tax is politically impossible. “The voters don’t support it. The governor doesn’t support it,” she said.
So what should voters make of the possibility the tax will get broadened to more taxpayers? It’s not quite as straightforward as either side would like to make it.
The idea that the tax will swiftly be expanded may be overwrought. Ferguson’s veto pledge is quite specific, and Democrats lack the two-thirds majority needed to override it. And that’s even assuming every Democratic lawmaker wanted a broader income tax; eight voted against the tax for $1 million-plus earners.
In addition, any tax expansion would undoubtedly face another voter initiative seeking to roll it back. Voters in Washington have a history of rejecting broad-based income tax, though the initiative to repeal the “millionaires tax” has trailed in at least one recent poll.
At the same time, nothing in the new law prohibits lawmakers from tweaking who pays the tax. They could do with a simple majority vote, though a gubernatorial veto could still block any changes.
During their marathon debate on the “millionaires tax” in March, Democrats rejected amendments that sought to enshrine its income limits in the state constitution.
Even before the tax was formally introduced, public records show, lawmakers and legislative staff were trading thoughts on its eventual expansion as part of a more ambitious rewrite of the state tax code.
Last December, state Senate Majority Leader Jamie Pedersen and Senate Democratic staffers were drafting talking points responding to anticipated arguments against the tax. They correctly predicted opponents would raise the fear of it getting expanded. A draft memo to Pedersen advised downplaying that likelihood and noting obstacles — but not flat out denying the possibility.
“This is the most important piece because, if it works, we want to be able to extend it to get rid of property tax, etc.,” wrote Matt Bridges, fiscal coordinator for Democrats on the Senate Ways and Means Committee, in notes on the draft memo released to The Seattle Times.
That lines up with what Pedersen, D-Seattle, has since said publicly.
In an interview, Pedersen said he personally favors a broader based progressive income tax, which he said could make the tax code fairer and clear the way for lowering other taxes.
Despite his role as the top Democrat in the Senate — and the chief sponsor of the “millionaires tax” — Pedersen downplayed the significance of his own opinion.
“I don’t know what my personal policy preferences, why they would be important,” he said in the interview. “I am not Donald Trump. I have one vote out of 49 in the Senate.”
Pressed on his leadership role, Pedersen acknowledged: “Obviously I am influential. If I can convince people of the wisdom of my ideas, that can proceed.”
He said it makes sense to allow the new tax to be implemented and then take a look at how it’s working in a few years. Down the road, the Legislature could look at lowering the $1 million income threshold in exchange for eliminating the state property tax — or cutting the sales tax.
“I think it would be really healthy,” he said.
Pedersen represents one of the most far-left electorates in the state, Seattle’s 43rd Legislative District, and is facing an election challenge from labor organizer Hannah Sabio-Howell, who has criticized him for not going further on taxing wealthy people and corporations.
Notwithstanding Pedersen’s views, some other influential Democrats insist there is little appetite in their caucus for revisiting the income-tax threshold.
“In the near future, absolutely not,” said state Sen. Manka Dhingra, D-Redmond, the deputy Senate majority leader. “That’s just not going to happen.”
The new tax of 9.9%, which applies to household income of more than $1 million, is slated to begin on 2028 income, with the first payments due in 2029. It’s expected to bring in more than $3 billion a year.
Dhingra noted the income tax law includes an automatic inflation adjustment so that the $1 million threshold automatically will rise every couple of years. She added she personally does not support “a broad-based income tax in the state of Washington.”
But supporters of I-645 are also flagging other provisions of the new law, which stripped out tax exemptions for public pensions.
While the change has no immediate practical effect — no one is getting $1 million public pensions — Gordon argued it’s evidence that lawmakers are clearing the way for lower income brackets to eventually get swept up in the tax.
Supporters of the tax say the changes were technical and meant to harmonize the law with the way such benefits are generally treated.
Sims, the labor council president, rejected the pensions line of attack as “lies” in a video posted online to reassure union members, noting a union member would have to make $84,000 a month in pension benefits to cross the $1 million threshold.
“The ‘millionaires tax’ won’t affect anyone’s pensions. Do the math. It can’t,” she said.
In the final weeks before voters weigh in, the question of who voters can trust will remain hotly contested.
If the tax survives, the state Supreme Court is all but guaranteed to weigh in, as opponents have filed a lawsuit arguing it is unconstitutional.
The last time income-tax proponents tried to impose one in Washington, in 2010, it would have applied to people earning more than $200,000. That went down in flames, with 64% voting it down.
Since then, the state’s electorate has grown much more liberal, ousting Republicans from every statewide office and handing Democrats big legislative majorities. Voters also upheld the state’s capital gains tax aimed at the wealthiest residents by an overwhelming majority two years ago.
A recent DHM Research poll showed I-645 trailing badly — with 54% opposition — when people were shown ballot wording that states its passage would decrease funding for K-12 schools, colleges and other services.
Still, the poll showed voters remain wary of a state income tax creeping toward less wealthy families.
Just 41% said they’d support a tax on people making more than $1 million if they “knew it could eventually be expanded” to reach those making $100,000, with 46% saying they’d oppose the tax.
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