Democratic state senators are considering an income tax on millionaires as they seek to overcome Washington’s continuing budget shortfall.
Individuals and households would pay a 9.9% tax on adjusted gross income above $1 million, and receive credit for state capital gains tax payments, according to those familiar with the broad outline. It could generate an estimated $3 billion from a projected 20,000 households subject to the tax.
The Senate Democratic Caucus discussed the politically controversial idea, which has been repeatedly rejected by voters and the state Supreme Court, during a retreat earlier this month. They also discussed other means of raising revenues to avert deficits in the current and next budget.
Senate Majority Leader Jamie Pedersen, D-Seattle, stated Wednesday it’s too early to know if the income tax concept solidifies into legislation in the 2026 session that begins January 12.
“We’ve got a lot of things being discussed and researched. I am aware of at least four or five different ideas being evaluated in various ways,” he stated. “It is not the case that anybody has settled on any ideas to the point that anyone is going to introduce something.”
An income tax would not be a short-term solution to the state’s budget difficulties because it is certain to be challenged in court or on the ballot. But supporters view it as a stable revenue source for the future, and a long-sought step toward rebalancing the tax code.
Washington is among nine states nationwide that do not tax individual wage and salary income.
There would be hurdles to getting the tax passed. It would need to get through the Legislature in an election year in which all House seats and a majority of Senate seats are on the ballot. Democrats currently hold majorities of 59-39 in the House and 30-19 in the Senate.
Then Democratic Governor Bob Ferguson, who is not up for election, would need to be won over or at least not veto it. That’s not a sure thing after he turned down a so-called wealth tax pushed last session by Democrat lawmakers.
Ferguson stated Wednesday he is “aware” of the income tax conversation but did not have a position and that, in general, he is wary of tax increases in the coming session.
“We did raise billions of dollars in revenue earlier this year and I’m skeptical of additional revenue at this time,” he stated.
Senator Chris Gildon, R-Puyallup, the lead Republican budget writer, is aware as well.
“It just seems the thirst for new and additional taxes from the progressives in the Washington state Legislature is never-ending,” he stated. “Because they haven’t paid any price for raising taxes earlier this year. I think they are very emboldened right now.”
Revenue Shortfall Prompts Tax Discussion
Revenue streams feeding the Washington state budget are not keeping pace with the increasing cost of public services and government operations. The most recent forecast projected tax collections are more than half a billion dollars less than lawmakers counted on when they approved the budget in April.
There’s discussion of needing to fill a billion-dollar gap in the current two-year budget, and an even larger one in the next.
This deteriorating situation comes after the 2025 session in which the governor and Democratic majorities in the House and Senate plugged a $12 billion gap with billions of dollars from new taxes and higher fees, coupled with across-the-board spending cuts.
Washington is often identified as having one of the nation’s most regressive tax codes, meaning lower earners pay a disproportionately high share of their earnings. Many progressives see an income tax as a solution, but the Washington Supreme Court has ruled that the tax is not allowed under a provision in the state constitution.
Pedersen’s 43rd Legislative District is one of the state’s most progressive. He stated Washington must find ways to spread the tax burden “more fairly” over all income brackets.
On the final day of this year’s session, Senate Democrats passed a controversial bill to impose a tax on those with more than $50 million of certain financial assets, such as stocks, bonds, and mutual funds. The bill did not come up for a vote in the House.
The legislation is still alive and, theoretically, could be voted on by the Senate early next session.
“If the wealth tax is not the answer. What are other things we can consider?” Pedersen stated.
Representative Shaun Scott, D-Seattle, who serves the same district as the senator, stated he “absolutely” supports the idea of an income tax on higher earners.
“It’s very in line with what I am hearing from people in my district and around the state,” Scott stated. “It’s not simply taxing the rich. Funding services are more popular and a plurality will oppose measures to cut revenue.”
The chair of the House Finance Committee, Representative April Berg, D-Mill Creek, indicated she’s working on legislation to address concerns with new taxes and is unfamiliar with details of the income tax idea.
“Everything is always open for discussion,” she stated. “I am not aware of any similar proposal in the House.”
Business Community Response
Microsoft president Brad Smith smiled when asked his opinion about the potential tax during an interview on Tuesday.
“I think it’s an interesting question,” he stated.
Smith and leaders of many of the state’s largest companies actively opposed this year’s new business taxes. He indicated any kind of tax discussion in 2026 must be more collaborative than this year because what occurred in the last session “really divided the progressive community politically from the business community economically.”
“Certain taxes are in desperate need of reduction,” he stated, citing property taxes and business taxes paid by small and family-owned enterprises. “But if we’re going to reduce some taxes, then that usually means that you’ve got to look for revenue in other places.”
Max Martin, director of government affairs for the Association of Washington Business, indicated he’s heard the tax discussed and would like more details.
“My head is still spinning from last session. Businesses are still trying to wrap their heads around that,” stated Martin, whose focus is tax and fiscal policy. “It kind of feels like Groundhog Day.”
The 9.9% rate on income above $1 million representing aggressive progressive taxation, with the nearly double-digit rate exceeding most state income taxes nationwide and approaching levels typically seen only in California and New York, demonstrating Democrats’ willingness to impose substantial levies on high earners despite political risks.
The $1 million threshold targeting genuine affluence rather than upper-middle-class professionals, with the income floor ensuring the tax affects only the wealthy rather than capturing dual-income households of teachers, engineers, or small business owners whose combined earnings might approach but not exceed seven figures.
The capital gains tax credit preventing double taxation, with the coordination between the proposed income tax and existing capital gains levy demonstrating technical sophistication ensuring wealthy taxpayers don’t pay both taxes on investment income, though the interaction creates complexity that could generate legal challenges.
The $3 billion revenue estimate from 20,000 households calculating to average $150,000 per household, with the figure suggesting substantial income concentration among Washington’s wealthiest residents whose tax payments would fund significant state programs though the projection’s accuracy depends on assumptions about behavioral responses and economic conditions.
The 20,000 affected households representing tiny fraction of Washington’s approximately 3 million households, with the 0.67% share demonstrating how concentrated wealth has become where less than 1% of families would bear the entire income tax burden creating political sustainability questions about long-term viability.
The Senate Democratic Caucus retreat discussion indicating serious consideration rather than throwaway idea, with the venue choice for floating the proposal demonstrating leadership wanted to gauge member reactions in private setting before public announcements that would generate immediate opposition from business groups and anti-tax activists.
The repeated voter rejections referencing multiple ballot initiatives where Washingtonians have rejected income taxes, with the electoral history creating substantial political obstacle given that any new tax likely faces referendum challenge from initiative sponsors who have successfully mobilized majorities against income taxation repeatedly.
The state Supreme Court rulings declaring income taxes unconstitutional under current state constitution, with the legal precedent requiring either constitutional amendment through voter approval or creative statutory drafting attempting to distinguish the proposed levy from previous taxes that courts invalidated.
Senate Majority Leader Jamie Pedersen’s “too early to know” caveat tempering expectations, with the cautious language suggesting Democratic leadership recognizes the proposal’s controversial nature and wants to avoid premature commitments before assessing political viability and legal soundness.
The “four or five different ideas being evaluated” reference indicating income tax represents one option among multiple revenue proposals, with the alternatives potentially including expanded business taxes, new consumption levies, or fee increases that collectively or individually could address budget shortfalls.
The long-term revenue stability argument positioning income tax as structural solution, with proponents arguing that reliance on sales and property taxes creates volatility during recessions when consumer spending drops and property values decline whereas income taxes on wealthy households prove more recession-resistant.
The tax code rebalancing rationale appealing to progressives, with the characterization of Washington’s system as among the nation’s most regressive providing moral justification for income tax beyond mere revenue generation by arguing fairness requires shifting burden from low-income consumers to affluent taxpayers.
The nine-state minority without income tax positioning Washington as outlier, with the statistic suggesting income taxation represents mainstream practice that Washington could adopt without pioneering untested policy, though the comparison ignores that the other eight states include low-tax havens like Texas and Florida with fundamentally different governance philosophies.
The 2026 election year timing creating enormous political risk, with all 98 House seats and roughly 25 Senate seats facing voters potentially punishing Democrats for income tax votes by electing Republicans who would reverse the levy, making the electoral consequences of supporting income taxation potentially career-ending for vulnerable legislators.
The current Democratic majorities of 59-39 House and 30-19 Senate providing comfortable margins, with the 20-seat and 11-seat advantages theoretically allowing leadership to lose some defections while still passing income tax, though the large majorities might encourage overconfidence about political invulnerability.
Governor Bob Ferguson’s skepticism creating executive obstacle, with his stated wariness about additional revenue after this year’s tax increases signaling he might veto income tax legislation forcing Democrats to either abandon the proposal or attempt veto override requiring two-thirds supermajorities they don’t possess.
The rejected wealth tax precedent demonstrating Ferguson’s willingness to oppose Democratic legislative priorities, with his previous rejection of the $50 million financial assets tax suggesting he prioritizes maintaining business community relationships and avoiding reputation as tax-and-spend governor over satisfying progressive caucus demands.
Ferguson’s “we did raise billions of dollars in revenue earlier this year” observation highlighting tax fatigue, with the governor recognizing that repeated tax increases within short timeframe create cumulative political backlash that could endanger Democrats’ legislative majorities and his own future political ambitions.
Senator Chris Gildon’s “thirst for new and additional taxes” characterization framing Democrats as reflexively pro-tax, with the Republican budget writer’s rhetoric attempting to position GOP as taxpayer defenders while portraying Democrats as fiscally irresponsible spenders unable to control appetite for revenue increases.
The “haven’t paid any price” assessment suggesting Republicans believe Democrats survived 2025 tax votes unscathed, with Gildon’s analysis potentially encouraging Democratic boldness by implying electoral consequences won’t materialize or alternatively serving as warning that accumulating voter resentment will eventually produce backlash.
The half-billion-dollar revenue shortfall below April projections demonstrating forecasting difficulties, with the substantial miss indicating either overly optimistic economic assumptions or unexpected spending increases creating budget gaps that require either spending cuts, revenue increases, or reserve fund drawdowns.
The billion-dollar current biennium gap discussion representing substantial fiscal challenge, with the shortfall requiring approximately 2% budget reduction if addressed through cuts alone, affecting visible services like education, healthcare, or transportation that generate constituent complaints and interest group opposition.
The even larger next biennium deficit projections creating sustained rather than temporary crisis, with the out-year problems suggesting structural imbalance between revenue growth and spending growth requiring permanent solutions rather than one-time fixes or accounting maneuvers.
