Democratic lawmakers in Washington’s state Senate are exploring the possibility of implementing an income tax targeting millionaires as the state grapples with ongoing budget challenges.
According to sources familiar with preliminary discussions, the proposal under consideration would impose a 9.9% tax on adjusted gross income exceeding $1 million for individuals and households. Taxpayers would receive credits for state capital gains tax payments already made.
State officials estimate the measure could generate approximately $3 billion in revenue from roughly 20,000 households that would fall under the tax threshold.
The Senate Democratic Caucus examined this politically contentious concept during a retreat held earlier this month. The discussions also encompassed alternative revenue-generating strategies aimed at preventing budget deficits in both the current and upcoming fiscal periods.
Senate Majority Leader Jamie Pedersen, who represents Seattle, indicated Wednesday that it remains premature to determine whether the income tax proposal will materialize as formal legislation when the 2026 session convenes on 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,” Pedersen explained. “It is not the case that anybody has settled on any ideas to the point that anyone is going to introduce something.”
The income tax concept faces significant historical opposition. Washington voters have repeatedly rejected similar measures at the ballot box, and the state Supreme Court has previously ruled against such taxation structures.
Even if approved by legislators, an income tax would not provide immediate relief for the state’s fiscal challenges, as legal challenges or ballot measures would likely delay implementation.
However, proponents argue it would establish a dependable revenue source for future budgets and represent a meaningful step toward restructuring the state’s tax system.
Washington ranks among nine states nationwide that do not impose taxes on individual wages and salary income.
Legislative and Political Obstacles
The proposal faces multiple hurdles before potential enactment. Lawmakers would need to advance the measure during an election year when all House seats and a majority of Senate positions will appear on ballots. Democrats currently maintain control with 59-39 representation in the House and 30-19 in the Senate.
Governor Bob Ferguson, a Democrat not facing reelection this cycle, would need to support the legislation or refrain from vetoing it. His position remains uncertain following his rejection of a wealth tax proposal advanced by Democratic legislators during the previous session.
Ferguson acknowledged Wednesday that he was aware of income tax discussions but has not taken a formal stance. He expressed general caution regarding tax increases for the upcoming session.
“We did raise billions of dollars in revenue earlier this year and I’m skeptical of additional revenue at this time,” the governor stated.
Senator Chris Gildon, a Republican from Puyallup who serves as the minority party’s lead budget writer, also confirmed awareness of the discussions.
“It just seems the thirst for new and additional taxes from the progressives in the Washington state Legislature is never-ending,” Gildon remarked. “Because they haven’t paid any price for raising taxes earlier this year, I think they are very emboldened right now.”
Addressing Revenue Shortfalls
Washington’s revenue streams have struggled to match the rising costs of public services and government operations. Recent forecasts indicate tax collections have fallen more than half a billion dollars short of projections lawmakers relied upon when approving the budget in April.
Legislative sources suggest the state faces approximately a billion-dollar shortfall in the current two-year budget cycle, with potentially larger deficits looming in the subsequent period.
These fiscal pressures follow the 2025 legislative session, during which the governor and Democratic majorities addressed a $12 billion budget gap through a combination of new taxes, increased fees, and comprehensive spending reductions.
Analysts frequently characterize Washington’s tax structure as among the nation’s most regressive, with lower-income earners contributing disproportionately higher percentages of their earnings compared to wealthier residents.
Progressive lawmakers view an income tax as a potential remedy, though the state Supreme Court has determined such taxation violates constitutional provisions.
Pedersen, whose 43rd Legislative District represents one of the state’s most progressive constituencies, emphasized the need to distribute tax obligations more equitably across income levels.
During the final day of this year’s session, Senate Democrats approved controversial legislation imposing taxes on individuals holding more than $50 million in specific financial assets, including stocks, bonds, and mutual funds. The House did not vote on the measure, which technically remains viable for potential consideration early in the next session.
“If the wealth tax is not the answer, what are other things we can consider?” Pedersen asked.
Representative Shaun Scott, a Seattle Democrat serving the same district as Pedersen, expressed strong support for taxing higher earners.
“It’s very in line with what I am hearing from people in my district and around the state,” Scott said. “It’s not simply taxing the rich. Funding services are more popular and a plurality will oppose measures to cut revenue.”
Representative April Berg, a Democrat from Mill Creek who chairs the House Finance Committee, said she was working on legislation addressing concerns with recent tax measures but remained unfamiliar with specific details of the income tax proposal.
“Everything is always open for discussion,” Berg noted. “I am not aware of any similar proposal in the House.”
Business Community Response
Microsoft President Brad Smith offered measured remarks when asked about the potential tax during a Tuesday interview.
“I think it’s an interesting question,” Smith said.
Smith and executives from numerous major Washington companies actively opposed new business taxes enacted this year. He emphasized that any 2026 tax discussions must involve greater collaboration than previous efforts, noting that last session’s approach “really divided the progressive community politically from the business community economically.”
Smith argued that certain taxes, particularly property taxes and business taxes affecting small and family-owned operations, require reduction. However, he acknowledged that decreasing some taxes typically necessitates identifying alternative revenue sources.
Max Martin, who directs government affairs for the Association of Washington Business, confirmed hearing about the tax discussions and requested additional information.
“My head is still spinning from last session. Businesses are still trying to wrap their heads around that,” said Martin, whose portfolio focuses on tax and fiscal policy. “It kind of feels like Groundhog Day.“
