I am confident I speak for a majority of business owners in our state that we care deeply about our employees, the well-being of all Washingtonians, and the state’s long-term competitive advantage as a place to attract talented people and resources. This remains true even in cases where we are not personally state residents ourselves anymore! Washington state is such a special place, and its people, communities and companies deserve every opportunity to succeed.
At Madrona, when we are considering an investment, we write a short “pre-mortem” about why that investment might fail in the next decade. Of course, we want it to succeed, but we need to be objective so we can avoid making poor decisions. This is my pre-mortem on why an income tax is a strategic policy mistake for the people of Washington. And why, if the income tax becomes law, we will look back a decade from now in 2036 and agree that we sacrificed jobs and opportunities across the state we all love.
The three core reasons include:
An income tax makes WA uncompetitive for talent and investment.You will be next to pay! The State Legislature cannot be trusted.
First, it is an income tax (not a “millionaire’s tax”) and makes Washington uncompetitive as a state. This income tax would be added to the cumulative impact of other taxes, including but not limited to the business & occupation (revenue) tax, payroll tax, capital gains tax, and estate tax. We already are one of the highest overall taxed states in the country and countless people are leaving the state to lower tax states like Nevada, Texas, Wyoming and Arizona. The adoption of an income tax will only accelerate that trend!
New types of taxes are always expanded. So, even if you don’t pay the income tax right away, you will be next! Washington state recently increased the B&O tax to apply to smaller businesses, increased gas taxes so consumers pay the highest cost per gallon in the country, increased the estate tax to 35% (by far the highest in the country), and increased the capital gains tax from 7% to 10%. These taxes cost employees and employers (especially small businesses) directly and citizens indirectly as costs get passed along and goods become less affordable.
The Washington state Legislature has a dual spending and accountability problem with the citizens. There have been massive increases in state spending over the past 15 years (see below) and that spending has failed to deliver results. In public education, our legislature increased spending by over $10,000 per student per year only to see test scores decline. The revenue from the increased gas tax is not being spent as was promised to taxpayers. And now, the legislature is asking you to believe that they will spend a new income tax responsibly and not raise it further. They will expand this income tax; it is only a matter of time.
The legislature claims they need to create an income tax because they are in an emergency situation. This is the same trick they used in 2021 for the capital gains tax. But there is no “emergency’ and there are alternative ways to balance the state budget. Reduce the $9 billion increase in spending they passed last year to “only” a $6 billion increase in spending and they will have balanced their current budget. Further, there is growing evidence of state government inefficiency and misuse of funds which could lead to billions more in savings that should be applied to reducing truly regressive taxes like the gas and sales tax.
If you have any doubt that my pre-mortem will come to pass, think about the opposite which happened when Washingtonians overwhelmingly rejected a state income tax in 2010. Since then, our state’s economy has experienced substantial growth – producing a 300% increase in tax revenues from $26 billion to $78 billion while our population only grew 15%. We know that not having an income tax is a core differentiation for Washington state that helps attract talent, opportunity, and investment from California and elsewhere.
For these reasons and more, I am confident that the majority of informed citizens would continue to oppose adding an income tax to the many taxes they already pay in Washington state. I genuinely believe this is the wrong policy direction for Washington, and I call on fellow business owners and employees to use their collective voice to oppose a state income tax. Otherwise, we will sadly end up in 10 years like the major rust belt cities who allowed tax policy, labor disputes, and irresponsible use of the citizen’s resources to leave economic growth and personal opportunity behind.
