The state of Washington is contemplating passing a 9.9 percent tax on earned income over $1 million, which would remove it from the short list of states that do not have an income tax. Washington has enjoyed decades of spectacular economic growth and is home to some of the world's largest tech companies (including Microsoft and Amazon) as a direct result of the absence of state income taxes. The new measure threatens to change all that.
The state constitution currently prohibits an income tax. It treats income as "property," and the rules of taxation on property dictate that it must be applied evenly and capped at 1 percent (like traditional property taxes), unless voters approve it by supermajority at the ballot box. Washington passed a 7 percent tax on long-term capital gains above $250,000 in 2021, an action that was made possible by the strained legal argument that sales of securities constitute an excise on the exchange of capital assets. It's worth noting that the capital gains tax was really a bill of attainder aimed at one person: Jeff Bezos, and the Amazon founder escaped the taxes by changing his residency to Florida before the tax went into effect. The new proposed income tax, Senate Bill 6346, will treat capital gains as income, subjecting them to both the capital gains tax and the income tax.
