WA Gov. Ferguson backs income tax on WA residents earning over $1M

OLYMPIA, Wash. - This story is from Washington State Standard.

Washington Gov. Bob Ferguson on Tuesday threw his support behind a proposed income tax on residents earning more than $1 million annually, and said he’s prepared to sign the policy into law next year. 

Some legislative Democrats are eyeing a 9.9% "millionaires tax" on adjusted annual gross income over $1 million. Ferguson endorsed this version of the proposal. Less than 0.5% of Washingtonians would be subject to the tax, and it’s expected to raise $3 billion per year. 

The revenue wouldn’t hit state coffers until 2029, Ferguson said. On Tuesday, the governor also released a spending proposal for the remainder of the current two-year budget cycle, which seeks to address a shortfall his office pegs at $2.3 billion through mid-2027. 

To have Ferguson’s support, he said the new tax must be used to increase eligibility and payments under the state’s Working Families Tax Credit, which is open to low- and middle-income households. It also has to allow for tax relief for the state’s small businesses. And he wants it to bolster K-12 education and reduce sales taxes.

Ferguson, a Democrat, said it’s too soon to know if adding the income tax would put the state on a sustainable budget path that diminishes the need for further cuts or tax hikes like those approved earlier this year.

He said he is "optimistic" the Legislature will approve the tax next year. 

But the work won’t be done at that point. 

"When we’re here for a bill signing, hopefully here in a couple months, it’s inevitable that two things will happen," he said in a press conference at the state Capitol. "There will be a court challenge, for sure, right? And ultimately it’ll go before the voters."

Ferguson, a former three-term state attorney general, said he’s confident courts would uphold the new levy, even though the state Supreme Court has ruled that income taxes are unconstitutional. 

Less than two years ago, the Legislature approved an initiative to prohibit an income tax. And voters have repeatedly rejected income taxes over the years.

Republicans are opposed. 

Rep. Travis Couture, R-Allyn, called the income tax idea a "nonstarter" given legal precedent and the 2024 initiative. He also said the proposal avoids "doing the hard work of stopping the spending addiction in Olympia." And he fears lawmakers would later apply the tax more widely.

"People don’t want an income tax," said Couture, the lead budget voice among House Republicans.

Ferguson said he’s open to an amendment to the state constitution codifying the $1 million threshold for the income tax, while setting it to rise with inflation.

"I want to be clear that I will not support an income tax for people who make less than $1 million in a year," he added.

Progressives have been clamoring for an income tax on higher earners. They see it as a way to reduce the tax burden on lower-income households and to avoid further cuts to services.

"He’s looking at the same numbers we are and realizes we have to do something," said House Majority Leader Joe Fitzgibbon, D-West Seattle.

Ferguson’s position is a shift from a couple months ago when he said he was "skeptical" of additional revenue measures after signing off on billions of dollars in new taxes in May to fill a budget shortfall. 

If the tax is adopted, Ferguson said he wants to explore limiting sales taxes on personal hygiene products, like shampoo, deodorant and toothpaste, as well as eliminating the levies on baby products, like formula and diapers, and "essential and affordable clothing items."

"Progressive tax reform cannot just mean increasing contributions from those who can afford it," Ferguson said. "We must use the gains from the millionaires tax to return money directly to working families and small business owners who have been hit hard by the affordability crisis."

Fitzgibbon said while his caucus has "a lot of enthusiasm" for the tax, he doesn’t think his colleagues would confine the tax to the uses the governor outlined.

Couture has filed a bill ahead of the legislative session that would require the state to reduce its sales tax commensurate with any tax on income.

Ferguson also said his position hasn’t changed on the so-called wealth tax that progressives have pushed for. Earlier this year, he rejected the idea when legislative Democrats backed it to balance their budget proposals. The governor warned it was untested and could get held up in court without delivering needed revenue. 

At the time, he left the door open to a scaled-back version bringing in no more than $100 million per year to see if it would survive challenges. 

He also said Tuesday he’s "not a big fan" of a statewide tax modeled on the city of Seattle’s payroll levy on companies. Progressives have identified that as another option for raising more state revenue and reducing financial pressures on lower earners. 

Lawmakers will convene for a 60-day legislative session beginning Jan. 12. 

Washington State Standard reporter Jerry Cornfield contributed to this report.

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