Democratic state senators are considering implementing an income tax on millionaires to tackle Washington’s ongoing budget deficit. The proposed tax would impose a 9.9% rate on adjusted gross income exceeding $1 million, allowing taxpayers to receive credit for state capital gains tax payments. This move could potentially generate around $3 billion from approximately 20,000 households.
During a recent retreat, the Senate Democratic Caucus discussed this contentious proposal, which has faced rejection from voters and the state Supreme Court in the past. The lawmakers also explored alternative methods for raising revenue to prevent deficits in the current and future budgets.
Senate Majority Leader Jamie Pedersen, a Democrat from Seattle, stated on Wednesday that it is premature to determine whether the income tax proposal will evolve into legislation for the upcoming 2026 session, which begins on January 12. Although an income tax may not provide an immediate solution to the state’s budget issues, proponents believe it could serve as a sustainable revenue source and help rebalance the tax system.
Washington is one of nine states that do not tax individual wages and salaries, but passing this tax would face several challenges. First, it must navigate the legislative process during an election year when all House seats and many Senate seats are up for grabs. Currently, Democrats hold a majority with 59 seats in the House and 30 in the Senate. Additionally, Democratic Governor Bob Ferguson, who is not facing re-election, would need to be persuaded to support the measure, especially given his previous rejection of a wealth tax proposed by Democratic lawmakers last session. Ferguson acknowledged the ongoing discussions about the income tax but has yet to take a definitive stance, expressing concern over tax increases in the upcoming session.
The state’s revenue streams are struggling to keep pace with the rising costs of public services and government operations, with the latest forecast indicating tax collections falling more than half a billion dollars short of the projections lawmakers used when approving the budget in April. There are discussions about addressing a billion-dollar gap in the current two-year budget, with an even larger shortfall anticipated in the next cycle. This predicament follows a 2025 session in which the governor and Democratic majorities in both chambers managed to close a $12 billion budget gap through new taxes, higher fees, and widespread spending cuts. Washington is often criticized for having one of the most regressive tax codes in the nation, where lower-income earners disproportionately bear the tax burden. Many progressives argue that an income tax could rectify this imbalance, although the Washington Supreme Court has ruled such a tax unconstitutional.
Pedersen, representing one of the state’s most progressive districts, emphasized the need for a fairer distribution of the tax burden across all income levels. On the last day of this year’s session, Senate Democrats passed a controversial measure to tax individuals with over $50 million in certain financial assets, like stocks and bonds, although the bill did not advance in the House. This legislation remains active and could potentially be revisited by the Senate early in the next session.
In addition, starting January 1, 2026, Washington workers will see an increase in their Paid Family & Medical Leave premium from 0.92% to 1.13%. Employers will cover 28.57% of the total premium, while employees will contribute 71.43%. This program has already provided paid leave benefits to over 218,000 Washingtonians this year, totaling more than $1.7 billion.
