What the income tax does and why it will eventually apply to everyone

The income tax is not about “fairness” and does not provide any “real tax relief.”

From the Washington Policy Center:

Democrat lawmakers have long advertised an income tax as being about “fairness” and providing “real tax relief” to the working class. The income tax proposal released yesterday does neither.

According to House Republicans, less than 5% of the projected revenues from the income tax would go toward tax relief. The bill includes a minuscule amount of tax reductions: a sales tax exemption on certain hygiene products, an expanded working families tax credit for young adults aged 18-24, and a doubled B&O small business credit from $55 to $110 per month. The B&O filing threshold would also rise from $125,000 to $250,000.

90% of the revenue, projected to be between $3-4 billion annually, would go to the general fund. This income tax proposal is entirely about a new revenue stream, not tax reform.

Bill Summary

Senate Bill 6346 would impose a 9.9% tax on income above $1 million, effective January 1, 2028. The tax base is your federal adjusted gross income, which can be found on line 11 on your 1040. Because this captures total income rather than just wages, it hits business owners, retirees, and anyone with investment income.

The standard deduction is $1 million per individual, but married couples are forced to share that same $1 million combined. This creates a massive marriage penalty. For example, two single people each earning $700,000 owe nothing. If they marry, they suddenly owe 9.9% on $400,000 of their combined income. That is nearly $40,000 in new taxes just for signing a marriage certificate.

The residency rules are equally aggressive. You will be subject to the tax if you’re domiciled in Washington or if you maintain a home here and are present for more than 183 days. The bill counts any portion of a calendar day as a full day. If you spend an hour in Washington, it counts as a full day.

Nonresidents still owe tax on Washington-source income, including wages earned here, business income, and pass-through income from Washington businesses. The tax also applies to professional athletes and college athletes who earn money off their name, image, and likeness (NIL).

While the bill includes credits to offset double taxation, they do not go far. The B&O credit covers only a small fraction of the new tax bill. From my calculation, a business owner with $3 million in income would owe about $168,000 in new income tax after the credit.

The capital gains credit is even more deceptive and convoluted. It’s structured to look like it prevents double taxation. It doesn’t.

Under current law, the first $278,000 in capital gains is tax-free, gains between $278,000 and $1 million are taxed at 7%, and gains over $1 million are taxed at 9.9%.

Under this bill, none of those exemptions matter if your total income exceeds $1 million.

For example, assume you earn $900,000 in salary and sell stock for a $200,000 gain. Under current law, that gain is completely exempt. But under this bill, your total income is $1.1 million, so you owe 9.9% on the $100,000 over the threshold, nearly $10,000. That $200,000 capital gain, which was previously exempt, has now pushed you into the income tax threshold.

It gets worse with larger gains. Let’s say you earn $900,000 in salary and have $1.5 million in capital gains. Under current law, you’d pay nothing on the first $278,000 in capital gains, 7% on the next $722,000, and 9.9% on the final $500,000. You’d end up paying about $100,000 in capital gains tax.

Under this income tax proposal, assuming the same income of $2.4 million, you’d owe 9.9% on $1.4 million, or about $138,600. You get a credit for the $100,000 in capital gains tax you already paid, leaving $38,600 in additional income tax.

Add those together and you get $138,600, which is exactly 9.9% of your full $1.4 million over the threshold. The 0% bracket, the 7% bracket - none of it will matter. Every dollar over $1 million will get taxed at 9.9%, one way or another.

The bill amends Initiative 2111, which voters passed in 2024 to prohibit income taxes. Voters said no, and the legislature said yes anyway.

Lastly it also includes an anti-referendum clause by declaring the tax “necessary for the support of the state government and its existing public institutions,” language that mimics the constitutional exemption for referendums. Normally, opponents could collect signatures from 4% of voters, suspend the law, and let voters decide at the next election. This clause blocks that path. Instead, opponents would have to pursue a full initiative, which requires twice as many signatures and takes longer to qualify.

This bill won’t solve the deficit, won’t make the tax code fairer, and won’t provide meaningful relief to working families. What it will do is create a new revenue stream that lawmakers will spend, setting up the next deficit and the next tax increase. And when that happens, the income threshold will drop, just like it has everywhere else that has an income tax.

Read more about why an income tax is a bad idea: 10 reasons why an income tax is a bad idea for Washington, and contact your legislators about this bill on our new Take Action page: Stop the Costly Income Tax