Lawmakers unveil income tax on millionaires, but Ferguson says new revenue should pay for more tax cuts

OLYMPIA – Democratic lawmakers on Tuesday unveiled their proposed income tax on Washington residents who make more than a million dollars a year.

However, supporters already have a potential obstacle in their party.

Hours before Democrats in the House and Senate released details on a plan Tuesday that, if approved, would generate $3.7 billion in revenue a year, Democratic Gov. Bob Ferguson said in a statement he “could not support it” in its current form.

The statement caught legislators off guard when they spoke to the media Tuesday morning to discuss the proposal.

“We were a little surprised by the governor’s statement, given the fact that less than 24 hours ago, we had a very positive conversation with him about our progress,” House Majority Leader Joe Fitzgibbon, D-Seattle, said Tuesday, adding that all sides still have work to do to reach an agreed -upon framework. “His statement this morning was a little bit different than what we heard from him yesterday, but we’re glad that we’re going to continue that dialogue.”

Shortly after, Ferguson said he was “a little surprised about some of the stuff” that was included in the plan.

“It works both ways,” Ferguson said Tuesday afternoon. “That’s the way these things go. This is a big, complex proposal.”

Ferguson said, however, the conversations between his team and lawmakers have been “very productive” and would continue.

The proposal released by House and Senate Democrats calls for a 9.9% income tax on those who make more than $1 million in income a year, not those who have more than $1 million in assets. According to the announcement, it would apply to fewer than 0.5% of state residents.

“Washington families are concerned about affordability and keeping our economy strong, and businesses are too,” Fitzgibbon said. “By reforming our outdated tax code, we’re helping make life more affordable for working families and promoting our state’s economic competitiveness.”

Washington is one of nine states currently without an income tax. The Senate Ways and Means Committee will hold a hearing on the legislation on Friday at 1:30 p.m.

“Our state is wonderful for so many reasons, but our broken, nearly century-old tax structure is holding us back,” Senate Majority Leader Jaimie Pedersen, D-Seattle, said. “We have an opportunity to take a giant step forward by funding public schools, health care, and services that people across the state are counting on by increasing taxes on a few thousand very wealthy people and cutting taxes for millions more.”

As part of the plan Democratic lawmakers unveiled, the state would exempt hygiene products from Washington’s sales tax. The legislation would also eliminate the Business and Occupation Tax on businesses that earn less than $250,000 a year.

The legislation also calls for expanding the state’s Working Family Tax Credit and distributing 5% of the revenue collected to counties for their public defense system and “increasing public safety.”

“We’re going to make sure that our tax structure is sustainable for the quality of life that people want and expect,” Sen. Manka Dhingra, D-Redmond, said Tuesday. “And that we are able to pay for health care, for education, and really make sure that we’re setting our children up for success.”

Following the announcement, Ferguson said that while there’s agreement on the need to balance the state’s tax code, there’s “still a long way to go.”

Ferguson previously backed the idea, which he dubbed a “millionaires’ tax,” as he unveiled his budget proposal in late December. At the time, the governor said a “significant percentage” of the revenue would need to “go directly back into the pockets of Washingtonians.”

“The current proposal is not close to achieving that important objective,” Ferguson said Tuesday.

Ferguson said Tuesday the proposal legislators released includes three things “that put dollars right back into the pockets of Washingtonians,” and highlighted provisions that would reduce sales taxes on baby and hygiene items, eliminate the working families tax credit and expand a tax break for small business owners.

The total relief from those proposals, Ferguson said, would be around $230 million a year, or around 7% of the total revenue from the tax.

“The 7% we see here is not close. I’ve communicated that in conversations, I’ve communicated that publicly,” Ferguson said, adding that he would not put out a specific amount that he wanted to see dedicated to tax relief.

Pedersen, D-Seattle, put the figure closer to 20% when also factoring in the state ending a 0.5% surcharge on business income over $250 million a year earlier than currently planned.

Ferguson called for the state to increase the amount families receive through the working families tax credit and expand the eligibility for the program. The governor said he would speak more about his proposal for the program “in the coming days.”

Ferguson also called on the state to adopt $1 billion in tax relief to small businesses, compared to the roughly $100 million that is in included in the Senate proposal.

“We have some negotiating to do, and I understand that,” Ferguson said.

Ferguson previously said he would support writing the income level requirement into state law to ensure that the threshold would not be lowered in future years to apply the tax to more residents.

As he announced his support in December, Ferguson said the new “millionaires’ tax” would overhaul the state’s tax system and make it fairer for those with lower incomes. The governor said that, while families in the 20th percentile of income pay 13.8% of their income in taxes, those in the top 1% pay 4.1% of their income.

While some lawmakers hope to approve the tax this year, Ferguson previously said it would take until at least 2029 to implement it.

Republican lawmakers vowed to fight the plan.

House Minority Leader Rep. Drew Stokesbary, R-Auburn, said Tuesday that while the proposal is “framed as a tax on millionaires, it’s only a tax on millionaires this session.”

“It will quickly become a tax on regular people like you and me,” Stokesbary said. “We know that we can’t trust Olympia politicians. Democrats have given us ample reason, just in the last year, to not trust them that this will only ever apply to millionaires.”

Senate Minority Leader John Braun, R-Centralia, said Tuesday he was “disappointed” to see the plan.

“I think that absolutely goes in the wrong direction on affordability,” Braun said. “I think we’re 100% in the wrong direction. And contrary to claims by the majority and the governor initially that this would involve significant tax reductions of regressive taxes currently in place in Washington, there’s almost no tax reduction of any means.”