Proposed income tax on millionaires draws big crowd to first committee hearing

OLYMPIA – The line to enter Hearing Room 4 inside the John A. Cherberg building began to form more than an hour before the Senate Ways and Means Committee gaveled into session on Friday.

By the time Committee Chair Sen. June Robinson, D-Everett, called the meeting to order at 1:30 p.m., a room with a capacity of more than 200 people was full. And while the committee’s agenda included 29 pieces of legislation, the crowd had gathered for just one: public testimony on a plan to impose an income tax on millionaires in Washington, one of nine states without an income tax.

The proposal under consideration 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 Democratic lawmakers’ announcement on the pitch, it would apply to fewer than 0.5% of state residents.

Supporters argued the tax is an opportunity for the state to fund core services and would rebalance the tax code to be less impactful on those in lower income levels.

Opponents, meanwhile, said the plan is not legal under the state constitution and the $1 million threshold would eventually be lowered to apply to more people. As he announced his support in December, the governor said he would support writing the income-level requirement into state law to ensure that the threshold would not be lowered in future years.

On Tuesday, House Majority Leader Joe Fitzgibbon, D-Seattle, said his caucus does not support lowering the income threshold.

“We don’t hear support from our colleagues or constituents,” Fitzgibbon said.

Among those against the plan is former state Attorney General Rob McKenna, a Republican in office from 2005 to 2013 who said Friday that a state income tax would only be constitutional if it was a uniform rate at no higher than 1% per year.

“If this legislature wants a progressive income tax, it should send an amendment to the voters for their decision,” McKenna said. “It shouldn’t pretend the constitution is not clear, unless every legislator who votes for this bill is prepared to explain why taxpayers don’t have a property right to their income.”

Kelly Diamond, an English teacher at Rogers High School in Spokane, told the committee that the school is located in the poorest ZIP code in the state, and consistently has more than 75% of students qualify for free or reduced lunch, while also facing other educational needs.

“For the last seven years, education share of the state budget has consistently decreased, resulting in less spending and support for teachers and students,” Diamond said. “At the same time, our class sizes have increased to impossible levels. We are losing teachers and support staff due to both funding and mental health crisis.”

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.”

Gov. Bob Ferguson has said he supports an income tax on millionaires . However, following the announcement this week, he said the current proposal has “a long way to go” before passage.

Several people who testified pointed to the state’s long history of opposing an income tax. Since the state Supreme Court overturned a graduated income tax in 1933, voters have been asked 10 times whether Washington should establish either a personal income tax or a corporate income tax, ideas that have never received more than 43% of the vote, according to data from the Secretary of State’s office.

Brian Heywood, a Seattle-area hedge fund founder and conservative donor, said while he would pay the tax, “like many in my position, I have options.”

“I can change my domicile, I can move my business, I can restructure my income to avoid it. That’s the truth,” Heywood said. “In fact, in just the last two weeks, I have heard from directly, or heard about, over 50 couples who are already in the process of, or soon to be, changing their domicile out of this state.”

Supporters contend the idea has a broader base of support now. A poll conducted by consulting firm GBAO in October found 60% of voters would support an income tax on those who make more than $1 million a year.

Giovanny Rosario, a recent graduate of Eastern Washington University and Spokane resident, said college students and recent graduates “are frequently experiencing food insecurity or are going into debt to pay for essentials.”

“If I was just a few years older, I could qualify for the Working Families Tax Credit,” Rosario said. “And the cash from this credit would mean I could put money away or cover part of my car insurance so that I can get to work safely.”

As of Friday, the bill is not yet scheduled for a committee vote.