Clock ticks on WA income tax proposal amid Democratic divisions

OLYMPIA — With just over a week left before lawmakers adjourn, Washington Democrats are still trying to resolve internal disagreements over a major cornerstone of their proposals this year — a tax on high-income earnings that leaders say is the key to balancing the budget and addressing the state’s regressive tax structure.

The proposal, dubbed the millionaires tax” by proponents, is sponsored by a majority of Democratic lawmakers. But differences within the party over how far to go, and how to structure the tax, threaten to derail the effort this year. While most Democrats back the concept, some have drawn clear lines around what they can support. No Republicans support the proposal.

The bill must ultimately get the approval of Democratic Gov. Bob Ferguson, who has for the third time said the measure still needs work before he would sign it. For the first time, however, he suggested the clock might run out this year before lawmakers can produce a version he would sign.

In a campaign letter Tuesday, Ferguson wrote that the latest version of the bill, despite multiple amendments, does not meet the conditions he set for signing it. He has said a significant share of the revenue must go toward relief for taxpayers, small businesses and working families.

“Unfortunately, with less than two weeks remaining of the Legislative Session and despite a lot of hard work by legislators, we don’t yet have a proposal that meets that requirement,” he wrote.

Ferguson noted he remains hopeful an agreement can be reached but is committed to “making sure we get this right” even if that means revisiting the legislation next year. At a February news conference, the governor outlined his conditions for support: small-business tax relief and a major expansion of the state’s Working Families Tax Credit Program.

Senate Bill 6346 would impose a 9.9% tax on individual earnings over $1 million annually. It is estimated to bring in about $3.5 billion a year, affecting roughly 30,000 taxpayers, with collections beginning in 2028. The tax would not apply to home values or retirement savings.

Democratic leaders are more optimistic, including House Majority Leader Joe Fitzgibbon, D-West Seattle, who said Democrats are working hard to pass the tax out of the House and to earn the governor’s signature.

“We believe this is the right time to rebalance our tax code and intend to get it done this session,” he said in a statement.

Senate Majority Leader Jamie Pedersen, D-Seattle, said Democratic leaders are having productive conversations with Ferguson, giving him a “pretty high degree” of confidence they will come to an agreement.

“”I’m not particularly concerned,” Pedersen said of Ferguson’s campaign message.

Still, some Democrats have been outspoken about their opposition to the proposal.

Rep. Amy Walen, D-Kirkland, noted that the Legislature approved Initiative 2111 just two years ago, banning state and local income taxes. Walen voted in favor of that measure.

“I don’t feel comfortable going back on my word,” she told The Seattle Times, arguing that any income tax should go before voters as a constitutional amendment. She has since introduced a constitutional amendment that would limit the tax to those earning more than $1 million a year.

Walen also cited concerns about tax predictability when the Legislature keeps considering new taxes every year. Lawmakers last year approved about $9 billion in tax increases over four years, including a temporary 0.5% tax surcharge on the state’s largest businesses. Earlier versions of the income tax bill would have let that surcharge expire a year early, in 2028, but the House Finance Committee stripped that provision last week.

“We just change the rules every time we come here,” Walen said. She and her husband moved to Washington from Colorado 20 years ago and have owned several car dealerships, but “we would not make that decision now because of the instability.

Walen is not alone.

Rep. Adison Richards, D-Gig Harbor, said in a late February interview with McClatchy that amid federal funding uncertainty and a multibillion-dollar state budget deficit, lawmakers should focus on reforming spending and reassessing priorities in tandem with efforts to make the tax code more equitable.

“I think right now we’re sending too much of a message that we can solve all of our problems with a new tax, but if we’re truly going to make our system more fair it has to be more fair for people who are facing a disproportionate share,” Richards said.

At a Tuesday news conference, Rep. April Connors, R-Kennewick, noted Walen and Richards’ opposition, and suggested other Democrats share their concerns, though she did not name them.

“I think there’s a number of Democrats who understand the gravity and the impact of this and that it could be significantly detrimental to Washington state and its future growth and prosperity,” added Rep. Peter Abbarno, R-Centralia.

Other Democrats say they are “open” to an income tax but want more direct relief for Washingtonians.

Rep. Larry Springer, D-Kirkland, told The Times that he believes an income tax is “probably the right thing to do” to fix the state’s regressive tax system. But if lawmakers are serious about reducing regressivity, he said, they should reduce the state’s sales tax and lower the business and occupation tax to offset the burden on low-income families and businesses.

Though he is not a sponsor of the proposal, Springer voted to advance the bill out of committee, saying it deserved full debate on the House floor. He did note that a shorter session this year gives the Legislature less time to vet the bill.

He also acknowledged that future Legislatures could lower the threshold of the income tax to include more taxpayers — or potentially create an income tax on everyone. All taxes and policy bills are subject to change over time, he said, citing the estate and capital gains taxes as examples of revenue sources that have been modified by lawmakers since they were first enacted.

Rep. Tarra Simmons, D-Bremerton, said in a statement that she strongly supports creating a fairer, more progressive tax system but believes parts of the state’s budget “require additional scrutiny,” though she did not specify which areas. Simmons also wants to see more tax relief for working families before backing the proposal.

Other Democrats, including Rep. Roger Goodman, D-Kirkland, and Rep. Clyde Shavers, D-Oak Harbor, did not sponsor the bill and declined to comment on their positions.

The proposal has been revised several times this session. Whether those changes are enough to secure passage in the House remains unclear.

Neither Speaker of the House Laurie Jinkins, D-Tacoma, nor Fitzgibbon, the House majority leader, provided comment Tuesday asking if they whether believed there was enough Democratic votes to pass the bill.

In an earlier conversation with reporters, Jinkins said members’ concerns vary. Some oppose an “income tax no matter what.” Others want more tax relief and some want greater investments in services before signing off in favor.

“We have members who are all in different places; we’re just going to have to figure out where our common ground is,” she said. “I feel pretty good about being able to do that.”

Jinkins added that it is important for members to talk about what their issues are so that the bill can be changed in a way that they would support.

Pedersen said senators left room for House lawmakers to put their “stamp” on the bill because the proposal is complicated and there are a lot of moving parts. He said House leaders “are working very hard with their team to get the bill in shape where it will have the support of both a majority of the House.”

Pedersen added that he thinks the Senate will most likely concur on House amendments.

The bill is unlikely to reach the House floor before Saturday, as it is not subject to Friday’s opposite-house cutoff, according to a spokesperson for House leaders.

Seattle Times staff reporter Jim Brunner contributed to this report.

Editor’s note: An initial version of this article misstated Gov. Ferguson has made annual sales tax holidays a condition of his support. His office said it is just an idea.