Last week Washington state Democrats introduced companion bills in the Senate (see screen capture) and House that propose to tax high earners. Dubbed the “millionaires” tax, the legislation imposes a 9.9 percent tax on annual earnings above $1 million. Although “millionaires” tax is a catchy term, it won’t apply for long, not because the tax will be overturned by a voter or legal challenge, but because of some fine print in the bills.
The two bills are progressing steadily through the legislative process. With strong Democratic majorities in both chambers and a willing governor, the bills will almost certainly pass even though this is an election year. Opponents then will likely gather enough signatures to put an initiative before the voters to repeal the tax. If a majority votes against the tax (and that’s a tossup at this point), it won’t matter as our one-party state will find a way around voters’ wishes.
The tax will also face an inevitable legal challenge that will go all the way to the Washington Supreme Court. The Washington constitution is clear that income is considered property and that property must be taxed at a uniform rate, so income thresholds like the $1 million standard deduction in the bills are illegal. Again, it doesn’t matter. The Supreme Court will likely make a majority ruling that the tax is constitutional, perhaps by calling it an excise tax like they did with the capital gains tax that passed in 2021.
The Mud Bay blog is opposed to the tax. The idea of taxing millionaires only is divisive and a bit hypocritical as not one Democrat in the legislature will be subject to the tax. At the same time, it is courageous. The tax is step 2 along the path to Democrats’ real goal: a statewide income tax. (Step 1 was passing the capital gains tax.) When that happens in a few years, I don’t want to have to hassle with the paperwork and recordkeeping involved (or pay my accountant to do it). I prefer our current tax system, which derives revenue from many sources. Our system is considered uber regressive—one where the rich don’t pay their fair share. I look at it as a system where just about everyone has skin in the game and hopefully realizes that state government isn’t free.
The term “millionaire” is most commonly used to refer to individuals whose net worth (assets minus liabilities) is $1 million or more. However, for the “millionaires” tax, annual income not net worth is the underlying basis. Whether people view the term in a positive, neutral, or negative light is up to the beholder and may also depend on context. The number was chosen carefully: it’s easy to remember, it’s out of reach for most Washington households, and it’s a level associated with being rich, a small group of Washingtonians who can afford to pay more according to a majority of voters. Whether the term is more magical than negative is a judgment call.
The irony is that the $1 million threshold will only be in place for the first year. Beginning in October 2029 and each October thereafter, the standard deduction will be adjusted based on changes in the consumer price index. Interestingly, the standard deduction can be increased but not decreased. So, within a year or two, the tax won’t be on people making more than $1 million annually. It will be on incomes above $1,030,000 or $1,060,000 or whatever the CPI formula dictates. This doesn’t have quite the same ring as a “millionaires” tax even if the idea is the same.
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