Washington state will introduce its first-ever income tax in 2028, a 9.9% levy on income over $1 million that places it at the forefront of a national battle over wealth, migration, and economic strategy.
Washington state enacted a 9.9% tax on annual income over $1 million, a landmark policy for a state that has historically not levied an income tax. The law, signed by Governor Bob Ferguson and effective in 2028, is projected to generate at least $3 billion in annual revenue by 2029, funding a suite of social programs and tax credits aimed at lower-income families.
"This disparity was made much worse by President Trump’s massive tax cuts for the wealthy, paid for, by the way, with cuts to necessities like healthcare and food assistance that have tremendous harm to the people of Washington state,” Governor Bob Ferguson said. He argued the law was necessary to “rebalance an unfair system,” noting that residents in the bottom 20% of income earners pay 13.8% of their income in state and local taxes, a far higher rate than the state's wealthiest individuals.
The new revenue is earmarked for several key areas, including the expansion of the Working Families Tax Credit to an additional 460,000 families, providing free school meals for all K-12 students, and offering tax breaks to 138,000 small businesses. Additionally, the state will eliminate the sales tax on diapers, over-the-counter medications, and hygiene products.
The move places Washington alongside a growing number of Democratic-led states targeting high earners to fund social spending and address inequality, deepening a stark policy divide with Republican-led states that are aggressively cutting or eliminating income taxes. This divergence is setting up a national experiment on whether capital and talent will migrate in response to tax policy, with significant long-term economic and political implications.
Washington is not alone in its approach. In 2022, Massachusetts voters approved a 4% surtax on annual income exceeding $1 million, which generated nearly $3 billion in fiscal year 2025. California imposes a 1% surcharge on incomes over $1 million to fund its healthcare system, and New York City Mayor Zohran Mamdani is advocating for a 2 percentage point increase on high-income households, which would push the top combined state and local rate to 16.8%. These policies reflect a strategy in blue states to use progressive taxation to fund expanded social safety nets and public services.
In sharp contrast, a significant number of Republican-led states are moving to reduce or completely phase out their personal income taxes. States including Arkansas, Kentucky, Mississippi, and Oklahoma have enacted legislation to gradually eliminate the tax, often using revenue triggers to lower rates incrementally. South Carolina is on a path to reduce its top rate to 1.99%, and Missouri may vote on a plan to phase out income taxes while expanding sales taxes. This strategy is based on the economic theory that lower taxes will attract talent and capital, stimulating economic growth that will offset the lost income tax revenue.
Opponents of Washington's new tax warn it could trigger an exodus of its wealthiest residents and entrepreneurs, undermining the state's tax base and discouraging investment. Drew Stokesbary, the Republican House minority leader, voiced concerns that the tax could stifle the entrepreneurship that has been central to Washington's economic success. A referendum to repeal the law has already been filed by Brian Heywood, founder of the conservative political committee Let’s Go Washington. The debate centers on a critical question: will the benefits of increased funding for social programs outweigh the potential economic damage from the flight of high-earning taxpayers? The answer will have profound consequences for Washington's economy and could serve as a case study for other states considering similar measures.
This article is for informational purposes only and does not constitute investment advice.
