(WASHINGTON STATE) — The Washington state Senate passed a proposal on February 16, 2026, to tax income above $1 million at 9.9%, sending what supporters call the “Millionaires Tax” to the House in a high-stakes fight over education funding and tax relief.
Senators approved Senate Bill 6346 in a 27-22 party-line vote, with Democrats in favor and Republicans opposed.
Senate Majority Leader Jamie Pedersen, a Democrat from Seattle who sponsored the bill, cast it as a way to raise new money while limiting the tax to the state’s highest-earning households.
Under the plan, Washington would levy the new 9.9% tax on gross annual income exceeding $1 million per household. Households earning $1 million or less would not owe anything additional.
Supporters framed the measure as a major revenue proposal aimed at a small slice of taxpayers, with backers saying it would affect fewer than 1% of households, or roughly 20,000 taxpayers.
The Washington Department of Revenue projected the tax would generate $3.7 billion annually, though some projections cited $3.5 billion.
Democratic lawmakers tied the spending pitch to public education, early learning, child care and health care, as the Legislature faces pressure to fund core programs while balancing competing demands in a short session.
A negotiated element of the package would steer 7% of the proceeds to counties for public defense and safety, a share that increased from 5% in the bill’s earlier form.
Democrats also linked the proposal to expanding the Working Families Tax Credit, which they described as sales tax rebates for low- and moderate-income families.
The bill pairs the new high-income tax with several relief provisions, a structure supporters have described as trading a tax aimed at top earners for targeted breaks affecting smaller businesses and some consumer purchases.
Lawmakers set the Millionaires Tax to take effect in 2028, delaying the start while the state prepares for administration and while negotiations continue over what other changes should accompany it.
Separate timing applies to business relief included in the broader package. Starting 2029, small businesses grossing under $300,000 annually would be exempt from the Business & Occupation tax, a threshold lawmakers raised from $250,000 through an amendment.
Supporters said the exemption would cover 65% of statewide businesses, while leaving larger firms subject to existing obligations.
The proposal also eliminates sales tax on hygiene products such as shampoo and deodorant, and on certain services including temporary staffing and security.
Another change would roll back some of the state’s recent sales tax expansions on select services, an amendment sponsored by Sen. Marko Liias, a Democrat from Edmonds.
The package includes an expanded charitable deduction, increasing the exemption limit to $100,000 from $50,000, which supporters said would encourage giving and mitigate the impact for some filers.
Republicans lined up against the proposal and argued it runs afoul of Washington’s constitution and statutes. They also pointed to the state’s history of voter decisions, saying voters rejected income taxes 10 times in nearly a century.
Sen. Keith Wagoner, a Republican from Sedro-Woolley, called it “a dark day for taxpayers,” arguing lawmakers were ignoring voters’ will.
Senate Minority Leader John Braun, a Republican from Centralia, warned about broader economic effects and the risk of discouraging investment. “If we punish prosperity, we shrink it,” Braun said.
Opponents also pressed a small-business argument centered on how the tax applies to income of sole proprietors and pass-through entities.
Republicans said the structure hits businesses that report earnings on personal returns, even when owners keep cash in the business to cover payroll or investment needs. They said the result could strain cashflow and put those firms at a disadvantage compared with C-corporations.
Critics cited an estimate that sole proprietors and pass-through entities make up 85% of small businesses, a figure they used to argue the bill reaches beyond the most affluent wage earners.
Business groups also weighed in. The National Federation of Independent Business reported 98% member opposition, Republicans said, as they warned the proposal could alter decisions about hiring, expansion and investment.
Some opponents argued the tax could trigger migration by wealthy residents and entrepreneurs. They also expressed skepticism that the tax would stay limited to top earners, saying future legislatures could lower the threshold or raise the rate.
Republicans placed the bill in the context of recent fiscal debates, pointing to $9 billion in 2025 tax hikes as evidence, they said, that lawmakers have already increased the state’s tax burden.
Gov. Bob Ferguson has objected to what Republicans described as insufficient small business relief, an argument that could shape House negotiations over whether to add more carve-outs or alter the timing and scope of tax changes.
Democrats, for their part, portrayed the package as a way to direct new funding to public priorities while keeping the tax confined to households above the $1 million threshold.
Even with Senate passage, the bill faces a tight schedule. The 60-day 2026 session ends March 12, 2026, giving House lawmakers a narrow window to weigh amendments and send any final version back through both chambers if changes occur.
House approval and the governor’s signature are required for the bill to become law, setting up a second round of negotiations that could hinge on what relief provisions the House adds or revises.
Lawmakers and observers also expect legal challenges if the measure becomes law, a prospect that could affect the timing of implementation even with a delayed start date for the new tax.
The Senate vote locked in the bill’s first major test and put Pedersen and other Democratic leaders at the center of a debate that mixes revenue policy with questions about fairness, economic competitiveness and Washington’s long-running fight over income taxes.
Liias’ amendment on sales tax changes showed how lawmakers used the bill as a vehicle for a broader package, with negotiations reaching beyond the headline rate and threshold.
On the other side, Wagoner and Braun emerged as leading Senate voices against the plan, focusing their critiques on constitutional questions, business impacts and warnings that the tax could expand beyond millionaires.
As the House prepares to take up SB 6346, the debate will likely turn on whether Democrats can keep the coalition together around education and family supports while addressing pressure for more relief aimed at employers and consumers.
For Republicans, the fight now shifts to the House and to a message they have used repeatedly in Olympia: “If we punish prosperity, we shrink it.”
Millionaires Tax Advances as Jamie Pedersen Pushes Working Families Credit
The Washington Senate approved a 9.9% tax on income over $1 million to boost funding for public education and social services. The bill, passing on party lines, includes offsets like small business tax exemptions and the removal of sales tax on hygiene items. Critics argue the measure is unconstitutional and may drive away wealthy residents, while supporters claim it targets only the top 1% of earners.
