Washington state Democrats have passed Senate Bill 6346, which imposes a 9.9% income tax on households earning over $1 million annually, following an intense 25-hour floor debate. Democrat Governor Bob Ferguson has pledged to sign the bill into law [1]. The legislation is controversial due to longstanding legal precedent: in 1933, the Washington Supreme Court ruled in Culliton v. Chase that income is considered property under the state constitution, and Article VII requires property to be taxed at a uniform rate, rendering a graduated income tax unconstitutional. Former state Attorney General Rob McKenna issued a legal memo asserting the bill's unconstitutionality, referencing nearly a century of settled precedent [1]. Washington voters have rejected income tax measures at the ballot box 10 times, most recently in 2010 [1].
The move by Washington follows similar tax-hiking strategies seen in California and New York, where high-profile billionaires such as Travis Kalanick, Elon Musk, Mark Zuckerberg, Larry Page, Sergey Brin, and Peter Thiel have relocated to states like Texas and Florida to avoid higher taxes [1]. In New York City, Mayor Zohran Mamdani is advocating for an additional 2% income tax surcharge on residents earning over $1 million, alongside corporate tax hikes aimed at closing a $5.4 billion budget deficit. His ultimatum to Albany is that approving these taxes is the only way to prevent a 9.5% property tax hike on all residents. However, Democrat Governor Kathy Hochul has resisted these measures, citing concerns about losing wealthy residents to Palm Beach [1].
The passage of Washington's income tax bill is expected to have significant market implications, particularly for high-net-worth individuals and the state's tax base. The article suggests that Democrats are aware of the bill's likely legal challenges and are intentionally pushing the issue, potentially to provoke a judicial review or to set a new precedent [1].
No forward-looking statements or analyst opinions are provided in the article, but the overall sentiment is negative, highlighting the risk of wealthy individuals leaving high-tax states and the potential for legal battles over the constitutionality of the new tax [1].
CONCLUSION
Washington's new millionaire income tax faces strong legal headwinds and is likely to provoke further debate and possible court challenges. The move mirrors similar tax strategies in other states, raising concerns about the flight of wealthy residents and the stability of state tax bases. Market participants should monitor the legal developments and potential impacts on migration and state finances.