Washington state's push for a new income tax under Senate Bill 6346 (SB 6346) represents a dangerous shift in fiscal policy, one that not only introduces a 9.9% tax on high earners but also strips away long-standing protections for public and private pensions.
If you are a public employee, you should be paying attention. Eventually, the income tax will apply to your pension.
While the bill ostensibly targets individuals with adjusted gross incomes over $1,000,000, the specific removal of tax exemptions for retirement benefits from public systems sets a precarious precedent. Once that $1,000,000 threshold is inevitably lowered or removed, public pension income will be taxed at 9.9% and according to some state representatives, it’s just a matter of time.
The impact on public pensions could be devastating, eroding the financial security of retirees who dedicated their lives to public service.
Proponents claim the income tax affects only the top 0.5% of households, but the bill's amendments to multiple RCW sections, such as 2.10.180, 2.12.090, and 2.14.100, explicitly ends exemptions for pensions, disability benefits, and death benefits for every pension plan in the state. These benefits, previously shielded from state taxes, must now be included in taxable income.
The immediate impact is a betrayal of promises made to public employees. Washington's public retirement systems, including those under chapters 41.26, 41.32, and 41.40 RCW, were designed with tax exemptions to ensure stable post-career livelihoods. By subjecting these to the new Title 82A RCW tax, the bill discourages long-term service in critical roles.
Public servants who build wealth through prudent investments may relocate to tax-friendly states, exacerbating workforce shortages in areas like law enforcement and education. Moreover, the bill's pass-through entity elections and credits do little to mitigate this for pensioners, as they primarily benefit active businesses, not retirees. But the real danger lies in the slippery slope: What happens when the $1,000,000 threshold is removed? Legislators often start with high thresholds to gain passage, only to expand them later. California's income tax began modestly in 1935 but now burdens middle-class earners. If Washington's threshold drops to, say, $250,000 or vanishes entirely, millions in public pension benefits could become taxable for everyday retirees. Retirees on fixed incomes would face higher costs, forcing some back to work or into poverty.
SB 6346 violates the commitment made to public employees for their pension benefits by punishing success and distorting incentives. Instead of taxing retirees, lawmakers should focus on pro-growth policies: cutting regulations, reforming permitting, and incentivizing private investment to boost revenues organically. Taxing public pensions isn't equity, it's a raid on promises. If the threshold goes, so does trust in government. Washington deserves better. Reject the income tax and protect our public servants' futures.
