By Rea S. Hederman Jr. and Ryan Frost
Washington’s famous “no personal income tax” policy gave the state and its employers a huge competitive advantage for decades. It fueled growth and attracted talent at Amazon, Boeing, and Starbucks. It charted a no-tax course that other states followed. But now Washington looks ready to buck the very trend it helped create.
First came a “limited” capital gains tax in 2022. Then came its expansion with a higher marginal rate. Now, Senate Bill 6346 takes another step closer to a broad personal income tax—a mistake that will sacrifice economic growth, investment, and jobs in the long run.
Even worse, the legislature plans to impose the new income tax to pay for out-of-control public spending that already exceeds projected tax revenues and that officials refuse to restrain. Tax-and-spend advocates expect the income tax to boost annual state revenues by more than $3 billion so the public spending spree can continue.
But the state’s Office of Financial Management (OFM) offers a more sanguine warning: even with the additional revenue, Washington’s budget will remain tight. According to OFM, the new tax and other recent revenue-raising measures do not improve the state’s fiscal prognosis. Its optimistic estimates suggest revenues may be sufficient to maintain current programs but not expand them. And the latest full revenue forecast shows weaker economic activity reducing projected state revenue by nearly $1 billion through 2031. Evidence that tax policy matters.
The proposed new income tax is shortsighted for another reason. It largely will fall on a concentrated group of technology professionals, entrepreneurs, and business owners who also just happen to be some of the most geographically mobile members of today’s economy—which means they can move. And they will.
Washington has already lost large swaths of its high-income taxpayers. IRS migration data shows that after years of net high-income immigration to the state, Washington suffered a net decline of nearly 15,000 high earners from 2021 through 2023, including more than $3 billion in associated income in 2022 and 2023. And a recent 2026 employer survey found nearly one in four employers considering relocation, while 72 percent cited the overall tax burden as a top business challenge. More evidence that tax policy matters.
To better gauge the economic tradeoffs at stake with Washington’s new appetite for personal income taxes, The Buckeye Institute used its dynamic economic scoring model—STELA—so that state policymakers and their constituents know what to expect over the next few years. STELA predicts that in 2028 the tax will raise about $2.6 billion in state revenue. But it will cost Washington roughly $4.9 billion in GDP, $3.1 billion in private investment, and about 7,800 jobs. Over the longer run, by 2036, Washington’s annual revenue will be about $3.3 billion higher, but its GDP will be $8.3 billion lower, and the labor market will lose almost 19,000 jobs. Nearly 600 high-income taxpayers could leave Washington, taking about $1.76 billion in annual adjusted gross income with them. STELA also estimates roughly 1,400 fewer new employers and 6,100 associated jobs per year. Because tax policy matters.
Washington’s long-term prosperity does not depend on tax revenue. It depends on the underlying economic activity from which that revenue can be raised. And taxes that overtly discourage entrepreneurship, investment, and job creation ultimately weaken that foundational activity.
State tax policy matters. It affects businesses, families, entrepreneurs, and investors. It can create—and destroy—competitive economic advantages. Washington lawmakers should look for solutions that preserve the advantages fostered by the state’s “no income tax” past, without jeopardizing its fiscal future. That effort should start with controlling runaway public spending, not levying new taxes on ultra-mobile wealth generators who will be only too happy to build and take their businesses to one of the new no-tax states that Washington inspired.
Rea S. Hederman Jr. is executive director of the economic research center at The Buckeye Institute. Ryan Frost is the director of budget and tax policy at the Washington Policy Center.
