Senate Bill 6346 (SB 6346 and HB 2724) is the latest draconian income tax legislative proposal which would impose a 9.9% tax on individuals with Washington taxable income above $1 million starting in January 2028. Framed as a way to fund K-12 education, health care, higher education, human services, and the working families’ tax credit, while offsetting some sales/use and business & occupation (B&O) tax relief, the bill targets what proponents call the wealthiest 0.5% of households. It promises exemptions for family business sales and real property and includes credits for existing B&O, public utility taxes, capital gains taxes, and pass-through entity taxes.
And if you think it won’t touch you since you don’t make a million dollars a year, think again. According to Larry Springer (D), within a few years, it will be on everyone.
This measure represents a dangerous shift for a state that has long avoided a broad personal income tax. Washington’s current system relies on sales, B&O, and property taxes, making it attractive to entrepreneurs and businesses to do business here. Introducing the income tax and stacking with Seattle’s JumpStart payroll tax (up to 2.55%), WA Cares payroll tax (0.58%), and other levies, would push Seattle’s combined top rate on wage income with stock options to over 18%, the highest in the nation and far exceeding New York City’s.
This is not abstract policy. Washington residents making with salaries above the median and business owners are highly mobile. Data from IRS migration statistics show Washington already experiencing net losses of affluent households. A 2024 SmartAsset analysis of IRS data found Washington lost a net 222 high-earning millennial households (AGI >$200,000) in 2021-2022, ranking among the nation’s highest outflows. Subsequent reports highlight accelerating departures among wealthy Gen Z professionals, second only to Illinois in some metrics.
Amazon founder Jeff Bezos relocated to Miami in 2023, drawn to Florida’s zero-income-tax environment, Tesla and SpaceX’s Elon Musk moved operations and residence to Texas and tech executives from Microsoft and Amazon continue shifting to low-tax havens such as Las Vegas, Nevada and other lower tax states. These moves reflect broader patterns where high-tax states lose both people and associated tax income. Between 2021-2022, California lost $24 billion in personal income from high-earner households. New York saw similar outflow of personal incomes. Low-tax destinations like Florida (+125,551 net filers), Texas (+88,216), and North Carolina gained disproportionately from high-income migrants.
Nationally, states with high individual and corporate income taxes experience greater out-migration than those relying more on sales taxes. Heritage Foundation analysis of IRS data (2020-2023) shows approximately 2.8 million more Americans left high-tax states than entered them, with income tax burdens as a key driver. California (top rate 13.3%) and New York (up to 14.8% in NYC) consistently top out-migration lists, while Florida, Texas, and Tennessee attract businesses and talent. Companies like Charles Schwab, Oracle, Tesla, and Hewlett Packard have fled California for Texas in recent years; financial institutions have shifted from New York to Florida and North Carolina.
Washington’s proposal exacerbates risks for pass-through entities (partnerships, LLCs, S-corps), which dominate small and mid-sized businesses. These owners would face the full 9.9% hit on distributive shares after limited credits, incentivizing relocation of operations or residency to zero-income-tax states.
As an example, a $5 million dollar company, owned by a family member that made $2 million in profit in a year, could incur a almost $100,000 tax bill even if the family member only took a modest salary from the company. Any profits in the company that could be withdrawn, even if they are left in the company accounts for reinvestment and growth, would be subject to the tax.
The bill’s sourcing rules for nonresidents and apportionment for business income may deter new investment or prompt partial exits. Studies confirm high earners respond to tax differentials, particularly those with investment income or weaker local ties (e.g., recent divorcees or retirees), though overall migration elasticity remains modest (less than 0.1 in some analyses). Even small percentage losses among high income individuals can erode the tax base significantly when the revenue depends on a narrow slice of tax filers.
Proponents argue the tax effects are few and include offsets, preserving services. Yet history shows high progressive rates shrink the base faster than anticipated. California’s repeated high-earner exodus has contributed to chronic deficits despite record rates. New York faces similar shortfalls. Washington risks the same, reduced entrepreneurial activity, fewer headquarters, job losses in tech/finance, and higher consumer prices as businesses pass on costs or depart.
Microsoft President Brad Smith has warned of “lasting damage” to the state’s innovation economy.
Rather than chasing revenue from a shrinking pool of high earners, policymakers should prioritize growth: lower regulatory burdens, reduce B&O/sales taxes, and avoid new income levies that signal hostility to success. Washington’s no-income-tax status has been a competitive advantage. Abandoning the advantage invites the very exodus critics try to dismiss as myth.
Olympia – the canary is already screeching. The income tax will destroy Washington's economy and for those politicians that think this is just another faux analysis, it’s not.
Business will not be as usual, just ask Detroit.
