On Monday, March 30, Washington State Gov. Bob Ferguson signed the controversial SB 6346, also known as the “millionaire’s tax,” into law and will now likely face a plethora of lawsuits as critics gear up to stop this legislation before it takes effect.
Does the Millionaire’s Tax Flout the State Constitution?
The millionaire’s tax imposes a 9.9% income tax on households earning more than $1 million annually. While supporters say this will help small businesses and families, critics warn this is just a first step on the path to income tax on all citizens.
At the bill’s signing ceremony in Olympia, the state capital, Ferguson said, “Families whose income is in the bottom 20% pay a whopping 13.8% of their total income in state and local taxes, while the wealthiest pay a far smaller percentage of their income. That’s not fair, and that’s not right.”
“This tax that was just signed into law is an income tax, is clearly unconstitutional,” said Jackson Maynard, executive director of the Citizen Action Defense Fund.
“Unlike King Bob [Ferguson], we believe that the framers of our state’s constitution meant it when they wrote that ‘all political power is inherent in the people and governments derive their just powers from the consent of the governed,’” Brian Heywood, founder of Let’s Go Washington, said in a written statement. The organization will reportedly file a referendum to let voters decide if the millionaire’s tax should survive. “Our state constitution is the law of the land and not a suggestion that the legislature and the Governor can ignore on a whim.”
The Evergreen State is only one of nine that do not have a state income tax, and as history has shown, Washingtonians are not thrilled with the idea. Once, in 1932, voters approved such a tax, but it was tossed out just a year later by the state’s supreme court. There have been several attempts to implement an income tax over the years, but voters continued to shut it down. In 2010, the most recent try, citizens rejected a proposed wealth tax when the income level was set at $200,000.
“Today is a dark day in our state’s history,” state Senate Minority Leader John Braun (R) said in a statement. “Republicans have said all along that an income tax on anyone in our state will become an income tax on everyone.”
Challenges of the New Income Tax
The law goes into effect Jan. 1, 2028, and the state would start seeing revenues in 2029. As of today, about 21,000 filers would be affected by the millionaire’s tax, generating approximately $3 billion per year.
“The tax itself was not the point of contention among Democrats in the session,” Washington State Standard explained. “Rather it was how much of the $3 billion in anticipated receipts to pledge for tax relief and how much to steer into the operating budget to pay for an array of services and programs.”
A large portion of the revenue is set to go to the state’s Working Families Tax Credit to cover people who are at least 18 years old. The law sets aside 5% of annual tax proceeds, starting in 2029, for the Fair Start for Kids Act to help support childcare and early learning programs. It will also eliminate sales tax for personal care products such as deodorant and shampoo, many over-the-counter drugs, and diapers. Starting July 1, public schools will be exempt from paying this new sales tax on services such as live presentations, temporary staffing, and security.
“It is filled with aspirational ideas and nonbinding pledges, such as free school lunches for public school students, that became critically important to secure votes,” The Standard observed.
Legal Woes
The Citizen Action Defense Fund announced that it plans to sue, saying the bill is unconstitutional and conflicts with the precedent set in 1933 by the state supreme court. Former state attorney and 2012 Republican candidate for governor Rob McKenna is leading the charge. “Washinton’s constitution is clear, and the courts have been equally clear for nearly a century – income is property, and progressive income taxes are unconstitutional under existing law.”
But fighting this legislation is going to be a bit tricky “because the new law contains a so-called ‘necessity clause’ preventing a referendum, [so] the Secretary of State’s Office will formally reject the filing,” The Standard wrote. “Once that happens, Heywood could sue to remove the language and allow such a ballot challenge.”
Washington isn’t the only state to add a wealth tax. California, Massachusetts, Maryland, Minnesota, New Jersey, and New York either have a system in place or are considering one to require people with higher incomes to pay more in taxes.
The big question for the Evergreen State is if this tax is even legal. There will be several lawsuits ahead trying to figure out that sticky point.
Ryan Frost, director of Budget and Policy with the Washington Policy Center, said the way the law is structured leaves room for changes in the future. “It goes back to the people, as long as it’s clear to the people that this is an income tax,” he said. “They will sell it as a millionaire’s tax as much as they want. But it’s very clear in the bill that this is an income tax with an exemption for the first million. That exemption can be lowered or raised at any point in time, just by simple majority. And so I think the people will hopefully see through that and see that this income tax will most likely affect all of us eventually, especially with the direction our state budget is going.”
