Washington’s controversial new income tax targeting high earners may not officially take effect until 2028, but it has already ignited a fierce political, legal, and economic firestorm across the state. A crucial date has now been set for oral arguments in an ongoing constitutional challenge that seeks to strike down the legislation entirely. Meanwhile, the debate has intensified on multiple fronts: a state lawmaker recently floated a proposal to drastically lower the taxable income threshold down to $250,000, while voters prepare to weigh in this November on Initiative 645, a ballot measure designed to overturn the legislature’s decision and block the tax from ever taking effect.

The road to the current legislative and legal standoff traces back to early 2024, when lawmakers overwhelmingly approved a measure bypassing the traditional voter-referendum route. Prior to that maneuver, a ballot measure had been filed stipulating that neither the state nor any county, city, or other local jurisdiction in Washington could tax any individual person on any form of personal income. Amending language adopted by a direct ballot measure typically requires a two-thirds legislative supermajority for the first two years. Had that measure gone to a public vote in November 2024 and passed, lawmakers would have been legally barred from considering an income tax until at least the 2027 legislative session.

By pulling the measure off the ballot and passing the language themselves in early 2024, lawmakers effectively started the clock much sooner. This procedural step allowed them to return during the 2026 session rather than waiting until 2027, clearing the way to adopt an income tax that the original citizen-backed proposal aimed to prevent.

To further insulate the policy from public pushback, Washington lawmakers incorporated an emergency clause into the high-earner income tax legislation. They asserted that the new tax—which does not even go into effect until 2028, with tax filings due in 2029—was strictly "necessary for the support of the state government and its existing public institutions." This specific legal designation effectively shielded the measure from a well-established provision in Washington law that ordinarily allows voters to review major tax changes through a referendum. With that traditional avenue blocked, opponents of the tax mobilized and filed their own repeal initiative, successfully securing a spot on this November’s ballot as Initiative 645.

The legal and legislative maneuvering comes against the backdrop of Washington’s unique fiscal history. The state has traditionally lacked an individual income tax, and its state constitution has long been interpreted by legal scholars and courts as largely prohibiting income taxation, which sits at the heart of the pending litigation. Under the newly enacted tax structure, some high earners residing in Seattle could soon face the highest combined state and local top income tax rate in the entire country. When combining the new 9.9 percent state tax with Seattle’s existing 5 percent Social Housing Tax, 2.557 percent Seattle JumpStart Tax, and the 0.58 percent WA Cares tax, the total top marginal rate could climb to an unprecedented 18.037 percent, split across both employers and employees.

Imposed specifically on individuals or married couples filing jointly with annual incomes exceeding $1 million, the tax is designed in a way that will disproportionately impact small business owners and highly compensated technology workers. Very few wage-earning residents in the state earn straightforward salaries exceeding $1 million. Instead, incomes at that elevated level typically flow through three primary channels: capital gains and dividend income, pass-through business earnings, and the vesting of restricted stock units (RSUs), where years of accumulated corporate stock grants can vest all at once, particularly during a company’s initial public offering.

For instance, an employee working at a growing technology startup for five years might see all five years of accumulated stock vest simultaneously when the firm finally goes public. That single financial event can easily push their income well above the $1 million threshold for that specific year, even though their average annual earnings across the multi-year vesting period were significantly lower.

Beyond tech employees, the tax has profound implications for the state’s vibrant entrepreneurial ecosystem. According to data from the US Small Business Administration, Washington is home to 672,472 small businesses—the vast majority of which operate as pass-through entities—employing roughly 1.4 million workers, or 48.4 percent of the state’s entire workforce. Imposing a 9.9 percent tax on small business owners subjects them to one of the highest personal income tax rates in the nation. This burden compounds existing structural pressures in a state that already levies a high-rate gross receipts tax, known as the Business & Occupation Tax, and subjects an unusually high share of essential business operational inputs to the retail sales tax.

Washington’s broader tax code has historically leaned heavily on business-side taxation, partly because the state avoids a broad-based individual income tax. However, unlike several other states that also forgo an income tax but maintain a low-tax, limited-government philosophy, Washington’s system does not scale back public spending or ease the overall tax burden elsewhere. This leaves local businesses to shoulder a disproportionate share of funding state operations. Critics argue that by superimposing a high-rate income tax specifically on high earners and successful small businesses, the state creates the worst of possible fiscal environments, dampening long-term business growth and undercutting job creation.

The reach of the tax extends even further into ordinary financial milestones. Individuals who are not traditional high earners may unexpectedly find themselves subject to the levy in a given year if they sell a small business they spent decades building or if they generate significant capital gains from the sale of a family home.

Adding to the controversy is the tax’s unusual structural design. The legislation caps charitable deductions at a modest $50,000. Furthermore, joint filers face the exact same tax thresholds as single filers earning above $1 million; under this framework, two single earners making $600,000 each would face zero tax liability, while a married couple with the exact same combined income would be taxed. Additionally, the tax completely lacks any statutory safe harbor provisions for taxpayers who unexpectedly cross the threshold due to volatile income spikes. Under federal law and in most other states with income taxes, underpayment penalties are typically waived if taxpayers pay at least 90 percent of their current year liability or a set percentage of their prior year liability through withholding or quarterly estimated payments. Washington’s model includes no such safety net, meaning taxpayers who misjudge their liability or fail to anticipate crossing the $1 million mark could face severe penalties.

Repealing the newly minted tax via the ballot box remains an uphill battle for opponents, a challenge complicated by contested ballot wording. State officials have attached fiscal impact statements warning voters that repealing the tax would necessitate immediate cuts to education funding, even though the tax is years away from implementation and no state budget has yet incorporated those projected future revenues. A 2022 state law permits the attorney general to supply fiscal impact statements to ballot measures, but critics argue that claiming a repeal will slash existing funding is misleading when the tax does not yet exist.

Nevertheless, as lawmakers continue discussing proposals to expand the tax to an even broader segment of the population before the first dollar is even collected, many voters may ultimately lean toward a historical precedent. Throughout Washington’s electoral history, voters have repeatedly exercised their right to reject state-level income tax proposals, setting the stage for a contentious November showdown.