A proposed 9.9% income tax on earnings above $1 million would cost Washington up to $2.50 in lost economic output for every dollar the state brings in, according to a new study released by Washington Policy Center and The Buckeye Institute. The report, titled "Washington Tax Gamble: An Evaluation of Washington's Income Tax Hike," finds that while the tax would generate revenue, it would leave the state with fewer jobs, slower economic growth, and reduced business investment than it would have without the levy.
The report projects that the tax, established through Senate Bill 6346, would trigger a $4.9 billion reduction in economic activity and eliminate thousands of jobs. Economists at The Buckeye Institute modeled the state's economy both with and without the tax, starting with income earned in 2028. The analysis notes that the estimated economic damage stems solely from the current $1 million threshold, meaning future harm could exceed these projections if lawmakers lower the threshold as the law allows. The report also observes that Washington has spent beyond its expected tax revenue in each of the last three budget cycles: roughly $1.9 billion more in 2019-21, $2.6 billion more in 2021-23, and $4.1 billion more in 2023-25.
"This report shows what the state's revenue estimate leaves out, which is how people and businesses react once a new tax is in place," said Steven Hatting, president and CEO of Washington Policy Center. The authors warn that abandoning Washington's no-income-tax policy could prove "economically disastrous for the Evergreen State," according to co-author Rea S. Hederman Jr., executive director of the Economic Research Center at The Buckeye Institute. Ryan Frost, WPC director of budget and tax policy, cautioned that the law as written creates a framework for reducing the threshold, with some legislators already calling for it to drop to $250,000—a change that would magnify the economic consequences.
The report explains that the negative economic effects result from how taxpayers and businesses respond to new levies. When high earners face a 9.9% tax on income above $1 million, they change their behavior in ways that ripple through the broader economy—reducing investment, relocating income or operations, and making business decisions that slow overall growth. The state's revenue projections capture only the dollars collected, not the economic activity that disappears when the tax takes effect. Because the law establishes the infrastructure for an income tax and because such taxes historically expand once enacted, the report warns that current damage estimates represent only "the tip of the iceberg" if future legislatures lower the threshold to capture more taxpayers.
The report concludes that ongoing budget pressures require more than just another revenue source. Instead of imposing what the authors call a "potentially volatile tax," the state should pursue spending discipline, revenue stability, and a competitive tax environment to strengthen its long-term fiscal position. The bottom line: Washington's income tax gamble trades short-term revenue for long-term economic harm that voters won't see on the ballot's official impact statement.