Washington residents will vote this November on whether to repeal a state income tax before it ever collects a dollar, according to a new analysis published by the Tax Foundation. Initiative 645 would reverse the legislature's decision to impose a 9.9 percent tax on high earners, scheduled to take effect in 2028. The measure arrives amid mounting tensions over the state's first broad income tax in its history, with constitutional challenges pending and lawmakers already proposing to expand the levy before it launches.
The new tax targets individuals and couples earning more than $1 million annually, but its impact reaches far beyond traditional salary earners. According to the analysis, the levy will primarily hit small business owners and tech workers through three channels: capital gains and dividends, pass-through business income, and restricted stock unit vesting. In Seattle, some high earners could face a combined state and local top rate of 18.037 percent—the nation's highest—when the new 9.9 percent tax combines with the city's 5 percent Social Housing Tax, 2.557 percent JumpStart Tax, and 0.58 percent WA Cares tax. Washington's 672,472 small businesses, most structured as pass-throughs, employ 1.4 million people, representing 48.4 percent of all state employees. Someone who worked at a startup for five years could see all accumulated stock vest at once when the company goes public, triggering tax liability even though their average income over that period stayed well below the threshold.
The report identifies several unusual design features in the tax. Joint filers see their income taxed above $1 million identically to single filers, meaning two unmarried individuals earning $600,000 each would pay nothing while the same two people filing jointly would owe tax. The charitable deduction caps at $50,000, and unlike federal law and other states, the tax includes no safe harbor for those who unexpectedly exceed the threshold—exposing taxpayers who misjudge their liability or experience sudden windfalls from selling a business or home to penalties. Under federal rules, underpayment penalties don't apply if taxpayers pay at least 90 percent of the current year's liability or 100 to 110 percent of the prior year's amount through withholding or quarterly payments; Washington's version offers no such protection.
The political maneuvering around the tax illustrates the procedural complexity voters face. Lawmakers in 2024 overwhelmingly approved a filed ballot measure stating Washington may not tax personal income—but passed it themselves rather than sending it to voters, a move that started a two-year clock allowing them to adopt an income tax during the 2026 session instead of waiting until 2027. They then added an emergency clause to the high-earner tax, claiming the levy—which doesn't collect revenue until 2029—was "necessary for the support of the state government," shielding it from referendum review. The report notes that Washington already imposes a high-rate gross receipts tax and subjects an unusually large share of business inputs to sales tax, creating what the analysis calls "the worst of both worlds for small business owners" by adding a 9.9 percent income tax on top of existing business levies.
Repealing the tax through Initiative 645 faces significant obstacles, including ballot language warning that repeal would require cuts to education funding despite the tax not yet being in place. A 2022 law allows the attorney general to supply fiscal impact statements to ballot measures, though critics point out this statement describes decreasing funding for a tax that doesn't exist and revenues no budget has incorporated. But with one lawmaker already proposing to lower the threshold to as low as $250,000 before the tax even launches, voters may follow historical patterns and reject the income tax—as Washington residents have done repeatedly in past elections.