Washington lawmakers spar with governor over millionaire's tax

Zoom in: The proposal introduced Tuesday by Democratic legislative leaders would impose a 9.9% tax on annual incomes above $1 million.

• Backers estimate that would affect less than 1% of Washington taxpayers, while raising about $3.7 billion per year.

Yes, but: Gov. Bob Ferguson said Tuesday that he can't support the current proposal from his fellow Democrats because it doesn't do enough to reduce other taxes.

• "I have repeatedly insisted that a significant percentage of the revenue generated by the millionaire's tax must go back into the pockets of Washingtonians," Ferguson said in a written statement Tuesday. "This proposal does not come close to doing that."
• His comment echoes earlier support he declared for a millionaire's tax, with the caveat that any such plan must provide ample tax relief for residents and businesses. He called the lawmakers' proposal "a good start."

What's inside: The proposal Democrats released Tuesday would provide some tax relief, including by eliminating the sales tax on hygiene products, such as soaps, shampoo, toothpaste and deodorant.

• It would also exempt companies from paying the state's business and occupation tax if they gross less than $250,000 per year.
• Money from the millionaire's tax would also be used to expand the state's Working Families Tax Credit program, which provides sales tax rebates to low- and middle-income Washingtonians.

What they're saying: The proposal is about "shifting the tax burden so it is paid by wealthier people and large businesses" who can afford it, Senate Majority Leader Jamie Pedersen (D-Seattle) said at a news conference Tuesday.

• "We are not interested in increasing taxes on working people," Pedersen said.

By the numbers: All told, about 18% of the revenue from the millionaire's tax would be used for tax relief during the first two years of the plan, according to an estimate provided by state Senate staff.

• After that, a slightly lower share — about 15% — of the tax money would go toward tax-relief measures, per the estimate.
• Separately, 5% of the tax revenue would go toward helping counties cover the cost of providing public defense attorneys for criminal defendants, a mounting expense for local governments.

• The rest could help pay for other parts of the state budget, which faces a long-term shortfall.

The fine print: The $1 million income tax threshold would rise with inflation each year, preventing it from affecting middle-income people in the future, its supporters say.

The other side: Republicans argue that the tax would eventually be expanded to apply to people who aren't millionaires.

• "It will quickly become a tax on regular people like you and me," state House Minority Leader Drew Stokesbary (R-Auburn) said at a news conference Tuesday.
• GOP leaders also questioned the tax's legality, given past court rulings that have interpreted the state constitution to bar income taxes that target high earners.

Between the lines: Democratic leaders say they expect a millionaire's tax to face a court challenge if enacted and are banking on Washington courts revisiting past rulings that allow only flat income taxes.

• Democratic leaders also expect that a citizen initiative would be introduced to try to overturn the measure if it passed, they said Tuesday.
• The tax wouldn't take effect until 2028, allowing time for those challenges to play out.

What's next: Democratic legislators said the details of the bill will evolve in the coming weeks, including to address some of the governor's concerns.

• The Senate version of the proposal is scheduled for a public committee hearing Friday.