Washington’s millionaire tax and the fear of a business exodus
The hottest tax debate in the United States right now isn’t happening in New York or California. It’s in Washington, a state historically known for having no state income tax — and one that’s now on track to pass a proposal that could radically change that reality. The so-called millionaire tax would impose a 9.9% rate on annual income above 1 million dollars, and it’s already shaking up the plans of startup founders, small business owners, and leaders in the artificial intelligence sector.
The bill is expected to go to a vote in the state House in the coming days. If passed and signed by Governor Bob Ferguson — who has already publicly stated he will sign the measure — the new tax would take effect starting in 2028 and generate an estimated $4 billion per year in revenue. The funds would be directed toward education, healthcare, higher education, and social services.
Seems like a straightforward equation, but the debate is anything but peaceful 🔥
On one side, critics warn the measure will drive entrepreneurs away and weaken one of the country’s leading innovation hubs. On the other, supporters argue the tax corrects an unfair tax structure and, over the long term, strengthens the skilled workforce that sustains those very businesses. Caught in the middle of this fight, real stories of business owners threatening to relocate to other states — and even one who publicly supported the tax and ended up pressured into stepping down from his company’s leadership — show the tension is very real.
What the proposal includes and why it sparked so much controversy
Washington state has historically been a magnet for tech companies, high-growth startups, and skilled professionals seeking a lighter tax burden. With no state income tax, the region offered a clear competitive advantage over neighbors like California and Oregon. With this new proposal, that advantage could shrink significantly.
The 9.9% rate would apply not only to salaries and personal income above 1 million dollars but also to so-called pass-through income. This is the point that worries the business community the most. Pass-through income is profit from a business that flows directly to the owner as an individual — something extremely common among small and mid-sized businesses that aren’t structured as large corporations. In practice, this means a business owner whose company generates more than 1 million dollars in annual profit passed through to them would owe the new rate, even if that money never actually hits their pocket as cash.
Ryan Likkel, owner of Western Refinery Services, a construction company based in Ferndale with about 200 employees, summed up the concern well. According to him, most of his pass-through income never becomes money he actually sees, because it gets reinvested back into the business. If he has to pay tax on that income, there’s less left over for growth, equipment purchases, and new hires.
Supporters of the proposal, in turn, point out that fewer than 1% of businesses in Washington would hit the 1-million-dollar threshold needed to trigger the tax. State officials estimate that roughly 30,000 taxpayers statewide would be affected, though the Department of Revenue wasn’t able to say how many of those would be businesses. On top of that, with the deductions and other relief measures built into the proposal, many smaller businesses could actually see their overall tax burden decrease.
Receive the best innovation content in your email.
All the news, tips, trends, and resources you're looking for, delivered to your inbox.
By subscribing to the newsletter, you agree to receive communications from Método Viral. We are committed to always protecting and respecting your privacy.
The battle within the tech ecosystem
What really stands out about this debate is how much it has divided Washington’s own tech community. This isn’t a simple clash between business owners and the government — there are founders and influential leaders on both sides of the issue.
Among the most vocal critics is Aviel Ginzburg, a Seattle-based founder who called the proposal economic suicide. Shortly after Governor Ferguson announced his renewed support for the latest version of the bill, Ginzburg posted a provocative message on social media saying San Francisco would be seeing him soon — a reference to a possible move to California, which carries some irony given that many tech professionals made the opposite journey in recent years specifically to escape California’s taxes.
Ginzburg argues the tax will cool down the state’s startup ecosystem, pushing away the very entrepreneurs who drive the local economy. That view is shared by other heavy hitters in the industry. In a recent letter sent to Governor Ferguson, several tech leaders warned that Democrats’ tax proposals would hurt Washington’s ability to keep growing in the tech sector and would slow down investment and innovation in artificial intelligence — something that should be accelerated, not discouraged.
Among those who signed the letter were Oren Etzioni, founding CEO of the Allen Institute for Artificial Intelligence, and Luis Vargas, former VP of AI at Microsoft, according to excerpts published by The Wall Street Journal.
On the other side of the fence, Ben Golden, a Seattle-area attorney who advises tech startups, published an opinion piece on GeekWire arguing that the doomsday predictions of a business exodus are overblown. According to him, most of the loudest critics of the proposal — people he respects and works with every day — will almost certainly continue living and working in Washington.
Steven Severin, a veteran Seattle nightclub owner and one of the most enthusiastic supporters of the tax, had a reaction diametrically opposed to Ginzburg’s. In his view, the measure will put more money in people’s pockets, and they in turn will spend it at local businesses. The logic is that investing in education and healthcare strengthens the economy as a whole and creates a virtuous cycle that benefits businesses too.
Governor Ferguson’s role and the behind-the-scenes negotiations
Governor Bob Ferguson played a central role in shaping the proposal. From the start, he conditioned his support for the income tax on the inclusion of significant cuts for businesses and working families. Among the concessions he demanded was a reduction in the business-and-occupation tax, a tax on business activities that had been increased the previous year alongside other business levies.
That demand led to weeks of intense negotiations between lawmakers and a highly visible public relations battle over the measure’s potential impact on Washington’s business community. The result was a bill that attempts to balance the new revenue with tax relief on other fronts, although not everyone is convinced the balance was actually achieved.
Beyond unions and progressive groups, the proposal has the backing of the Economic Opportunity Institute, a progressive think tank based in Seattle. The organization argues that even with the 9.9% rate, the effective tax rate — meaning the actual percentage of tax paid on total income — would still be lower than what many other states with income taxes charge, especially those with brackets that kick in at much smaller amounts.
Artificial intelligence at the center of the tax debate
One element that makes this discussion even more complex is the role of artificial intelligence. Washington is home to some of the largest AI companies and research labs in the world, and a significant portion of the professionals leading those projects earn compensation that easily clears the 1-million-dollar annual threshold. The state’s tech sector is already in the middle of a major restructuring driven by disruptive AI technologies, and critics worry the new tax will make it even harder to attract entrepreneurs and compete with other tech hubs.
The global competition for AI talent is already fierce, and any tax disadvantage could lead those professionals — and the startups they might found down the road — to set up shop in regions with more favorable conditions. Considering that the race for AI leadership is now a strategic issue for both companies and governments, losing that kind of human capital could have consequences that go well beyond state revenue.
At the same time, there’s a strong argument that the revenue generated by the tax could be directed toward programs in computer science, engineering, and related fields, building a broader and more diverse talent pipeline to feed the tech and AI sector. This longer-term view challenges the narrative that the tax is purely harmful to the ecosystem.
The specter of a business exodus and the numbers behind the fear
The possibility of a business exodus isn’t just rhetoric. A recent survey from the Association of Washington Business, a lobbying and business representation group critical of the tax, found that 17% of employers in Washington are considering moving their businesses to other states. That number nearly doubled from the prior year, when it was 9%, and the primary reason cited was tax changes.
Several prominent business leaders in Washington have already publicly declared they will relocate or that they’ve already taken steps to avoid this and other taxes. The phrase business exodus, in this context, isn’t hyperbole. In recent months, founders and executives based in the state have started openly talking about plans to move to Texas, Nevada, and Florida, all of which maintain a zero percent state income tax rate.
Jared Walczak, a senior researcher at the Tax Foundation, a New York-based organization, noted that the 9.9% rate is anomalously high compared to other states. Even if the tax only hits larger businesses, the size of those companies means they play an outsized role in hiring and investment. In his words, the tax may not have many payers, but the ones who do pay are job creators.
Still, not everyone agrees the flight is inevitable. Justin Beals, a founder and veteran of the Seattle startup scene, argues that taxes are just one of the factors entrepreneurs consider when choosing where to build a company. For him, what matters far more is access to a well-educated workforce — and a fairer tax system is essential to developing that workforce.
The business owner who backed the tax and paid the price
Perhaps no episode better illustrates the temperature of this debate than the case of Jed Fowler, president and chairman of HD Fowler, a construction materials company headquartered in Bellevue. During a state Senate hearing, Fowler publicly spoke in favor of the tax, calling it a pro-business investment in Washington’s shared prosperity.
In the packed hearing room, his words about being willing to pay the tax — and that others like him should pay it too — were met with applause. But the reaction outside the chamber was very different. Days later, Fowler wrote to the company’s customers apologizing for his testimony and announcing he would step down as chairman.
In the message, Fowler acknowledged he had spoken from a narrow point of view — his own — and that after conversations with his team and industry partners, he realized an apology was necessary. He declined requests for further comment from the press. The episode is a powerful reminder of how deeply the issue has divided the state’s business community, to the point where simply expressing a favorable opinion about the tax can come at a real cost to business relationships and careers.
What to expect in the chapters ahead
The vote in Washington’s state House promises to be a tight one. Even if the income tax proposal passes, it will likely face legal challenges and pressure for adjustments before taking effect in 2028. Historically, attempts to implement an income tax in the state have been blocked by the courts or rejected in popular referendums, which shows that the legislative path is only one part of the battle.
Regardless, the simple fact that the bill has advanced this far already represents a significant shift in the local business environment and signals that Washington’s tax balance is under review. For startup founders, small business owners, and all the professionals who are part of this ecosystem, keeping a close eye on how things unfold is essential to making smarter decisions about the future of their operations.
No matter which side ultimately prevails in this fight, one thing has become clear: the debate over taxation and innovation is no longer confined to economists and lawmakers. It’s now at the center of conversations in accelerators, coworking spaces, AI meetups, and founder groups. The business exodus could be a real risk or an overblown fear — but how Washington handles this tension will say a lot about the role the state plays in the next wave of tech innovation in the United States 🚀
