On March 30, Washington Gov. Bob Ferguson signed Senate Bill 6346 into law, which will levy a 9.9 percent tax on households with incomes exceeding $1 million per year, beginning in 2028.
“Adoption of the historic Millionaires’ Tax makes our tax system more fair, and means free meals for K-12 students, the largest tax break in state history for small businesses, eliminating the sales tax for baby diapers, and sending a check to nearly 500,000 working families to make life more affordable,” Ferguson said at the signing ceremony.
The new tax is expected to generate about $3 billion in the first year, of which 41.3 percent will be sent “to Washington families and small business owners. The next year, that increases to 47.3 percent.”
Essentially, Washington’s new tax is a massive exercise in governmental wealth redistribution, which does not have a great track record of increasing overall prosperity or reducing the wealth gap.
Although Washington is marketing its Millionaires’ Tax as a novel experiment, it has been tried many times before in several states.
A few states—California, Massachusetts, Minnesota, New Jersey, and New York—have implemented heavy taxes on millionaires during the past decade or so.
So far, the results have been what anyone who understands basic economics would expect.
According to a 2025 Heritage Foundation report, “Two million more Americans moved out of California and New York than moved to those states between April 2020 and July 2023. Zero-income tax Florida and Texas and other low-tax states have benefited from tax-related migration, attracting businesses, jobs, and tax revenues associated with wealthy new residents. All income groups tend to move from high-tax to low-tax states, though this pattern is especially true of those making $200,000 or more annually. Outmigration is especially common from states with high taxes on income.”
New York Gov. Kathy Hochul recently addressed the fact that New York’s millionaires’ tax, in place since 2009, has “eroded” the state’s “tax base.”
“What I want to make sure we are smart about is having a system in place where it's not just taxing for the sake of taxing and being conscious of the fact that I need people who are high net worth to support the generous social programs that we want to have in our state,” Hochul said.
“We are in competition with other states who have less of a tax burden on their corporations and their individuals,” she added.
Although Hochul is late for the party, at least she is finally admitting that millionaires’ taxes carry significant drawbacks and don’t necessarily produce the amount of revenue expected over the long term.
State-based millionaires’ taxes are fundamentally flawed because high-wealth households are by no means permanent residents in states that choose to hike taxes on their most productive people. As the data show, eventually the millionaires migrate to low-tax states with more business-friendly environments.
Even though millionaires’ taxes are directly driving entrepreneurs and business creators to flee places like California and New York, Washington State lawmakers and Gov. Ferguson still claim that “The Millionaires’ Tax is historic tax reform that will make Washington more affordable for working people and businesses in our state.”
Actually, the exact opposite outcome is far more likely if past is prologue.
What’s more, before the signing of Senate Bill 6346, Washington State was one of the few states without a state income tax. With the flick of a pen, Ferguson turned Washington from a low-tax magnet to a high-tax hindrance.
The good news is that Washington’s Millionaires’ Tax could be a very temporary measure. In fact, it could be dead on arrival if the state’s courts have anything to say about it.
The Washington State Standard reports that, “The Citizen Action Defense Fund announced it plans to sue, arguing it is unconstitutional and conflicts with the state Supreme Court precedent set in 1933 when it invalidated a voter-approved income tax. Rob McKenna, a former state attorney general and 2012 Republican candidate for Washington governor, will lead the litigation.”
“Washington’s constitution is clear, and the courts have been equally clear for nearly a century — income is property, and progressive income taxes are unconstitutional under existing law,” McKenna said.
Once upon a time, the same was true for the entire nation. Before the Sixteenth Amendment to the Constitution was ratified in 1913, the idea of a national income tax imposed by the federal government was constitutionally dubious.
However, on February 3, 1913, the Sixteenth Amendment gave Congress “the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
It should be noted that “in 1913, due to generous exemptions and deductions, less than 1 percent of the population paid income taxes at the rate of only 1 percent of net income.”
More than a century later, in 2022, “taxpayers filed 153.8 million tax returns …and paid $2.1 trillion in individual income taxes.” Incredibly, the “top 50 percent of all taxpayers paid 97 percent of all federal individual income taxes, while the bottom 50 percent paid the remaining 3 percent.”
On January 11, 1989, in his Farewell Address, President Reagan stated, “Common sense told us that when you put a big tax on something, the people will produce less of it. So, we cut the people's tax rates, and the people produced more than ever before.” That is the crux of the matter.
Chris Talgo (ctalgo@heartland.org) is editorial director at The Heartland Institute.