Washington voters appear to have upheld the state’s new tax on high earners, putting the state on track to lose its place among the nine states without an income tax — a status that tech leaders have long touted as an edge in recruiting companies and talent.
Initiative 645, which would repeal the 9.9% tax on household income above $1 million, was trailing 58% to 42% in election-night returns. King County voters rejected the repeal by an even wider margin, with 66.5% voting no. The repeal would need about 62% of the remaining ballots to pass, according to a Seattle Times estimate.
The tax has divided the Seattle tech community since lawmakers unveiled the proposal in February. Some founders and investors warned it would drive talent and capital out of the state, while others called those fears overblown.
Madrona, the Seattle venture capital firm, gave $250,000 to the repeal campaign, making it one of the biggest donors.
“The outcome on the income tax should be disappointing for all Washingtonians as having no income tax was a major source of competitive advantage for the state,” said Matt McIlwain, a Madrona managing director, responding to questions from GeekWire.
McIlwain, who urged voters to repeal the tax in a GeekWire op-ed in October, said the state saw record economic growth and job creation after voters rejected an income tax in 2010. “I am concerned for the future ability of Washington state to be competitive,” he wrote.
Ben Golden, an attorney and advisor to Pacific Northwest startups and investors, countered that the election outcome demonstrates “that Washingtonians are ready to invest in ourselves.”
“There’s lots of hard work to follow to ensure that revenue is spent wisely, but at least (Washington) will be ready for the wave of Medicaid cuts and AI job disruption on the horizon,” added Golden, who in February penned an op-ed in support of the tax.
And while some residents will leave for tax havens, Golden said, “the opportunity remains ripe for the investor community and startups to build and grow in this healthy and talent-packed region.”
Brian Fioca, a Seattle-based serial entrepreneur and investor, hopes the additional tax dollars will improve the quality of life in the state overall.
“Washington is a wonderful place to live and build a company, full of extraordinary people and talent,” said Fioca, who also offered an earlier op-ed on the issue. “If someone decides not to start a business here, or chooses to leave because of this tax, that’s not someone I’d be particularly excited to work with or invest in anyway.”
Asked whether the outcome changes how Madrona thinks about investing in Washington, McIlwain didn’t address the state specifically. “Our goal remains to find and partner with amazing founders and their teams to build enduring companies that create innovative products, jobs and economic returns,” he said.
State Sen. Jamie Pedersen, D-Seattle, was an original architect of the tax and the prime sponsor of the bill that created it. As Senate majority leader, he kept reworking the measure to win votes until the final days of this year’s legislative session. Pedersen, who has been in the Legislature since 2007, is also executive vice president and general counsel at Seattle construction and engineering firm McKinstry.
At the No on 645 campaign’s election-night event in Seattle on Tuesday, Pedersen celebrated the outcome.
“We have been saddled with an anchor around our neck, with a tax system that is bad for working people, that’s bad for small businesses, that’s bad for just about everybody except for the one percent,” he said, as seen in a video posted on Instagram.
The No on 645 campaign touted a coalition of working families, labor unions, teachers, small business owners and others — and attracted endorsements from state celebrities like Rick Steves, the Edmonds-based travel writer, and “Jeopardy!” host Ken Jennings.
The tax applies only to income above the $1 million threshold, so a household earning $1.5 million would owe $49,500. It takes effect on 2028 income, with the first payments due in April 2029.
Jeff Bezos, Howard Schultz and Rich Barton have all moved out of state in recent years, though each described the move in personal terms.
McIlwain, who moved with his family from Georgia to Seattle 26 years ago, became a Georgia resident again two years ago. That was before lawmakers unveiled the millionaires tax in February.
In 2010, Steve Ballmer and Microsoft helped fund the campaign that defeated a statewide income tax, but the region’s biggest tech companies stayed out of this fight. The state projects the tax will raise $3 billion to $4 billion a year from roughly 25,000 households. Gov. Bob Ferguson signed it into law in March, along with tax breaks for small businesses and lower-income families.
A lawsuit filed in April by former Attorney General Rob McKenna and former state Supreme Court Justice Phil Talmadge argues the tax is unconstitutional, citing a 1933 ruling that classified income as property, which the state constitution says must be taxed at a uniform rate.
The case will likely go to the state Supreme Court, where Democrat-backed candidates led four of five races on Tuesday’s ballot as of election-night returns, according to the Washington State Standard.
