Reinforcing Washington's foundation for a more resilient future 

Governor Inslee’s proposal reflects his commitment to putting working families first. Washington’s tax system has placed too much burden on working families, earning the shameful distinction as the most unfair system in the nation. Low-income families pay six times the share of their income compared to the ultra-wealthy. Recent measures, such as the Working Families Tax Credit and the capital gains tax, have helped reduce this imbalance. We’ve moved from having the most unfair tax system to the nation to the second most unfair, but more work remains. This proposal includes a wealth tax and business and occupation (B&O) adjustments to ensure those who benefit most from our economy pay their fair share. These changes will protect our progress on services and initiatives that improve lives and keep our economy among the strongest in the nation.

Need:

Proposal:

Our tax system is in need of modernization 

Washington’s tax system, built nearly a century ago, is failing to meet the needs of our rapidly growing state and is increasing income inequality. Over the past decade, nearly a million more people have made Washington their home, driving up demand for vital services like schools, housing, health care, and child care. These essential services are disproportionately funded by working families, while the ultra-wealthy benefit the most and pay the least under our regressive tax system.

At the same time, costs are rising, federal pandemic-era support has ended, and revenue growth is slower than expected. To address these challenges, Governor Inslee has ordered a spending freeze and reduced nonessential services. While proposing sensible budget reductions, the governor remains focused on maintaining progress in education, behavioral health, housing, and other systems that support safe, healthy families and a strong economy.

History shows the long-term consequences of cutting too deeply during tough times. After prior recession reductions, it took nearly a decade to rebuild the state’s behavioral health system. The state struggled for years to fully fund K-12 education and make college affordable. Access to affordable housing lagged behind demand. To avoid repeating our past mistakes, we must maintain momentum in these areas and modernize our regressive tax structure to better serve all residents.

As leaders look at options for balancing Washington’s budget, protecting progress and putting working families first must remain the focus at the forefront.

Gov. Inslee proposes two reforms that will protect essential services and make Washington’s tax system more fair.

Wealth tax 

By placing a modest 1% tax on worldwide wealth over $100 million — affecting roughly 3,400 of our state’s wealthiest individuals — Washington can establish a new, reliable revenue stream that most residents will never pay or even know someone who does. This approach would generate $3.4 billion to invest in essential services like education, housing, and child care. This reform makes sure the .0004% of people who have benefited the most from our economy contribute their fair share so we can protect our progress on the safety nets and systems that keep us all safe, healthy, and secure.

Business & occupation (B&O) tax reform 

The business and occupation (B&O) tax is based on a company’s income and helps pay for essential state services. Under this proposal, only businesses making over $1 million a year in the “service and other activities” category would see a 20% increase. This change impacts 20,000 businesses and would last from October 2025 until December 2026, after which the rate reverts to the pre-October 2025 level. Starting in January 2027, all B&O tax rates would see a slight 10% increase.

Most small businesses wouldn’t be affected since they qualify for a small business tax credit or have an income below the current tax filing threshold under current rules, which remain unchanged. If they don’t pay B&O tax now, they won’t pay it under this proposal. By placing more of the responsibility on larger, high-earning businesses, we can support critical state needs.

Other revenue legislation

The governor’s budget proposal includes two additional impacts to general fund revenue collections. Legislation updating the administration of unclaimed property by the Department of Revenue will result in a modest increase in revenue. Additionally, the percentage of state sales and use tax shared with compacting Tribes is increased from 60% to 100% for those that have completed a qualifying capital investment. This change results in a reduction to state revenue and an increase in tax revenue for Tribes.

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