Washington’s proposed ‘millionaires’ tax ignites alarm in tech and startup circles

Democratic lawmakers in Olympia circulated legislation to levy 9.9% on personal taxable income exceeding $1 million, with the first taxable year to apply to income earned in 2028 and first payments due in 2029. The draft pairs the top‑end levy with a package of offsets intended to protect small businesses and low‑ and middle‑income families: a larger gross‑receipts tax (B&O) exemption for very small firms, an early end to a temporary surcharge on high‑revenue companies, expanded eligibility for a working‑families tax credit, and a proposed future sales‑tax exemption for certain hygiene products. The bill also preserves modest caps on charitable deductions to limit potential sheltering techniques. Proponents frame the change as a structural rebalancing of a tax system long reliant on sales, property and business levies, asserting it would yield a steady revenue stream to address a reported multi‑billion dollar shortfall in the state budget. Opponents in the technology and venture communities contend the levy would blunt incentives for founders, employees and investors by reducing the upside from equity compensation and by making Washington comparatively less attractive for high‑risk startups. That pushback is heightened by parallel tax discussions: separate Olympia proposals would bring qualified small‑business stock (QSBS) gains into the state’s capital‑gains base beginning in 2026, potentially eroding a federal exclusion many founders and early investors rely on. Observers point to developments in other states — notably proposals in California that would use control‑weighted methods to tax illiquid founder stakes — as cautionary examples of how valuation rules and enforcement can create abrupt, tangible tax liabilities long before a liquidity event. Administrative complexity, disputed appraisals and litigation risk are likely to follow any major change, lawyers and tax experts say, potentially producing prolonged uncertainty for private companies and founders. The governor has signaled conditional support but is pressing for substantially larger offsets for small businesses and expanded family credits than those in the current draft. Lawmakers face a compressed 60‑day session window to negotiate substantial edits; if enacted, the measure would almost certainly draw legal challenges and a likely referendum campaign, delaying implementation and introducing further political risk. Fiscal estimates cited by bill sponsors suggest the top‑end levy could generate several billion dollars annually, but an official legislative revenue estimate has not yet been released. The unfolding debate will test whether Washington can shore up finances without materially degrading the economic conditions that funnel founders, early hires and venture capital into the state’s innovation economy.