‘Millionaires tax’ would affect 1,000 in county

Nearly 1,000 taxpayers in Clark County’s legislative districts would be on the hook to pay the proposed income tax under consideration in Olympia.

The number, which comes from Washington Department of Revenue data, clarifies how many people in the county of roughly 542,000 would be directly impacted by lawmakers’ tax proposal, Senate Bill 6346.

The bill calls for a “millionaires tax” of 9.9 percent on income above $1 million beginning in 2028. Seven percent of the revenues would be allocated to a new fund for city and county public defense services, according to a summary of the latest version of the bill that passed the Senate Feb. 16. The rest would go to the general fund and be used to cover a number of new tax exemptions, including the expansion of a small-business tax credit.

The income tax, if enacted, would be one of the highest in the nation, alongside states like Oregon, New York, New Jersey, Hawaii and California. Washington has long avoided an income tax, instead relying on sales, property, and business and occupation tax revenue for its budget. Lawmakers passed a 7 percent tax on capital gains in 2021, capturing revenue from the sale of long-term assets like stocks and bonds.

Some are eager to see a new revenue-boosting tax that could help alleviate the public defense crisis while also generating support for services like schools and health care. Local business leaders, however, fear it could push companies out of the burgeoning area and into Oregon or beyond. When the state implemented a capital gains tax, prominent local money-management firm Fisher Investments relocated the company’s headquarters from Camas to Texas. (The company still maintains a Camas office.)

“From the conversations we’re having, the concern isn’t limited to businesses crossing the river into Oregon,” said John McDonagh, president and CEO of the Greater Vancouver Chamber. “In fact, most of what we’re hearing points to companies and individuals considering relocation to states like Idaho, Arizona and Texas.”

Who would pay?

Data from the Washington Employment Security Department shows that only 76 people made over $1 million in wages and other compensation in Clark County in 2025, not including those working remotely for employers in other counties or commuting outside the area.

But the proposed income tax also applies to certain small-business owners. If a person owns what is referred to as a “pass-through” company — which means the business profits or losses are taxed at the individual shareholder level — and thus would be subject to the income tax if the profit is over $1 million. Many U.S. companies are pass-through entities.

Lois Cook owns one of them. Cook and her husband operate America’s Phone Guys, a Vancouver-based internet phone service company that employs two workers.

She and her husband use income to pay their business expenses, including the wages for her employees.

Her business isn’t making enough to qualify for the tax yet, but she expects it will be soon.

“We actually are probably on track to gross $1 million this year,” said Cook, who moved to Vancouver from Beaverton, Ore., in 1993 because Washington lacked an income tax.

Cook and her husband pay business and occupation, or B&O, tax in Washington and income tax in Oregon for work done there. They are considering moving to Oregon if the income tax passes. Cook fears she could lose some of her small-business clients who also are considering moving to more tax-friendly states.

Cook doesn’t think lawmakers are intentionally trying to hurt small businesses.

“It’s just an unintended consequence of the way the bill is written,” she said.

She also isn’t opposed to the idea on its merits and thinks more state funding should go to education, “but we also need less waste.”

“I worry that (the tax) will be on everyone eventually, but that’s not what we’re looking at right now,” Cook said.

Balancing act

The bill gives some concessions to businesses, which Gov. Bob Ferguson said he would require before supporting any income tax on high earners. It would increase the B&O tax return filing threshold, increase the B&O tax credit, offer a sales tax exemption for grooming and hygiene products, repeal some recently instituted sales taxes on certain services, and eliminate a B&O surcharge on businesses with $250 million or more in income in 2028 rather than 2029.

The legislation also expands eligibility for the Working Families Tax Credit, a program that grants payments of up to $1,330 for middle- and lower-income families in Washington.

Southwest Washington’s Senate delegation largely voted along party lines Monday when the bill came to a floor vote, with Democrats mostly supporting the bill and Republicans opposing it.

Sen. Adrian Cortes, D-Battle Ground, was an exception.

“It’s clear our state’s upside-down tax code is disproportionately hurting working families while also hindering our state’s ability to fund the key services people depend on,” Cortes said.

The senator appreciates the bill’s attempt to address what he called a regressive tax code that results in low-income earners paying a larger percentage of their income in taxes than high earners. (Sales taxes are considered regressive.)

“But I agree with the governor that if we are going to take this approach, we need to do more to cut taxes and provide real relief for Washingtonians and small businesses,” Cortes said. “It’s critical we rebalance our tax code, but we need to rely less on working-class families and small businesses.”

The governor said during a press conference this week that he’s not content with the bill and wants lawmakers to offer more tax relief for small businesses and lower-income families. He also cited education system improvements as a priority.

Sen. Paul Harris, a Republican whose district includes Camas, voted against the bill in part because he’s seen so many tax increases on high-income earners in recent years.

He said he thinks Washington’s tax system is regressive but that the current proposal does little to address that.

“To me, this has never been a problem of getting enough money,” Harris said, adding that he’s seen state revenue skyrocket since he was first elected to office in 2011. “We have plenty of money.”

Harris thinks, instead, that lawmakers need to sit down and talk about their priorities.

Sen. Annette Cleveland, D-Vancouver, supported the tax as a solution to provide a more hopeful future for children.

“That’s really the bottom line,” she said.

Cleveland used to work as a congressional staffer. For decades, the federal government has stepped away from funding programs like housing, public health and food assistance, she said.

“We have to be partners — the state and federal government — in working to build a framework that allows every individual to be successful and to thrive,” Cleveland said.

Population trends

High-income Oregonians have moved to Clark County in droves in recent years, according to a 2023 Portland Business Alliance study. The study showed that more households earning over $100,000 annually have moved here than any other household income level.

The business alliance pointed at the time to Washington’s lack of income tax compared with Oregon’s high tax as a possible reason for the migration.

“What is the Portland economy?” Andrew Hoan, president and chief executive officer at the Portland Business Alliance, said at the time. “It’s this big area, and it happens to also be — while a single economy — it is one that is bifurcated by one of the largest differences in tax policy anywhere.”

Hoan said the divergence allows local leaders to see in real time if taxes are impacting people’s choices about where to live in the region. And the signs show they do, he said.

Nearly 4,500 more people moved into Clark County from the rest of the Portland metro area than moved out between 2016 and 2020, according to the latest U.S. Census Bureau estimates.

“As a border community, Clark County is always uniquely positioned when policies between two states don’t align,” McDonagh said. “That dynamic inevitably comes into play.”

Cleveland maintained there are many reasons why Southwest Washington is an attractive place to live, calling out its education and health care institutions specifically.

“Those are also reasons for people to want to remain in our community,” she said.

McDonagh said losing individuals who earn more than $1 million a year would have ripple effects.

“They contribute not only through state and local taxes, but also through their spending, investment and overall economic participation,” he said. “Over time, that loss could weaken our local economy.”

Washington’s Supreme Court overturned a graduated state income tax in 1933. The court ruled that the state Constitution requires any state-level income tax to be uniform across taxpayers.

The ruling is controversial today, but experts expect any income tax passed by lawmakers would have to come before the state Supreme Court before it could be enacted, as was the case with the capital gains tax.

The bill is set to go before the House finance committee Tuesday.