Washington’s $17B Tax Hike Could Trigger Federal & Statewide Policy Shifts, Sparking Wealth Exodus – Financial Freedom Countdown
Washington state lawmakers are pushing forward with a sweeping new tax plan aimed at raising $17 billion over the next four years. The proposal seeks to eliminate an estimated $16 billion budget shortfall but has sparked significant controversy, especially among the state’s wealthiest residents and corporations.
As billionaires like Jeff Bezos fled to tax-friendly states such as Florida, the latest tax hikes could further accelerate the exodus of high-income earners and businesses from Washington.
New Wealth Tax on Ultra-High Net Worth Individuals
At the center of the proposal is a financial intangibles tax, which would impose a $10 tax on every $1,000 of assessed value for stocks, bonds, and mutual funds held by individuals with over $50 million in such assets.
The measure is projected to generate $4 billion annually, with most funds allocated to public schools.
Washington’s capital gains tax, passed in 2021, already sparked backlash from the wealthy. Now, Democrats argue that voters support increased taxes on the affluent to fund education and social services.
A New Payroll Tax Targeting Big Businesses
Another key aspect of the proposal is a 5% payroll tax on large employers—specifically those with payroll expenses exceeding $7 million annually. Around 5,289 businesses would be impacted currently.
This measure aims to generate $2.3 billion per year and help fund public education, healthcare, and disability services.
The Bellevue and Seattle Chambers of Commerce have condemned the move, calling it a “short-sighted approach” that could drive major corporations out of the state.
Microsoft President Brad Smith recently expressed concern that Washington’s aggressive taxation could inflict “lasting damage” on the state’s once-thriving tech sector.
Property Tax Hikes Removing Existing Caps
The proposal also seeks to adjust Washington’s property tax cap, allowing annual increases based on inflation and population growth instead of the current 1% cap.
Expected to generate $779 million over four years, this revenue would be directed toward public safety and schools.
Senator Chris Gildon (R-Puyallup), the Senate Republican budget writer, said, “This is a new kind of March Madness, especially the latest attempt to do away with the 1% cap voters put on property tax growth. It would fall directly on the backs of families who are far from wealthy and also become a pass-through cost to renters across our state.”
Property owners fear this change will lead to significantly higher tax bills, exacerbating an already challenging housing affordability crisis.
Eliminating Existing Tax Breaks
In addition to creating new taxes, lawmakers aim to eliminate 20 tax exemptions, including breaks for in-state hauling, gold bullion sales, and prescription drug wholesalers. This measure is expected to raise $1 billion over the next four years.
“Senate Democrats have talked for many years about the broken, upside-down tax structure, and today, we are demonstrating our commitment to make changes to that broken system,” said Senate Majority Leader Jamie Pedersen (D-Seattle).
While Democrats argue that these exemptions no longer serve their intended purposes, businesses and industry groups warn that such eliminations could increase costs for consumers and local enterprises.
Sales Tax Reduction: A Small Win for Consumers
Recognizing the regressive nature of Washington’s tax system, lawmakers have proposed cutting the state sales tax from 6.5% to 6%, reducing revenue by $1.3 billion annually but offering some financial relief to lower- and middle-income households.
Bezos’s Move from Seattle to Miami Raises Alarms About Potential Blow to Washington’s Economy
Amazon founder Jeff Bezos’s sudden move from Seattle to Miami in 2023 had sparked intense speculation about his motives and the potential fallout for Washington State’s economy and tax landscape.
Current estimates indicate the move saved him over $1 billion in taxes in just one year.
His recent stock sales alone, estimated at $4 billion, would have resulted in an extra $300 million in capital gains taxes had he remained in Washington.
Capital Gains Taxes
While Bezos, valued at a staggering $162 billion, cited his affection for Miami and the pull of family ties as the primary reasons for his move, the absence of any mention regarding taxes stirred speculation.
Several recent changes had occurred in the tax landscape. In 2003, the Washington State Supreme Court upheld a 7% tax on capital gains above $250,000.
Passed by the 2021 Washington State Legislature, the Douglas County Superior Court ruled in March 2022 that the capital gains excise tax was unconstitutional and invalid.
Washington State appealed the ruling, and with all legal challenges now settled, a 7% tax on any long-term capital gain in excess of $250,000 in a calendar year will be imposed.
Bezos had been selling his Amazon stock investments annually to fund Blue Origin, his space company.
According to news reports, he sold about $15.7 billion worth of Amazon stock between 2020 and 2021. Given the passage of the capital gains tax, he would face a substantial tax hit due to the sale of his Amazon stock. Florida’s lack of a capital gains tax provided significant tax savings.
Estate Taxes
Besides escaping the newly imposed capital gains tax, we must also consider that Washington’s estate tax on estates above $2.19 million reaches up to 20%.
Florida boasts no estate tax.
Wealth Taxes Could Become a Reality
These are not the only taxes Bezos had to contend with.
Democrats in Washington state have led several efforts to introduce what is popularly known as a billionaire tax.
As per the proposed tax, individuals who reside in Washington would be subject to a wealth tax equal to 1% of their taxable worldwide wealth over $50 million.
The tax would be computed based on the fair market value of an individual’s financial intangible assets, including cash, stocks, bonds, annuities, commodities, treasury bills, and certificates of interest in gold and other precious metals.
Based on Bezos’s net worth, he would have been on the hook for an annual tax of over $1.4 billion.
“We strongly support the equitable wealth tax proposed in Senate Bill 5486, and that’s because the proposal would be a boon for Washington’s economy, strengthening community structures like schools and affordable housing, creating thousands of jobs, boosting personal income, and making Washington more attractive for business investment,” said Andy Nicholas, senior fellow at the Washington State Budget and Policy Center.
The proposal to impose a new 1% wealth tax on billionaires failed to pass in the past, but Democrats had vowed to continue trying to garner support for the bill.
“Extreme wealth is measured in stocks and bonds and other intangible property that generates large sums of value for whoever possesses it, regardless of whether the wealth holder continues working or not,” said Shaun Scott of the Statewide Poverty Action Network. “We support Senate Bill 5486 and urge Washington lawmakers to do the same.”
Based on current projections, it looks like Democrats may finally be able to pass the Wealth Tax.
Washington’s Loss Is a Gain for Florida
Florida has been a significant beneficiary in the last few years of the great migration from various states’ losing population.
Amazon is seeking roughly 50,000 sq. ft. of office space in Miami. The company already has over 400 corporate and technology workers in Miami. It is widely expected that Florida will benefit from additional high-paying jobs created due to Amazon’s move.
Bezos is not the only billionaire bullish on Miami. Hedge fund manager Ken Griffin anticipates Miami overtaking New York City as financial firms migrate south to escape rising crime rates. The lower taxes and climate would be an additional draw.
Paul Singer’s Elliott Management hedge fund also moved its headquarters from Manhattan to West Palm Beach, Florida, in 2020.
Billionaire activist Carl Icahn also ditched New York for the Sunshine State. Although Icahn, who grew up in Queens, highlighted that his move to Florida was to enjoy the warmer climate year around, one can’t help but wonder at the impact of billionaires moving to Florida.
Related Article: California Tops The List of States Losing Population
Controversial Capitals Gains Tax Repeal Failed
Critics of Washington’s capital gains tax had put forth a ballot measure (1-2109) to allow state residents to vote on whether to retain or reject the capital gains tax.
A “yes” vote supports repealing the capital gains excise tax imposed on long-term capital assets by individuals with capital gains over $250,000.
The “no” vote won with voters opposing the repeal of the capital gains excise tax imposed on long-term capital assets.
Taking cues from Washington State, other states are pushing ahead with their own versions of “wealth tax” proposals.
Massachusetts Imposed “Millionaire Tax”
Due to a change in the state constitution approved by voters in November 2022, Massachusetts now has a “millionaire tax.”
Residents of the state with taxable incomes exceeding one million dollars must pay an additional 4% income tax to the Commonwealth.
Hawaii Considering Wealth Asset Tax
Hawaii’s proposed Wealth Asset Tax would apply to taxpayers with over $20 million in assets in the state. The proposed tax would be 1% of net worth per year as per Senate Bill 925.
Currently, Hawaii taxes its rich 11% percent on all income over $200,000 for single filers
California’s Wealth Tax Proposal
Assembly Bill 259 would have imposed an annual tax beginning on or after January 1, 2024, and before January 1, 2026 at a rate of 1.5% of a resident’s worldwide net worth in excess of $1 billion or in excess of $500 million in the case of a married taxpayer filing separately.
After January 1, 2026, the taxable net worth level would fall to a net worth in excess of $25 million (for married taxpayers filing separately) or $50 million for all other taxpayers.
The California Wealth Tax bill is currently stalled but in California, high earners are already taxed 9.3 percent plus an additional 1 percent surcharge on income over $1 million (this, and all millionaire taxes, are over and above the standard federal tax rate that applies).
California already has one of the highest income tax rates in the country. Currently the State’s top 5% of earners pay 70% of California’s personal income tax.
Illinois Proposing Wealth Tax
Illinois lawmakers have proposed a wealth tax where asset gains would be recognized annually as income and subject to a flat rate tax of 4.95% under HB 3039. If adopted, the wealth tax proposal could generate about $510 million in revenue in its first year.
60% of Illinois voters said yes to “millionaire tax” advisory referendum on Election Day 2024. The nonbinding measure calls for establishing an extra 3% tax on residents that have an income of more than $1 million.
New York and Connecticut Increasing State Tax Rates
Proposed “wealth tax” bills in New York and Connecticut would focus partly on increasing state tax rates for capital gains and dividend and interest income.
Rhode Island currently imposes a 5.99 percent tax rate on income over $145,600 regardless of filing status. New York’s upper class is taxed 8.82 percent on income over $1,077,500 in 2019.
Biden’s Plans for Additional Federal Taxes
The Biden administration had unveiled its $7.3 trillion fiscal year 2025 budget, with President Biden reiterating his proposal from the prior year to impose higher taxes on billionaires.
In his final State of the Union address, Biden stressed the importance of increasing taxes on the wealthiest Americans.
His budget proposal included a billionaire tax targeting households with a net worth exceeding $100 million.
In addition to the proposed Billionaire tax, Biden also said “Under my plan, nobody earning less than $400,000 will pay an additional penny in federal taxes.”
Details were unclear if the $400,000 threshold is for families or single earners and if it would be adjusted based on location. American families living in high cost of living locations such as San Francisco, New York, Seattle, Chicago were bracing for higher taxes.
Inflation has pushed more people in the $400,000 tax bracket. Earnings of $333,000 in 2020 would be worth $400,000 in today’s dollar as the country has witnessed the worst inflation in 40 years.
A Bold Plan or a Risky Gamble?
The Senate Democrats’ tax proposal introduces significant financial burdens on wealthy individuals and large corporations, arguing that these measures are necessary to prevent drastic cuts to public services.
Critics, however, claim these policies could harm the state’s economy, discourage investment, and push more businesses and high-net-worth individuals to leave Washington, just as Jeff Bezos did in 2023.
Only Bezos knows whether tax considerations factored into his choice to relocate to Florida. Publicly, he has mentioned his desire for proximity to family and managing his Blue Origin ventures.
However, it’s intriguing that regardless of the rationales billionaires offer for their relocations, they consistently gravitate toward states with lower taxes.
Whether or not tax benefits drove his move, its repercussions for politicians in various states are evident.
With Senate and House budget negotiations set to conclude by April 27, the fate of these tax proposals remains uncertain. If passed, they could dramatically reshape Washington’s tax landscape and also influence other states and possibly the Federal Government.
President Trump had campaigned on extending his signature Tax Cuts and Jobs Act bill in addition to several other tax cuts for seniors on Social Security and service workers paid by tips.
As Americans prepare to file their state and Federal taxes in the coming weeks, the question remains: Will economies thrive under this new framework of increasing taxation, or will it drive out the very individuals and corporations that fuel its prosperity?
In a globally connected world where geographic boundaries are meaningless, the citizens might have put the politicians on notice. The risks inherent in constructing tax systems heavily reliant on a small cluster of taxpayers opting to remain rooted in place are now apparent.
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Retirement Is Overrated: 10 Reasons Not To Retire
You might be thinking that retirement sounds excellent – but what if you can’t afford it? What if an unforeseen catastrophe occurs and you need money? The reality is that so many people are retiring later in life because they don’t have enough saved up or can’t afford to take the risk of quitting their job before they know how much money they’ll need each month. Retirees also face many challenges, from loneliness to boredom, but there are ways to combat these problems with the right lifestyle changes. We will discuss why retirement isn’t always as glamorous as it seems and how to avoid these pitfalls by pursuing your goals now!
Retirement Is Overrated: 10 Reasons Not To Retire
Deciding when to claim Social Security is often about maximizing your benefit. Financial planners usually advise delaying your claim for as long as possible to secure the highest monthly payment. Your benefit is based on your lifetime earnings, with a full payout available at your full retirement age (FRA), which is currently between 66 and 67 depending on your birth year. Claiming before FRA results in a permanent reduction in your monthly benefit, while waiting beyond FRA leads to a permanent increase. However, the decision isn’t solely about maximizing the monthly check. Personal factors such as health, family circumstances, and financial needs can play a significant role in determining the right time to claim.
11 Reasons You Should Claim Social Security Early
The Social Security Administration (SSA) has reinstated a controversial policy that could significantly impact seniors’ finances. Starting March 27, 2025, the SSA will begin withholding 100% of overpayments from Social Security recipients’ benefits, reversing the previous policy that allowed for just 10% withholding. This change is expected to recover approximately $7 billion over the next decade but has raised serious concerns about the financial well-being of vulnerable Americans.
Trump’s Tax Plan Ends Carried Interest Loophole, Hits Sports Owners, and Eases SALT Cap
President Donald Trump met with House Republican leaders at the White House on Thursday to outline his tax priorities. During the meeting, he emphasized his commitment to fulfilling key campaign promises, including ending taxes on tips, eliminating taxes on Social Security, and ensuring overtime pay remains tax-free. He conveyed these priorities to House Speaker Mike Johnson, Majority Leader Steve Scalise, Majority Whip Tom Emmer, and other GOP leaders. Additionally, he wanted to renew his 2017 Tax Cuts and Jobs Act (TCJA) which is slated to expire later his year. The TCJA brought sweeping changes, including lower tax brackets, a higher standard deduction, and an expanded child tax credit. Here is a list of possible options to be included in the final bill.
Trump’s Tax Plan Ends Carried Interest Loophole, Hits Sports Owners, and Eases SALT Cap
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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