ESSB 6346
SignedSenate
Tax on millionaires
Establishing a tax on millionaires.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill establishes a new 9.9% tax on individuals with Washington adjusted taxable income over $1,000,000 per year, intended to fund K-12 education, health care, higher education, human services, and the expanded working families' tax credit. It also reduces taxes on consumers and small businesses by exempting essential hygiene products from sales tax and providing business tax credits. The tax applies only to the wealthiest 0.5% of households and includes multiple exemptions and credits to limit its impact on middle- and low-income families.
- Imposes a 9.9% tax on individuals with Washington adjusted taxable income over $1,000,000 per year (a standard deduction of $1,000,000 applies, so only income above that threshold is taxed).
- Exempts long-term capital gains and losses from the tax base (but adds back Washington capital gains subject to the existing capital gains tax), and excludes the sale of qualified family-owned small businesses and residential/other real property.
- Creates a new pass-through entity election allowing businesses like partnerships and S corporations to pay the tax at the entity level, with owners receiving a credit against their individual liability.
- Reduces sales and use taxes by exempting essential grooming and hygiene products (e.g., soap, shampoo, toothpaste, sunscreen) beginning January 1, 2029.
- Expands the working families' tax credit (a refundable credit for low-income workers) and increases the maximum credit amounts to $1,200 for families with three or more children.
- Provides business and occupation tax credits to offset tax liability for small and medium-sized businesses, with larger credits available to businesses reporting at least 50% of taxable income under specific manufacturing or service categories.
Who is affected
- High-income individuals (adjusted gross income ≥ $1,000,000) — Individuals with Washington adjusted taxable income of $1,000,000 or more per year will owe a 9.9% tax on their Washington taxable income above the $1,000,000 standard deduction. This is estimated to affect only the wealthiest 0.5% of households in the state.
- Pass-through business owners — Pass-through businesses (e.g., partnerships, S corporations, LLCs) may elect to pay the 9.9% tax at the entity level, allowing their owners to claim a credit against their individual millionaires' tax liability.
- Low- and moderate-income households — Low- and moderate-income households benefit from expanded access to the working families' tax credit, sales tax exemptions on essential hygiene products, and business and occupation tax credits that reduce overall tax burden.
- Public pension recipients — Public pension recipients (e.g., teachers, state employees, first responders) will see their retirement benefits subject to the new millionaires' tax if their total income exceeds $1 million, though the underlying pension income itself remains exempt from other state taxes.
- Nonresidents with Washington-sourced income — Nonresidents who earn Washington-sourced income (e.g., wages from work in the state, income from Washington-based business activities, or compensation from professional sports in Washington) may owe the tax if their Washington-sourced income exceeds $1 million.
Pro/Con Analysis
Potential Benefits (5)
The expanded working families’ tax credit—up to $1,200 for families with three or more children—will provide direct, refundable cash benefits to low- and moderate-income working households, reducing their effective tax burden and increasing disposable income, especially for large families in lower income brackets.
FinancialPeopleRef: Sec. 901 (expanded working families’ tax credit)Exempting essential hygiene products (e.g., soap, shampoo, toothpaste, sunscreen) from sales tax beginning in 2029 will reduce annual costs for low- and middle-income households, especially those with children or health needs—these are regressive taxes that disproportionately burden people with lower incomes.
FinancialPeopleRef: Sec. 903 & 904 (sales tax exemption on hygiene products)The 9.9% millionaires’ tax on Washington adjusted taxable income over $1 million—estimated to affect only the top 0.5% of households—is projected to raise $1.2 billion annually by 2030, with 95% of revenue dedicated to K–12 education, health care, higher education, human services, and the expanded working families’ tax credit—directly funding public services that benefit everyday Washingtonians.
FinancialPeopleRef: Sec. 201; Sec. 202The pass-through entity election allows small business owners (e.g., partnerships, S corporations) to pay the millionaires’ tax at the entity level and receive a credit against their individual liability—potentially simplifying compliance and reducing double taxation for owners who are subject to the tax, especially those with incomes just above $1 million.
Business & EmploymentPeopleRef: Sec. 502 (pass-through entity election)The credit for pass-through entity tax payments ensures that business owners are not taxed twice on the same income—once at the entity level and again at the individual level—improving fairness and administrative efficiency for small business owners who elect this treatment.
Business & EmploymentPeopleRef: Sec. 206; Sec. 502
Potential Concerns (5)
The 9.9% tax on Washington adjusted taxable income over $1 million will increase the tax burden on high-income individuals, especially those with Washington-sourced income (e.g., public pension recipients whose combined income exceeds $1M), even though the underlying pension income itself remains otherwise exempt from state taxation.
FinancialPeopleRef: Sec. 201; Sec. 309Public pension recipients (e.g., teachers, state employees, first responders) whose total income exceeds $1 million—even if most of that income is from pensions—will now owe the millionaires’ tax on their total income, effectively taxing previously exempt retirement income in practice when combined with other income sources.
FinancialPeopleRef: Sec. 801–811 (amendments to pension exemption statutes)The sales tax exemption on hygiene products (e.g., soap, shampoo, toothpaste) will reduce state revenue, which may lead to future budget pressures that could result in cuts to public services or shifts in tax burden to other sources—potentially affecting low- and middle-income households who rely most on those services.
FinancialLean peopleRef: Sec. 903 & 904 (sales tax exemption on hygiene products)The business and occupation tax credits disproportionately benefit larger manufacturing and service businesses that report at least 50% of income in specified categories, as they receive credits up to $320/month vs. $110/month for most other businesses—despite the bill’s framing as supporting “small and medium-sized businesses.”
Business & EmploymentLean peopleRef: Sec. 905 (B&O tax credits)The bill’s $1 million standard deduction and progressive structure are designed to protect low- and middle-income households, but the lack of a refundable credit for non-filers (e.g., very low-income households not filing taxes) means some of the intended beneficiaries—especially those with incomes just below the filing threshold—may not receive the full benefit of the working families’ tax credit expansion.
Rights & LibertiesPeopleRef: Sec. 201; Sec. 309
Who Is Most Affected
High-income individuals (adjusted gross income ≥ $1M) will pay the 9.9% millionaires’ tax on income above the $1M deduction, but benefit from exemptions (e.g., long-term capital gains, real property sales) and the pass-through election. This group is the primary revenue source for the bill’s funding mechanisms.
Pass-through business owners (e.g., S corporations, partnerships, LLCs) gain the option to pay the millionaires’ tax at the entity level and receive a credit against individual liability—potentially reducing compliance burden and double taxation, especially for owners earning just above $1M. However, those with incomes below $1M are unaffected.
Low- and moderate-income households benefit significantly from the expanded working families’ tax credit (up to $1,200 for families with three+ children), the sales tax exemption on essential hygiene products, and indirect benefits from increased K–12 and health care funding. However, non-filers and those just above the filing threshold may miss out on full credit access.
Public pension recipients (e.g., teachers, state employees, first responders) whose combined income exceeds $1 million—even if most is from pensions—will owe the millionaires’ tax on total income, effectively taxing previously exempt retirement income when aggregated with other income. This group bears a direct financial cost despite the underlying pension being otherwise exempt.
Nonresidents with Washington-sourced income (e.g., professional athletes, remote workers, business owners with WA operations) may owe the millionaires’ tax if their Washington-sourced income exceeds $1 million. This group is directly affected only if they meet the income threshold, and the apportionment rules (Sec. 403–407) ensure only WA-sourced income is taxed.