The 9.9% Washington tax on earnings above $1 million — signed into law by Governor Bob Ferguson in March and now the subject of an initiative to repeal it in November — sits at the intersection of three pressures that did not begin with the tax and will not end with the November vote. A ballot referendum, a constitutional challenge before the Washington State Supreme Court scheduled for early 2027, and a behavioral question over whether wealthy residents will stay or leave are now in motion simultaneously, and each rests on a different evidentiary base.

How the tax came to be

Three causal hypotheses about the law’s origin are worth separating before the evidence is applied.

Hypothesis A — Revenue pressure. Lawmakers faced a $15 billion projected shortfall over four years, and federal funding retrenchment under the Trump administration compressed the alternatives.

Hypothesis B — Structural rebalance. The Washington State Budget and Policy Center, a nonpartisan research group, has characterized Washington’s tax code as “the second-worst tax code in the nation when it comes to who actually pays as a share of their income,” with households in the lowest-earning quintile spending up to 13.8% of annual income on state taxes and those in the top 1% spending about 4%. The 2002 Gates Sr. commission reached a similar conclusion, finding the state’s tax code uniquely regressive and calling for a state-level income tax.

Hypothesis C — Political alignment. The Democratic supermajority had reason to believe a high-earner tax could survive both court review and voter challenge; the 2021 capital gains tax had survived a constitutional challenge and a 2024 conservative-led ballot initiative to overturn it.

The labels below classify the evidence against each hypothesis:

  • The $15 billion shortfall and the federal funding context constitute a hoop test for Hypothesis A. The shortfall’s presence confirms revenue pressure; its absence would not by itself have eliminated the tax, since the structural critique exists independently of the budget gap. The substrate most directly supports this hypothesis: the $15 billion figure and the federal funding retrenchment are explicit, named drivers.
  • The WSBPC regressivity finding and the 2002 Gates Sr. commission report are a hoop test for Hypothesis B. The two sources reach similar conclusions about regressivity, and no major business group has produced a countervailing structural analysis in the substrate. The findings establish that the structural critique exists in Washington’s policy discourse, but they do not directly link that critique to the specific legislative motivation for the 2025 income tax.
  • The 2021 capital gains tax precedent is a hoop test for Hypothesis C. Without that precedent, the political calculation that the income tax could survive would be weaker.
  • State Senate Majority Leader Jamie Pedersen’s “99.9% certainty” statement about a legal challenge is a straw-in-the-wind. It indicates expected opposition, not the tax’s primary motivation.

All three hypotheses are partially supported, with Hypothesis A most directly grounded in the substrate. The synthesis that the tax is the product of all three pressures converging — revenue need creating the demand, structural diagnosis supplying the instrument, and political precedent supplying the permission — survives, but the weight of the evidence sits most heavily on the revenue-pressure reading. The ballot referendum will not resolve which of the three pressures was primary, because all three remain present regardless of the November outcome.

The principal financier’s position in the repeal coalition

A structural tension is visible in the substrate: the most prominent financial backer of Initiative 645 is also the source of the strategic pressure that produced a parallel repeal campaign. Brian Heywood, founder of Let’s Go Washington, has spent at least $11 million of his own money on 20 ballot proposals since 2022, including a 2024 campaign to repeal the state’s carbon market that was rejected by more than 60% of voters. Let’s Go Washington is also backing a November proposal to ban transgender girls from girls’ sports, which opponents have called “the most extreme proposal of its kind” for requiring “verification of biological sex” during sports physicals.

In September, several Washington business owners faced public outcry and boycotts after disclosure forms revealed they had donated to Let’s Go Washington; the business owners said their support was limited to the millionaire tax repeal and not the PAC’s other initiatives. Pedersen, the tax’s architect, suggested that repeal advocates may “have figured out Brian Heywood” and may be “trying to distance themselves from his pretty toxic brand.” Heywood, for his part, said Democratic lawmakers and the state’s election-finance watchdog “try to make me toxic, somehow” in the eyes of donors.

A separate repeal campaign launched in July, selecting former Republican congresswoman Jaime Herrera Beutler as its spokesperson. That campaign did not return requests for comment. The split — and the choice of a former elected Republican as the public face of the repeal effort rather than its principal financier — is consistent with a coalition that recognizes the Heywood portfolio as a drag on the narrow repeal message. The split makes visible a structural tension in the coalition: a stakeholder whose resource position is the campaign’s central asset is, at the same time, the source of the campaign’s central vulnerability, given the broader portfolio Heywood’s PAC carries. Heywood himself has stated positions on other initiatives, including consideration of measures to restrict how unions receive and disburse funds in the state, which sits outside the narrow repeal coalition’s stated scope.

The early-2027 court track

The Washington State Supreme Court is scheduled to hear a separate legal challenge to the tax early next year. Pedersen’s “99.9% certainty” framing of the challenge suggests legislative counsel treated court review as a near-certainty rather than a tail risk. The 2021 capital gains tax survived a constitutional challenge, but the income tax is a different instrument and the precedent is suggestive rather than binding.

If the November ballot repeal fails — the more probable branch, given the DHM survey’s 57% opposition finding and the more-than-50% spending advantage of the defense campaign, with major labor unions contributing more than $6 million — and the Supreme Court subsequently strikes the tax, the visible failure traces to two specific decision points that broke.

The first is the legislative bet on court survival. Lawmakers’ pre-litigation posture assumed the 2021 capital gains precedent would extend. The leading indicator that this bet was breaking would be the early oral argument signals, particularly any framing by the majority that treats the income tax as constitutionally distinct from the capital gains tax rather than as an extension of it.

The second is the political bet on a single instrument. Rather than pairing the income tax with broader tax-code reform that might have built a coalition outside the labor-union base, lawmakers concentrated the political risk in a single high-salience measure. The leading indicator that this bet was breaking would be visible fragmentation within the labor-union coalition that funded the defense — specifically, any public divergence between unions framing the tax as a revenue measure and unions framing it as a structural-rebalance measure.

If the tax is repealed or struck, Pedersen has said, lawmakers face a “very stark reality” and may have to pursue “inferior alternatives” such as raising the sales tax rate or enacting a statewide payroll tax. On the structural-rebalance hypothesis, either of those paths deepens rather than fixes the regressivity documented by the 2002 commission and the recent WSBPC research.

The behavioral variable

Two competing bets on the migration question sit in the substrate.

Heywood’s account: “I can’t tell you how many people have left the state. My business partner moved to Arizona. I probably know 50 people that are deca- or centi-millionaires that have left the state.”

Rian Watt of the Seattle-based Economic Opportunity Institute, citing research, suggests about 2% of residents affected by the tax might leave Washington.

Hoop test for the migration-destabilizes-revenue hypothesis: if Watt’s 2% estimate is closer to actual behavior, the approximately $3.5 billion annual revenue projection from the roughly 20,000 affected households remains substantially intact. Smoking gun for the same hypothesis: actual departure rates materially higher than 2%, particularly among the top 0.1% whose contributions disproportionately drive revenue.

A doubly-decisive test does not exist in the current substrate. Both positions rest on different evidentiary bases — anecdote in one case, modeling in the other — and the actual behavioral data will only become available over the next several tax years. The most that can be said at this stage is that the migration question is unresolved and that the two estimates differ by an order of magnitude.

The synthesis

The November ballot will resolve whether voters want the tax. The early-2027 Supreme Court hearing will resolve whether the tax is constitutional. Neither will resolve the underlying structural question: how a state characterized by the WSBPC as having the second-worst tax code in the country, facing a $15 billion shortfall and federal funding retrenchment, raises revenue in a way that does not further entrench that regressivity. The decision point on which the subsequent branches hinge is not the November vote but the legislative choice to concentrate the response in a single instrument and to treat the “99.9% certainty” of a legal challenge as the cost of action.

Washington joins Massachusetts, Maine, New York, and Hawaii — Hawaii having passed a similar measure in May — in the broader group of states turning to high earners for revenue. California voters separately consider a one-time 5% tax on billionaires’ wealth that is opposed by most billionaires and by Governor Gavin Newsom; some progressive groups have questioned its long-term benefits. The Washington context carries a distinct recent history: in 2010, voters rejected a proposed tax on households earning above $200,000 by wide margins, with then-Microsoft CEO Steve Ballmer the leading contributor to the opposition campaign and Jeff Bezos ranking fourth. That earlier defeat sat alongside a structural critique already two decades old at the time and a 2021 capital-gains tax that subsequently survived both litigation and a 2024 ballot challenge. The 2025 income tax is the third in a sequence of revenue instruments that, taken together, indicate a state gradually migrating from sales-and-property dependence toward high-earner taxation — a transition whose political sustainability is now being tested on three fronts at once.

The structural pressure documented by the 2002 Gates Sr. commission, the 2021 capital gains tax, and the 2025 WSBPC research predates the federal funding retrenchment and will outlast the November referendum. Pedersen noted that it is “really significant that you do not see almost any major business that is aligning itself with the initiative 645 folks,” a positioning observation rather than a forecast. The repeal effort, the legal challenge, and the migration question will each be settled on its own terms; the regressivity that produced the tax in the first place is the variable the ballot cannot reach.

Main Street Independent

Analytical techniques used in this piece

This analysis applies the methods below. Each links to a short, plain-English explainer you can read and reuse.

Decision Clarity
Articulates the real stakes, stakeholders, and interests behind a decision facing a third party.
Pre-Mortem (Action Plan)
Imagines the plan has already failed, then works backward to find out why.
Process Tracing
Reconstructs the step-by-step causal pathway of a specific historical event.