Washington Gov. Bob Ferguson this week signed into law a 9.9% tax on household incomes over $1 million, making the state the most concrete test case yet for a policy idea that is rapidly spreading to many states.
Washington state may have just made history, starting a battle that will unfold in state capitols from Providence to Sacramento.
Gov. Bob Ferguson signed a bill Monday that imposes a 9.9% tax on household income over $1 million, making Washington the most concrete test case yet for a policy proposal that has been circulating in the Democratic-controlled Legislature for years.
“The historic millionaire tax will make our nation’s tax system fairer and mean free meals for K-12 students, the largest tax cut in state history for small businesses, eliminating the sales tax on baby diapers, and sending checks to nearly 500,000 working families to make life more affordable,” Ferguson said in a statement.
But the law faces an uncertain path to becoming a reality.
States that are already trying it
Massachusetts is the closest thing to a proof of concept. Voters approved a 4% additional tax on incomes over $1 million in 2022, an outcome that surprised even supporters. The state raised $2.46 billion in the first year and nearly $3 billion in the second year, more than double what was initially expected. The feared exodus of millionaires did not occur. Massachusetts recorded its largest population increase in 60 years from July 2023 to July 2024.
Los Angeles tells a more complex story and offers a careful counter-narrative. The city’s 2022 “mansion tax,” a transfer tax on real estate sales over $5 million, was projected to generate up to $1.1 billion annually for affordable housing. The actual receipt is about half that. After the tax went into effect, sales of high-value real estate fell by about 50%.
Which state will be next?
A wave of new tax proposals targeting high earners is making its way through state legislatures, with Virginia, Rhode Island and Michigan joining California in calling for higher taxes on high earners and billionaires.
California is the most advanced state. The plan before voters in November would impose a one-time 5% tax on state residents’ net worth of $1 billion or more, with the proceeds going to Medi-Cal and public education. Six of California’s 214 billionaires left the state before the proposal’s January 2026 residency deadline, taking with them an estimated $27 billion in potential income.
Rhode Island’s Democratic governor supports imposing a 3% surcharge on incomes over $1 million. In Michigan, a proposed ballot measure would impose a top tax rate of 9.25% on income above $500,000 for single filers and $1 million for joint filers, with supporters projecting $1.7 billion in new education revenue.
Similar wealth tax proposals are already in place in Maryland, Minnesota, and New Jersey. How Washington’s constitutional challenge plays out could determine whether the rest of it follows.
Upcoming legal battles
The Citizen Action Defense Fund announced plans to sue within hours of Gov. Bob Ferguson’s signing, arguing that the law violates a 1933 state Supreme Court ruling that invalidated the voter-approved income tax. Former state Attorney General Rob McKenna will lead the challenge.
Constitutional debates hinge on narrow but deep-seated legal questions. The 1933 court concluded that income was property, and property must be taxed uniformly to all residents. This means that graduated income taxes, by definition, violate the uniformity requirements of state constitutions.
McKenna said courts have been similarly clear for nearly a century, and the new law creates a direct conflict with binding precedent.
The Citizen Action Defense Fund is not the only group taking up the challenge. Washington state Republicans said they plan to file three separate legal challenges, including one targeting a “necessary provision” included in the bill that would protect it from a referendum.
Regardless of the lower court’s ruling, both parties expect to appeal directly to the state Supreme Court to quickly resolve the constitutional issue. The outcome would set a precedent with implications far beyond Washington’s borders, legal experts said.
Exodus question
Opponents of the millionaire tax have long relied on the simple argument that if you tax the rich, the rich will leave.
Cristobal Young, a sociologist at Cornell University who has been tracking billionaire emigration for years using IRS records, said the threat is largely exaggerated. After examining 13 years of tax returns that reported income of at least $1 million, Young found that the emigration rate for billionaires was actually lower at 2.4% than for the general population at 2.9%. Only 0.3 percent of all millionaires move to lower-tax states in any given year.
The reason, Young argues, is that wealth varies from place to place. The wealthy have deep roots and are not easily moved. Their earning power is tied to where they built their career, network, and business.
Massachusetts confirms this. Since the Fair Share Amendment was passed in 2022, the number of millionaires in the state has increased by 38.6 percent, from about 440,000 to more than 612,000.
There are exceptions. A notable number of billionaires have left high-tax states during the COVID-19 pandemic. However, by early 2023, migration patterns had largely returned to their pre-pandemic baseline.
The courts may ultimately decide whether Washington’s criticisms are correct.
Not a dollar of Washington state taxes will be collected until 2029, so the legal battle will almost certainly be resolved before the state receives any revenue. That timeline is what makes this fight so important to all states watching from the sidelines.
If McKenna and the Citizen Action Defense Fund win, opponents in states like California, Rhode Island and Michigan will have a ready-made constitutional blueprint to block similar measures. If the Washington Supreme Court upholds the law, it could break through legal hurdles that have kept some states from paying income taxes for nearly a century.
Email Jesse Healy
