The 2025–27 operating budget relies on a tax package that is estimated to increase revenues to funds subject to the outlook (NGFO) by $9.0 billion over four years. It includes business and occupation (B&O) tax increases (ESHB 2081 and ESSB 5794), the expansion of the sales tax to more services (ESSB 5814), capital gains and estate tax increases (ESSB 5813), and a tax on zero-emission vehicle program surpluses (SHB 2077).

The tax legislation adopted in 2025 is estimated to increase NGFO revenues by 6.1% in 2025–27 and by 5.6% in 2027–29 compared to the June 2025 revenue forecast (excluding legislative changes) for each biennium.

Although the estimated revenue impact of the final tax package is lower than versions previously proposed by the House and Senate, the final tax package (including the transportation revenue package) represents the largest tax increase in modern Washington history, going back to at least the early 1990s.

The tax bills were introduced late in the session and went through many material changes before passage. Altogether, the result of this rushed process has been considerable uncertainty. There are many administrative, legal, and policy ramifications that were not fully considered before passage of the bills, particularly regarding ESSB 5814. Acknowledging the likelihood of unintended consequences, Gov. Ferguson has said the 2026 supplemental may include adjustments to the adopted taxes.

This is no way to make tax policy. The process was rushed and not transparent. Further, the policy changes adopted this session will likely have significant effects on taxpayer behavior. Over time, businesses and individuals may choose to move elsewhere or reduce their activities in Washington. The ultimate magnitude of such changes may not be known for many years.

The ostensible purpose of the tax package was to help address the $8.6 billion maintenance level shortfall in the operating budget. But the historically large package didn’t even solve the budget problem, as legislators chose to add new spending. More operating budget problems loom, given both the questionable sustainability of the 2025–27 budget and the June revenue forecast.

Read the report here.