Gov. Ferguson supports a tax on annual income over $1 million. There is no public bill language yet, but the Washington State Standard reports that legislators expect the tax rate in the income tax bill to be 9.9%. (Similarly, the current capital gains tax rate on capital gains exceeding $1 million is also 9.9%.)

Today, Jared Walczak of the Tax Foundation writes that although a 9.9% rate would not be the highest in the country, the combined state and local income and payroll tax rate in Seattle would be.

As Walczak explains, although payroll taxes are remitted by employers, the long-run economic incidence of payroll taxes falls on employees in the form of lower wages. Thus, if a state income tax is adopted, an employee in Seattle who earns more than $1 million would face a combined state and local top marginal tax rate consisting of the state income tax plus the state long-term care tax (0.58%) plus the Seattle payroll expense tax (1.811%–2.557%, depending on the employer’s total payroll expense) plus the Seattle social housing tax (5.0%). Altogether, the combined top marginal rate would be 18.037%. Currently, the highest top marginal tax rate is 14.776% in New York City.

Additionally, Walczak highlights the potential negative impact of an income tax on small businesses (via pass-through business income) and the technology industry: “With capital gains already taxed and relatively little actual wage income above $1 million, the proposed new tax is predominantly a tax on receiving [restricted stock units], owning a small business, and earning interest and dividend income.”

Further, “A 9.9 percent tax on small business owners imposes one of the nation’s highest taxes on their income in a state that already imposes a high-rate gross receipts tax (the Business & Occupation Tax) and subjects an unusually high share of their business inputs to the sales tax.”

As noted, there is no public bill language yet, so perhaps legislators are taking these concerns into account as they write the bill.