Comment: Like a monster movie, state income tax rises from grave

By Jason Mercier / For The Herald

What comes back from the dead more frequently than Michael Myers, Jason Voorhees and Freddy Krueger? Efforts to impose an income tax in Washington State. Like those perennial terrors, this income tax fixation in the Evergreen State should finally die, too.

Unfortunately for taxpayers already suffering under the weight of the largest tax increase in state history imposed earlier this year, a new income tax proposal is in the works for the 2026 legislative session.

According to the Washington State Standard: “The Senate Democratic Caucus discussed the politically explosive idea, which has been repeatedly rejected by voters and the state Supreme Court, during a retreat earlier this month. They also talked about other means of raising revenues to avert deficits in the current and next budget.”

Washington voters have rejected ballot measures and constitutional amendments proposing an income tax ten times. The most recent ballot failure was in 2010, with 64 percent voting no. When the Legislature has attempted to go around voters and impose an income tax anyway, the state Supreme Court has overturned the taxes, with the exception of the capital gains income tax.

The clearest message from the justices rejecting an income tax came in 1960 with a one-page ruling: “The argument is again pressed upon us that these cases were wrongly decided. The court is unwilling, however, to recede from the position announced in its repeated decisions. Among other things, the attorney general urges that the result should now be different because the state is confronted with a financial crisis. If so, the constitution may be amended by vote of the people. Such a constitutional amendment was rejected by popular vote in 1934.”

Perhaps income tax advocates in Washington feel emboldened by the shocking court ruling in 2023 to deviate from these clear decisions when the Supreme Court of Washington ruled that a tax on capital gains income wasn’t an income tax. Every other tax jurisdiction in the world, however, defines a capital gains tax as an income tax.

Speaking of Washington’s new capital gains income tax and the record tax increases already imposed this year, the impact has dropped the state to one of the lowest tax rankings in the country based on neutrality and competitiveness.

According to the Tax Foundation’s 2026 State Tax Competitiveness Index: “Washington No. 45 Overall: In Washington, lawmakers implemented a new 9.9 percent rate on the capital gains tax, causing the state to slide two places on the individual income tax component of the index. The state’s top estate tax rate — already tied for the nation’s highest — was also increased from 20 percent to 35 percent. Nevertheless, a host of tax increases in Maryland resulted in Washington swapping places with it and improving by one rank. Washington’s adoption of new sales taxes on business purchases of digital products, including digital advertising, went into effect on Oct. 1, after the July 1, 2025, snapshot date of this index, but will affect Washington’s rank in future editions.”

For those who argue an income tax would help provide stability for Washington’s revenue, they should heed this warning from the state’s July Standard & Poor’s credit rating: “Sales-tax-based revenue structure, which has demonstrated less sensitivity to economic cycles than those of income-tax-reliant states.”

Ironically, S&P also noted this: “In addition, the state constitution allows Washington to raise taxes with a majority vote of the legislature but restricts it from levying an individual income tax.”

It’s a bold strategy to double down on the largest tax increase in state history by reviving yet another income tax proposal from the crypt of repeated voter and court rejection.

In the words of Kylo Ren from Star Wars, Washington lawmakers’ appetite for tax increases is always, “More! More!” Maybe for the sake of taxpayers and the state’s economic competitiveness, the spending side of the ledger should be addressed instead.

Jason Mercier is vce president and director of research for the Mountain States Policy Center, an independent research organization based in Idaho, Montana, Eastern Washington and Wyoming. Online at mountainstatespolicy.org.