Washington’s millionaire tax targets the rich with hefty 9.9% hit — but an obscure 1933 Supreme Court ruling could blow the whole thing up

Supporters of the tax are happy to see it reach this stage, as Washington is one of only nine states that do not tax individual wage and salary income (3). They see it as a much-needed step in updating the tax code that forces lower-income households to pay an unfair share of taxes (2).

“We’ve asked Washington’s working families for far too long to shoulder far too much of the tax burden for the things we all care about. We have not asked enough of our wealthiest neighbors,” bill sponsor and Senate Majority Leader Jamie Pedersen, D-Seattle, said at the signing (2).

However, opponents argue the tax is unconstitutional, citing a 1933 Supreme Court ruling that has been upheld in several similar cases over the past 90 years.

The 1933 Supreme Court ruling

Opponents expressed frustration over the millionaire tax, with many echoing the sentiment that it is unconstitutional as per the 1933 Supreme Court ruling.

There are two main elements that opponents will likely use to fight the new bill – one is stated in the constitution and one was defined by the 1933 ruling.

Article VII, Section 1 of the Washington Constitution clearly states that it requires all property in the state to be taxed uniformly (4).

The Supreme Court’s 1933 ruling shot down a graduated income tax system as part of Initiative 69 (5). By ruling that income is a form of property, it must also meet the uniformity requirement. This means that a graduated income tax, based on household income, is not permitted. If you make $50,000 a year and your neighbor makes $120,000 a year, the Constitution requires that both of you be taxed the same amount.

Voters have continued to reject income tax initiatives since 1933, with the most recent rejection in 2010 (6) when the income level for the tax was to be reset to $200,000.

In 2021, the state’s capital gains tax was challenged as unconstitutional due to all property taxes needing to be uniform. The Washington Supreme Court upheld the tax (7) in this case, calling it the capital gains tax, an excise tax rather than a property tax. That separated it from income, allowing the capital gains tax law to pass unimpeded. Both the Federal government and the IRS classify capital gains tax as income (5).

For supporters of the millionaire tax, the 2021 ruling is a clear example of how court rulings can redefine language in the Constitution and allow such laws to pass without being unconstitutional (5).

What’s next for the millionaire tax

The millionaire tax won’t pass without a challenge on unconstitutional grounds. But, supporters continue to argue it is a way to bring balance to taxes and take the pressure off low-income families.

“We’re going to begin to right a historic wrong that has plagued our state for nearly 100 years and made our tax system one of the worst and most regressive in the entire country”, said Pedersen. “I hope and believe that one day we’re going to look back on this day as the day when things really started to change for us, when our state and our system started to get more fair.”