The Washington State Wealth Tax Study and State-Level Constitutional Constraints

The Washington State Wealth Tax Study and State-Level Constitutional Constraints

State-level efforts to tax extreme wealth and high incomes in the United States are tightly bounded by state constitutional frameworks. In Washington State, this constitutional boundary is facing a historic, multi-front legal and political showdown following the enactment of Senate Bill 6346 (the "Millionaires' Tax") in early 2026 and the subsequent qualification of a repeal initiative.

Enactment of Senate Bill 6346

On March 30, 2026, Governor Bob Ferguson signed Senate Bill 6346 into law. The legislation imposes a 9.9% tax on annual individual incomes exceeding $1 million (with a 0% rate on income below that threshold). The tax is highly progressive, targeting less than 0.5% of Washington’s wealthiest residents.

According to the Governor's office, the tax was designed to fund a suite of affordability and educational programs:

• K-12 Affordability: Free breakfast and lunch for all K-12 students.
• Working Families Tax Credit: More than doubling the families eligible for the state's tax credit, expanding to 460,000 working families.
• Business Relief: Reducing or eliminating the Business & Occupation (B&O) tax for an additional 138,000 small businesses.
• Childcare and Sales Tax Relief: Investing $320 million in affordable childcare and eliminating the sales tax on diapers, over-the-counter drugs, and hygiene products.

The Constitutional Challenge: CADF and Rob McKenna

Within days of its signing, the law faced an immediate constitutional challenge. On April 9, 2026, the Citizen Action Defense Fund (CADF), alongside former Washington Attorney General Rob McKenna and former Washington Supreme Court Justice Phil Talmadge, filed a lawsuit in Klickitat County Superior Court seeking a declaratory judgment to strike down the tax in its entirety.

The legal challenge rests on Washington's unique constitutional jurisprudence stemming from the 1933 precedent Culliton v. Chase:

1. Income as Property: Under Article VII of the Washington Constitution, income is legally defined as "property."¹
2. Uniformity and Limits: Because income is property, any tax on it must be uniform (the same rate applied to all taxpayers) and cannot exceed the constitutional 1% cap on property taxes.
3. The Violation: By applying a 9.9% rate on income above $1 million while taxing lower brackets at 0%, SB 6346 is non-uniform and far exceeds the 1% constitutional limit.

As former Attorney General Rob McKenna summarized:

"For nearly a century, Washington courts have been clear: income is property, and property taxes must be uniform and limited... This law disregards both the plain language of the constitution and decades of consistent Supreme Court precedent. We are confident the courts will strike it down."

The Political Backlash: Initiative IP26-645

Simultaneously, conservative donor Brian Heywood financed a massive signature-gathering campaign for Initiative Measure No. IP26-645 (I-645). On July 2, 2026, Heywood submitted over 511,000 signatures to the Secretary of State to qualify the measure for the November 2026 ballot.

I-645 seeks to:

• Repeal the 9.9% tax on annual individual income over $1 million.
• Establish a sweeping prohibition against any state or local taxes imposed on or "measured by" individual income.

The Fiscal and Legal Risks of I-645

A legal memo prepared by Pacifica Law Group for the opposition coalition ("Millionaires Tax for Washington") warns that the initiative's passage would have devastating fiscal consequences and trigger years of legal chaos:

• Direct Revenue Loss: I-645 would eliminate an estimated $12.9 billion in projected revenue between 2029 and 2032.
• Structural Deficit: Because the investments enacted alongside the tax (such as the Working Families Tax Credit expansion) would not be rescinded, the total net fiscal impact would be a -$16.6 billion deficit through 2032.
• Collateral Legal Damage: The memo warns that the initiative's broad prohibition on taxes "measured by" individual income would create immense legal vulnerability for other existing state revenues, including the capital gains tax (which funds the Education Legacy Trust) and payroll taxes funding unemployment insurance, Paid Family and Medical Leave, and WA Cares.

Polling and Electoral History

While Washington voters have historically rejected income tax proposals ten times over the past 92 years, initial polling suggest the repeal effort faces an uphill climb. A June 2026 GBAO survey of 1,000 likely voters found that:

• 38% plan to vote "Yes" (to repeal the tax).
• 57% plan to vote "No" (to preserve the tax).
• 5% remain undecided.

This shift in voter sentiment is attributed to a successful progressive defense during the 2024 cycle, where voters overwhelmingly rejected initiatives to repeal the state's capital gains tax (I-2109 failed with 64.1% voting No) and the Climate Commitment Act.