'Millionaire's tax' legislation officially introduced by Washington state Democrats

Washington state Democrats introduced Senate Bill 6346 and House Bill 2724 to impose a 9.9% income tax on residents earning over $1 million, effective Jan. 1, 2028, with first payments due April 2029; Senate budget staff estimate roughly $4 billion in annual revenue. The proposal directs 95% of proceeds to the State General Fund and 5% to a County Public Defense Funding Stabilization Account, and earmarks funds to expand the Working Families Tax Credit, create a sales-tax exemption for grooming/hygiene products (from Jan. 1, 2029), and modify the B&O tax (doubling the small-business credit for firms under $250,000 in gross receipts and ending a 0.5% B&O surcharge on Dec. 31, 2028); Gov. Bob Ferguson signaled he cannot support the bill in its current form, seeking larger direct relief for residents.

Analysis

Market structure: A 9.9% surtax on individuals earning >$1M (effective 1/1/2028, ~$4B/yr) directly hurts high-income residents and reduces after-tax pay for senior tech, finance and creative professionals in WA; beneficiaries include the State General Fund, county public defense, and small businesses via expanded B&O relief. Expect modest pressure on high-end Seattle housing, luxury retail and locally concentrated service firms (revenue risk concentrated in top 1-2% of households), while small-business owners with < $250k receipts see immediate margin relief that supports neighborhood consumption.

Risk assessment: Tail risks include a successful constitutional challenge (income tax banned historically in some WA interpretations) or aggressive worker migration (>5% of <$1M households unlikely but >10% among the >$1M cohort would exceed the $4B projection). Immediate market reaction should be muted; key windows are legislative amendments (next 30–90 days), governor’s sign-off, then legal challenges (0–24 months). Hidden drivers: timing of equity compensation exercises, board-level relocation decisions, and corporate payroll strategy (employers may gross up compensation by ~10% to retain staff).

Trade implications: Favored cross-asset: long WA-rated municipal exposure (credit improves as $4B hits general fund) and underweight Seattle-core residential/office REITs over 12–36 months. Tactical pair: short West-coast urban apartment landlords (EQR) vs long Sunbelt single-family landlords (INVH/AMH) to capture potential migration; hedge corporate exposure at regional chains (SBUX) with 3–9 month put spreads if spreads widen. Options: buy protection on locally concentrated names (SBUX 6–9 month put spreads sized to 1–2% portfolio risk) rather than broad tech names with diversified footprints (MSFT/AMZN).

Contrarian angles: Consensus assumes large outflows of talent; history (CA/NY top-tax episodes) shows high-earner mobility is limited by equity vesting, family and corporate ties, so revenue and corporate margin impacts will be concentrated not systemic. The market may underprice positive credit reaction to a durable $4B/yr revenue stream; downside is a successful legal block which would reverse muni-credit upside — that binary is the primary mispricing to exploit.

Key Decisions for Investors

• Establish a 2–3% portfolio position in municipal bonds with WA exposure (buy iShares National Muni ETF MUB for liquidity and add 1–2% allocation to WA GO bonds if available) within 30–90 days to capture potential credit improvement from an incremental ~$4B/yr revenue stream; target 12–24 month hold and sell half if a court injunction materializes.
• Initiate a 1–2% long / 1–2% short pair trade: long Invitation Homes (INVH) or American Homes 4 Rent (AMH) and short Equity Residential (EQR) sized to neutral sector beta; time horizon 12–36 months to capture potential migration from Seattle to Sunbelt markets.
• Reduce SBUX exposure by 1–2% (or hedge equivalent exposure) and buy a 6–9 month SBUX put spread sized to cover that delta (e.g., 5%/12% OTM put spread) to protect against regional discretionary spend weakness if high-earner outflows accelerate.
• Monitor legislative calendar and legal docket daily for three catalysts: (1) final bill changes within 30–90 days, (2) governor’s conditional support or veto signals within 60 days, and (3) filed constitutional challenges within 0–24 months; if a realistic injunction is filed, trim WA muni exposure by 50% and rotate proceeds into national munis or short-duration credit.