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

Washington Democrats introduced Senate Bill 6346 and House Bill 2724 to create a 9.9% state income tax on residents earning more than $1 million annually, effective Jan. 1, 2028 with first payments due April 2029. The bills direct 95% of revenue to the State General Fund and 5% to a County Public Defense Funding Stabilization Account, while earmarking portions for expanding the Working Families Tax Credit, a sales/use tax exemption for grooming and hygiene products (starting Jan. 1, 2029), and changes to the B&O tax including doubling the small-business credit for firms with < $250,000 gross receipts and accelerating the expiry of a 0.5% B&O surcharge to Dec. 31, 2028; a fiscal revenue estimate is pending and the governor has said he cannot support the bill in its current form.

Analysis

Market structure: A 9.9% tax on >$1m incomes (effective 1/1/2028, first payments 4/2029) is a concentrated hit to high-income households in Washington—luxury real estate, high-end services, private wealth managers, and locally concentrated tech compensation could see demand pressure of 5–15% in discretionary spending among affected households. The bill’s carve-outs (sales tax relief on hygiene, expanded Working Families Tax Credit, small-business B&O relief) mute downside for mass-market retailers but shift net burden toward top earners; expect modest reallocation of discretionary spend from services to essentials over 12–24 months after enactment.

Risk assessment: Key tail risks include a successful constitutional/legal challenge (Washington’s constitution historically resists income taxes) which would reverse market moves—a binary event within 0–24 months. Hidden dependencies: whether the tax includes capital gains or only wage income (fiscal note due weeks–months) will determine corporate compensation dynamics and migration; if capital gains are taxed, risk to Seattle-headquartered high-PE tech (MSFT, AMZN) is material. Catalysts: fiscal note publication (next 30–60 days), Governor amendments pushing rebates (near-term), and court rulings (1–36 months).

Trade implications: Expect short-term volatility in Seattle-area residential REITs/multifamily names and long-term tightening of Washington GO spreads as new revenue strengthens the general fund—mismatch creates tactical trades: short West-Coast multifamily (ESS) and selectively buy Washington muni duration (5–10y) upon a >$1bn/year revenue estimate. Option plays: buy puts on local-exposure equities on confirmation of capital-gains inclusion; use 3–9 month verticals to limit premium.

Contrarian angles: Consensus assumes wealthy out-migration; historical state-level tax increases typically reduce taxable base 5–12% over 3–5 years, not the 30%+ flight priced by some. If the governor forces rebates/credits returning >20–30% of revenue to households, consumer staples and big-box retailers (COST) could see a cyclical lift—this asymmetric outcome is underpriced given current headlines. Monitor bill text and fiscal estimate closely; misread of capital-gains scope is the largest mispricing risk.

Key Decisions for Investors

• Establish a small tactical short (1–2% net exposure) in Essex Property Trust (ESS) via a 3-month 5/10% OTM put spread if the fiscal note (due within 30–60 days) projects revenue >$500m/year; target a 20–40% return or exit on 30% profit or at 3 months.
• Allocate 2–4% of fixed income sleeve to Washington state general obligation bonds (5–10y maturities) or state-specific muni offerings if available when fiscal note >$1bn/year; aim for 10–30bps yield compression over 6–12 months and sell into tightening.
• Enter a pair trade: long Costco Wholesale (COST) 1–2% vs short ESS 1–2% if the governor secures language returning >25% of revenue to households within 6 weeks (expected to boost mass-market discretionary over luxury services).
• Prepare contingent hedges: if bill language or fiscal note includes capital gains taxation, within 7 days buy 12–18 month protective puts equal to 3–5% portfolio delta on MSFT and AMZN (or equivalent hedges) to cover value-at-risk from compensation re-pricing and migration.