Washington state faces a growing budget deficit, estimated at $10–$12 billion over the next four years. With an operating budget of around $72 billion for the current biennium, this deficit represents a significant gap of approximately 7%. To address this, lawmakers in Olympia are considering new progressive tax proposals, including a payroll tax on high-salaried employers, modeled after Seattle’s successful JumpStart tax.
Here’s a closer look at what these potential changes mean for Seattle businesses and residents.
The State’s Budget Challenge
The shortfall is driven by a mix of rising costs and lagging revenues. Inflation, increased labor expenses, and higher demand for social services such as child care and education programs have outpaced their funding. Compounding this is Washington’s regressive tax system, which relies heavily on sales taxes that disproportionately burden lower-income residents.
Senator Noel Frame, vice chair of the Finance Committee, highlights the impact of these essential programs: “Caseloads are up because it turns out that when you pass essential services that people need and demand, people use them.”
To prevent severe budget cuts, the Legislature must explore new revenue streams.
The Proposed Employer Payroll Tax
A key proposal is a statewide employer payroll tax targeting businesses with high-salaried workforces. The plan is inspired by Seattle’s JumpStart tax, which has successfully generated revenue for housing, homelessness prevention, and city services.
How It Works
- Employers would pay a 6.2% tax on salaries exceeding the Social Security tax threshold, which is $176,100 for 2025.
- The tax would apply only to businesses with $8 million or more in payroll within Washington state.
- Estimated revenue: $3.8 billion annually by 2029, with alternate structures potentially raising even more.
This tax effectively closes a loophole in the federal Social Security system, where earnings above the taxable threshold are exempt from Social Security taxes.
Seattle’s JumpStart Tax: Interaction and Implications
One critical question is how a statewide payroll tax would interact with Seattle’s existing JumpStart tax. Several scenarios are being discussed:
- Stacked Taxation: Both state and local taxes would apply without adjustments, effectively doubling the tax burden for Seattle employers.
- Tax Credit: Employers could receive a credit against the state tax for amounts paid under JumpStart. This approach could be full or partial, balancing state revenue needs with business considerations.
- Preemption: The state could prohibit local payroll taxes altogether, effectively overriding JumpStart.
Preemption is a contentious issue. Progressive advocates argue for maintaining local tax authority to address specific community needs, while business groups may push for uniform state regulations to limit tax complexity.
Other Revenue Options on the Table
In addition to the payroll tax, lawmakers are exploring several other progressive revenue measures:
- Wealth Tax: Targeting the state’s wealthiest individuals.
- B&O Tax Surcharge: Increasing taxes on the largest corporations.
- Closing Sales Tax Exemptions: Extending the sales tax to personal and professional services, potentially generating billions in new revenue.
These measures aim to address Washington’s regressive tax system, which disproportionately impacts lower-income residents.
The Bigger Picture: A Path Toward Equity
Advocates see this legislative session as a pivotal moment to reform Washington’s tax code. By shifting more of the tax burden onto wealthy individuals and large corporations, the state can reduce reliance on regressive taxes and ensure sustainable funding for critical services.
“This is about creating an economy that works for everyone, not just the wealthy few,” says Alexis Mansanarez of the Economic Opportunity Institute. (Katie Wilson: The Urbanist)
What’s Next?
As the 2025 legislative session unfolds, businesses, residents, and advocates will need to stay informed and engaged. The outcome of these tax debates will shape the future of Washington’s economy and the services that communities rely on.
For Seattle businesses, understanding how these changes might interact with existing taxes like JumpStart will be crucial. While some may see increased tax obligations, others could benefit from a more equitable and sustainable state revenue system.
Stay tuned as lawmakers navigate this “gigantic puzzle” of balancing new revenues with budgetary needs. Whatever the final mix, one thing is clear: action is necessary to close the budget gap and build a stronger, fairer future for Washington state.
Image by Abhay Bharadwaj from Pixabay