The National Federation for Independent Business is sounding the alarm about impacts on small businesses in Washington if the recently passed income tax remains in place.
Washington State Director for NFIB Patrick Connor told The Center Square 98% of NFIB member small-business owners polled were opposed to the income tax bill as it was being debated during the 2026 legislative session, and a lot of their members are talking about moving out of state.
“There are more and more vacant storefronts across main streets, across the state," he said.
"We are hearing directly from our members who are looking at moving across the border to Idaho, Oregon, or to Arizona, Texas, Florida, and other states who have got not just tax, but regulatory policies that are more welcoming to small businesses."
“We have already seen some of our members pack up and leave Washington State. The 'millionaire's tax' is another reason why Washington State is less competitive and less attractive to start a business or to continue those operations," he added.
As previously reported by The Center Square, many small businesses operate as pass-through entities with owners reporting business income on their personal taxes.
“About 85% of small business owners report their business income and expenses on their personal income tax returns. So those dollars above a million that would be taxed by this new income tax are dollars that will then go to the state instead of going to workers in the form of higher wages, better benefits, or capital investment otherwise that would be made," Connor said.
“Instead of being able to invest in their business, their workers, their community, they will be sending more money to Olympia."
NFIB is supporting I-645, the initiative to repeal the income tax, citing a recent report compiled by Washington Policy Center and the Buckeye Institute showing 18,000 fewer jobs in Washington if the income tax remains in place.
Washington would produce almost $5 billion less in goods and services in 2028, growing to a loss of $8.3 billion by 2036, due to the income tax, according to the report.
One of NFIB’s members, Paul Agather, Parts Wholesalers in Spokane, wrote in a press release, "We’re already losing customers to Idaho due to Washington’s high cost of living and cost of doing business. This new income tax puts us farther behind our competitors across the state line and will drive even more business out of Washington.”
During a recent debate on I-645, Senator Manka Dhingra, D-Redmond, echoed the arguments of the opponents of the initiative, and that she supports using the income tax to make further investments in healthcare and education.
“That means making the tough decisions to break the shackles of a tax code that 70 years old so that we can progress into the next century. You need tough leaders to make tough decisions,” said Dhingra.
She blamed the Trump administration for recent cuts to healthcare funding that are putting people at risk, suggesting income tax revenue can backfill some of those cuts.
“We have people that are going to be dying because they don’t have access to healthcare,” said Dhingra.
Connor told The Center Square there is nothing in the legislation that created the income tax that will guarantee funding for healthcare or education.
“There's absolutely no guarantee that we will see meaningful increases in healthcare or education. There were a number of amendments trying to target where those dollars would go. They were all turned down by majority Democrats,” said Connor.
WPC put up a poll this week asking Washingtonians if they are confident the “millionaires’ tax” will remain at that threshold or be lowered to lesser income levels, after Washington State Representative Cindy Ryu stated that she would eventually like to lower the newly enacted 9.9% income tax threshold to household net incomes around $250,000 during a recent debate.
Connor says they believe the income level threshold will most certainly be lowered.
“There are two things to keep in mind. That million-dollar exemption is not going to stay a million-dollar exemption and there's no guarantee that another $3 or $4 billion a year is going to be enough for this spend happy legislature,” he said.
A "yes" vote will repeal the income tax, while a "no" vote would keep the tax in place.
Washington voters will have the final say with I-645 on the Nov. 3 ballot. As of Friday morning, the Secretary of State website showed more than 705,000 ballots have been returned, of the more than 5.1 million Washington voters, or 13.68%.
