Washington State's new millionaire tax has sparked a heated debate, with the 'marriage penalty' at its core. This controversial tax policy, approved by the state House of Representatives and set to become law, imposes a 9.9% tax on income exceeding $1 million annually. While the tax affects individuals and couples, it's the marriage penalty that has experts and taxpayers alike up in arms.
The marriage penalty, as explained by tax experts, occurs when a married couple's combined income triggers a higher tax bracket compared to what each individual would pay separately. In Washington, the $1 million threshold applies to both single individuals and couples, meaning a married couple earning $600,000 each would face a significant tax hike. This is in stark contrast to most states, which use separate income thresholds for individuals and couples, often doubling the threshold for couples.
Joe Wallin, an attorney and advisor to tech founders in Washington, humorously suggests renaming it the 'half-millionaire tax' since the exemption is $1 million. He highlights the unfairness of the policy, especially for dual-income families, who might even consider legal separation for tax reasons. This potential impact on high-earning couples is a significant concern, given Washington's reliance on tech giants like Amazon and Microsoft.
The marriage penalty is not an isolated issue. It's part of a broader trend of Democratic legislatures across the country aiming to address rising inequality and federal funding cuts to healthcare by raising taxes on the wealthy. States like New York and California have their own versions of marriage penalties, but Washington's stands out for its magnitude. Jared Walczak, a senior fellow at the Tax Foundation, notes that the penalty in Washington can be as high as 9.9%, compared to a 1% difference in California and a 0.65% difference in New York.
Critics argue that the tax is unfairly targeting high-earning couples, while supporters, including state Senator Noel Frame, argue for consistency in deductions and tax administration. However, the potential impact on Washington's tech industry and its entrepreneurs, such as Jeff Bezos and Howard Schultz, who have already moved to tax-friendly states, cannot be ignored. The state's experiment with higher taxes on the wealthy will undoubtedly be watched closely, as it could influence the migration of high-net-worth individuals and businesses.
