Dear friends and neighbors,

Facing a major budget shortfall over the next four years, the Legislature crafted a balanced budget by finding savings and efficiencies and delaying the planned expansion of some programs (reducing projected spending by about $7 billion) while also raising taxes on some of the world’s most profitable corporations and wealthiest individuals (increasing projected revenue by about $9 billion). This balanced approach allowed us to avoid a devastating austerity budget that would have gutted services across the state. Instead, we were able make investments in public schools, community safety, and other essential services.

Last November, voters chose to uphold the state’s new capital gains tax in 32 out of 39 counties. Most Washingtonians believe the wealthiest few should share more of the responsibility for funding our state services. Democrats, independents, and even Republicans are frustrated with a tax system rigged against working- and middle-class families. This session, we passed several bills to modernize our state’s outdated tax code, which is the second most regressive tax structure in the nation.

HB 2081 changes Washington’s B&O tax to ensure the world’s largest corporations pay a greater share. It raises the base rates for wholesaling and manufacturing from 0.484% to 0.5% and retailing from 0.471% to 0.5%. For service businesses grossing over $5 million annually, the rate increases from 1.75% to 2.1%. The bill also creates a new 0.5% surcharge on taxable corporate income over $250 million per year, exempting food, manufacturing, prescription drugs, and other sectors. It raises the Advanced Computing Surcharge to 7.5%, capped at $75 million annually.

SB 5813 makes the capital gains tax and the estate tax more progressive. For capital gains, it adds a 2.9% surtax on profits above $1 million annually. For estates, it exempts those valued under $3 million (indexed for inflation) and creates a more progressive rate structure that rises to 35% for the largest estates. Revenue supports the Education Legacy Trust Account, funding K-12 schools, early learning, childcare, and higher education.

SB 5814 modernizes the state’s sales tax code to reflect Washington’s service-based economy. It applies sales tax to custom software development, web design, and digital automated services such as advertising, and extends the tax to temporary staffing, security, and investigative services. It also adds a tobacco tax on newer nicotine products such as Zyn pouches.

SB 5794 repeals tax exemptions that are outdated, legally obsolete, or fail to meet public policy goals, as identified by the Joint Legislative Audit & Review Committee. This cleanup ensures taxpayer dollars don’t continue flowing to ineffective or unjustified carve-outs.

HB 2077 updates the state’s zero-emission vehicle credit program to prevent credit hoarding and ensure the program encourages clean vehicle adoption. The new revenue will support EV incentives and infrastructure, helping create jobs and reduce transportation emissions.

The Senate also passed a proposed wealth tax (SB 5797), but the bill did not receive a vote in the House. The bill would have imposed a 0.5% tax ($5 per $1,000) on publicly-traded stocks, bonds, mutual funds, and exchange-traded funds held by individuals with more than $50 million in such holdings — affecting approximately 4,300 of the wealthiest Washingtonians. I’m proud that my Senate colleagues worked to pass a policy to bring greater balance to the tax code by ensuring that the ultra-wealthy pay taxes on their accumulated assets, just as working families already pay taxes on their homes, wages, and everyday purchases. The bill marks the furthest a wealth tax proposal has ever advanced in Washington and signals growing support for progressive tax reform. I look forward to revisiting this idea when the Legislature convenes for the 2026 session.

Thank you for taking the time to read this newsletter. If you missed my newsletters on public education, housing, community projects, transportation, environmental protections, LGBTQ rights, public safety, worker protections, or consumer protections, they are available on my website. Please don’t hesitate to reach out to me with any questions at Jamie.Pedersen@leg.wa.gov.

Best wishes,

Jamie