WA’s small business outlook trails national average, report finds

Washington’s small business climate is significantly underperforming the rest of the country, according to a new report released by the National Federation of Independent Business (NFIB).

The NFIB’s report found the state’s Small Business Optimism Index at 94.5, four points below the national average of 98.5 and well below the 52-year historical norm. The report pooled six months of survey data from October 2025 through March 2026. The prior period showed an even wider divide, with Washington at 93.6 v. 98.6 nationally.

Washington fell below the national average in three key categories: Expectations for economic improvement, plans to increase employment, and whether now is a good time to expand.

Washington owners cite labor costs at more than double the national rate

Labor costs emerged as the starkest divide. Nineteen percent of Washington small business owners ranked it as their single most important problem — more than double the 9% national rate. The report also found Washington owners reported worse overall business health, with fewer rating conditions as “excellent” and more describing them as “fair” or “poor.”

“This report is flashing a bright red warning sign for the state of Washington,” said Patrick Connor, NFIB’s state director, who has been leading efforts to repeal the state’s new income tax on high earners.

Connor argued the so-called millionaires’ tax, signed into law earlier this year, “will squeeze family-owned businesses’ cash flow and working capital while Wall Street corporations enjoy another Olympia tax exemption.”

Democrats who championed the tax have pushed back on that characterization. Senate Majority Leader Jamie Pedersen, the bill’s prime sponsor, has said the legislation was designed to “fix the state’s unfair and outdated tax code” and “reduce taxes for working families and small businesses.”

Democratic leader argues tax reform is already improving small business outlook

House Majority Leader Joe Fitzgibbon pointed to the same data from the NFIB report and drew a different conclusion, noting that Washington’s small business outlook improved since the prior survey period even as the national outlook remained virtually flat.

“Some of the steps that we’ve taken, including the tax reform that we passed this last session, appear to have improved the outlook for small business owners in our state,” Fitzgibbon said in an interview with KIRO Newsradio.

He added that the millionaires’ tax “included the largest small business tax cut in state history” through reductions to the state’s business and occupation tax.

The B&O tax reductions and sales tax exemptions included in the bill, however, do not take effect until 2029. They are also contingent on the income tax surviving legal challenges and a potential voter repeal this November.

Read more of Aaron Granillo’s stories here.

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