Center Square reporter, former justice raise more questions as WA’s ‘millionaire’s tax’ heads to court

A report from The Center Square and concerns raised by a former Washington Supreme Court justice are drawing new attention to the state’s recently passed “millionaire’s tax,” now facing a legal challenge that could reshape Washington’s tax system.

The law, signed last month by Bob Ferguson, imposes a 9.9% tax on households earning more than $1 million annually. But according to The Center Square’s review of nearly 1,000 pages of public records, Democratic lawmakers and the Washington State Attorney General’s Office may have worked together to design the policy as a legal test case aimed at overturning Culliton v. Chase, a ruling widely interpreted as prohibiting a graduated income tax.

“What I found is that there were communications between the attorney general’s office and state lawmakers about this millionaire’s tax, and the primary purpose, according to emails, was not to raise revenue for programs,” TJ Martinell, the reporter who broke the story for The Center Square, told “Seattle’s Morning News.” “What it was intended to do was overturn the 1933 Supreme Court decision that declared income to be property according to our state constitution, which makes the progressive income tax illegal in our state and has been since.”

Democrats tout $3B revenue boost, Republicans warn of broader income tax

Democratic lawmakers tout the millionaire’s tax as a progressive way to make higher earners pay more of their fair share, which will generate $3 billion annually starting in 2029 to fund social and other services across the state.

Many Republican lawmakers warned the tax could lead to a general state income tax. Martinell told KIRO Newsradio the difference is that there now seems to be proof.

“They cannot deny this anymore. This is them explicitly saying we’re trying to make it so that we can tax anyone’s income at any rate by simple majority,” Martinell said.

Martinell’s report cites internal communications, including an email from Senate Majority Leader Jamie Pedersen, who sponsored the millionaire’s tax bill, suggesting the measure was intended to prompt a court challenge rather than simply generate revenue for social programs. If the decades-old precedent were overturned, it could open the door to broader income tax policies in Washington, a shift with significant long-term implications.

“It means the rate could go up, and also the terms of the tax can change if this Supreme Court decision from 1933 is overturned; they can basically change the rate. They can change the terms of anything with a simple majority,” Martinell explained. “Whereas, according to the 1933 decision, if you want to have a progressive income tax in the state, you have to do a constitutional amendment.”

Critics question AG office’s role in drafting legislation it may defend

The tax is already being challenged in court by the Citizen Action Defense Fund, which has enlisted former Attorney General Rob McKenna to lead the case. Critics also point to allegations that the Attorney General’s Office may have played a role in drafting the legislation, raising questions about the boundaries between legal counsel and policymaking.

In response, Mike Faulk, Deputy Communications Director for the Attorney General’s Office, told KIRO Newsradio in an email:

“We are required by law to serve as counsel to the Legislature, and in that role, we provide advice and answer lawmakers’ questions, as we did in this case. Lawyers routinely help clients who want to advocate for overturning precedent, which is something AG offices around the country get asked to do,” Faulk stated. “Lawmakers request legal advice, and we are required to provide it.”

Faulk also questioned the veracity of The Center Square’s report.

“The Center Square does not appear to know this or, frankly, other basic facts about state government,” he said.

The emails also said Pederson wanted to force the State Supreme Court to reconsider the issue, giving Democrats a chance to change case law. The allegation drew a strong reaction from former justice Phil Talmadge.

“The court doesn’t like to have its hand forced in any particular way. So that’s going to be that’s going to be an issue that’s going to be significant for the court,” Talmadge explained on “The Gee and Ursula Show” Tuesday. “It becomes very clear that this isn’t a tax directed at millionaires. It’s a tax directed at everybody in the state of Washington.”

In response, Pederson told KIRO Newsradio that constitutional challenges are common, pointing to Roe v. Wade as an example.

“Between 1973 and June 2022, red state legislatures passed 1381 laws designed to challenge Roe v. Wade,” Pederson said. “The practice of legislatures passing test case laws to challenge legal precedents they believe to be wrongly decided is very common.”

Court challenge could reshape WA’s tax system for generations

When asked what has changed now after 100 years of unanimous rulings that justify asking the state’s high court to reverse itself, Pederson said the original ruling was not as clear-cut as many believe.

“The 1933 decision was 5-4,” Pederson said. “We are now the only jurisdiction in the country to find that income taxes are property taxes. It’s always the right time to undo bad decisions by the Supreme Court that keep us mired in a broken, upside-down tax system.”

Talmadge, who represents the Ethnic Chamber of Commerce Council in the recent lawsuit filed against the state over the millionaires’ tax, said the issue of a state income tax has been before the Supreme Court several times in the past and has been rejected every time. However, he wonders, with midterm elections coming with five Supreme Court seats up for grabs, what the outcome will be this time around.

“It’s really important that people pay attention to this and look at those people very carefully, and read their voter’s pamphlet,” Talmadge said. “I think it’s going to be very unlikely that anything other than the new court that’s going to decide this.”

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