Washington’s proposed 9.9% tax on income above $1 million is not just a revenue measure—it is a relocation trigger. Seattle’s tech and startup ecosystem will hemorrhage talent and capital as founders and high earners move to Texas and Florida before the tax takes effect in 2028. The state has spent decades as one of the few with no personal income tax; the moment it adds a millionaires levy, the calculus for anyone planning a liquidity event or a big equity vest flips. The Seattle Times and industry groups are already reporting that nearly half of business owners are considering leaving. The next domino is founders and key employees voting with their feet.
Seattle’s Tax Advantage Is About to Disappear
The Washington Senate passed the millionaires tax (SB 6346) in February 2026; the 9.9% rate would apply to income above $1 million, with first payments due in 2029. As The Seattle Times and the Tax Foundation have reported, the proposal would push Seattle’s combined state and local tax burden on high wage income above 18%—the highest in the nation. Washington currently has no personal income tax; Texas and Florida have none. So a founder or senior tech worker comparing Seattle to Austin or Miami is no longer comparing zero to zero. They are comparing 9.9% (plus existing capital gains and local taxes) to zero. Tax Foundation analysis concluded the tax “would make the state increasingly undesirable for high earners, particularly in the state’s crucial tech sector.”
TechCrunch and other outlets have long documented that founders routinely consider relocating to no-income-tax states before a liquidity event; a move from a high-tax state to Florida can save millions on a single exit. Washington’s existing 7% capital gains tax on gains over $250,000 already put it at a disadvantage compared to Texas and Florida. Adding a 9.9% millionaires tax on wage and pass-through income removes the last reason for high-earning founders to stay. The Startup Law Blog and Economic Opportunity Institute note that the tax hits pass-through business income above $1 million—exactly the kind of income that flows to startup founders when they sell or when their companies are acquired. So the incentive to relocate before the tax takes effect is built into the design.
Tech Leaders Are Already Sounding the Alarm
Washington tech leaders have warned in writing that the tax would “undermine” the industry and hurt AI innovation. The Center Square and Longbridge report that a dozen tech executives, including AI researchers and investors, sent a letter to Governor Ferguson arguing the tax would “materially undermine Washington’s ability to keep growing the tech sector.” VC-backed company formation in Seattle has already fallen 30% since 2022; San Francisco benefits from a deeper AI ecosystem and Texas attracts companies with more favorable tax climates. Adding a top marginal rate that exceeds 18% on wage income makes Seattle an outlier not just versus no-tax states but versus every other state. Medium and Investment News have published cost-benefit analyses noting that high earners are highly responsive to tax changes—a Stanford study cited in analyses found top earners were 40% more likely to leave California after a major tax increase, with many moving to Washington and Texas. Now Washington is giving those same people a reason to leave.
The Association of Washington Business found that almost half of business owners are considering relocating if the tax is enacted. Some founders have called the measure “economic suicide” and predicted a mass exodus. Proponents counter that less than 1% of Washington businesses would pay the tax and that the $1 million threshold shields most households. That is true for current-year distribution—but it ignores the behavioral response. Founders and key employees do not have to live in Washington to build a company that started there; they can establish residency in Texas or Florida before a liquidity event and still run or advise the company. The redomestication trend—companies and individuals moving legal residence to Florida or Texas while keeping operations or ties elsewhere—is already well documented by Finextra and others. Palantir, Coinbase, and Tesla have made or announced such moves. Washington is offering the same incentive in reverse: leave before 2028, or pay.
What This Actually Means
Washington’s millionaires tax will drive startup founders and high-earning tech workers to Texas and Florida. The state is trading a long-standing no-income-tax advantage for an estimated $4 billion in annual revenue—and in the process it is giving the most mobile taxpayers a clear reason to leave before the tax takes effect. Seattle’s tech ecosystem will not collapse overnight, but the margin for the next generation of founders and key employees will tilt toward relocation. The debate over whether “only” 20,000–30,000 households are affected misses the point: those households include the people who start companies, hire talent, and invest in the region. Hemorrhage is the right word—slow, steady, and hard to reverse once the tax is in place.
Sources
The Seattle Times, Tax Foundation, The Startup Law Blog, The Center Square, TechCrunch, Finextra