Democratic state lawmakers are once again eyeing a statewide version of a Seattle tax on companies with large payrolls and high-paid employees.

Proposed legislation crafted by Rep. Shaun Scott, D-Seattle, aims to raise more than $2 billion a year. His idea is for this money to go to education, health care and human service programs facing steep reductions in federal funding under the Republican-backed “Big, Beautiful Bill” President Donald Trump signed into law this year.

Scott will discuss his proposal at a news conference Dec 2. Representatives of the Washington Federation of State Employees, Service Employees International Union and pro-tax groups will join the first-term Democratic Socialist legislator.

His is the latest salvo — and likely not the last — in a tax debate expected to dominate the 2026 session that begins Jan. 12. 

Senate Democrats are drawing up designs for a possible income tax on millionaire-earners and reigniting talks on a so-called wealth tax that made it through the chamber on the final day of last session. All this because the state’s budget continues to face a shortfall and many Democrats are wary of going much further with cuts.

Republicans are slamming Scott’s proposal, arguing it will drive businesses from the state and hurt wages. They point to billions in new taxes Democrats pushed through the Legislature this year. 

Scott said his idea would help budget writers by making sure there is a stream of revenue to backfill what the federal government takes away.

Though there’s been some paring of federal resources already, he said action is needed this session because deeper cuts arrive in 2027 and 2028. Absent proactive measures by the Legislature, thousands of residents will find themselves facing greater food insecurity, less access to health care and higher costs for education, he said.

Scott’s legislation is modeled on Seattle’s JumpStart payroll expense tax and is similar to the approach Senate Democrats proposed this year but discarded in favor of other new taxes to help erase a multi-billion dollar shortfall in the state budget.

This year’s bill, Senate Bill 5796,  would remove the cap on employer payroll taxes and impose a new 5% tax on payroll expenses above the Social Security threshold of $176,100 per year. Companies with $7 million or more in payroll expenses would be subject to the tax. Those already paying the Seattle levy would be exempt.

Sen. Rebecca Saldana, D-Seattle, sponsored the bill, which is still alive heading into the 2026 session. As written it would raise about $2 billion a year, per a fiscal analysis.

How the new proposal would work

Scott’s bill would create the “Well Washington Fund” to “maintain the economic health” of the state, according to a draft of the legislation.

If passed and signed into law, it would take effect July 1, 2026 and generate an estimated $2.2 billion a year, Scott said.

It targets private employers whose workers earn more than $125,000 a year. It would impose a 5% tax on payroll expenses above that salary threshold. Companies with more than 50 workers, payroll in excess of $7 million and gross receipts of more than $5 million would pay the tax, he said.

Businesses may not deduct from employee wages to pay this tax. Like the Senate bill, if the firm already pays the Seattle levy, it would be exempt from this one, Scott said.

Roughly 4,300 businesses would be covered, he said. The state’s largest health care and social services providers would likely be exempt, Scott added.

His proposal directs all money collected in the first year into the general fund, the main account used to support public schools and state government operations. Starting the second year, 51% of the tax receipts would go into the Well Washington account and 49% into the general fund.

Expenditures from the new account would be limited to higher education, health care, especially Medicaid, cash assistance programs, and energy and housing programs.

A 25-member oversight board — of which 20 would be lawmakers — would be created. Its role would be to make recommendations to legislative budget committees on where money in the Well Washington account would be best spent.

‘Wrong approach’

A top House Republican on Nov. 26 called the proposal the wrong approach to a serious problem and warned it could drive businesses out of state and hurt the state’s economy.

“You’re destroying your own tax base,” said Rep. Chris Corry, R-Yakima, the deputy leader of the House Republican Caucus. “If you want to incentivize businesses to pay people less money, this is it. In the long run, I think it will cost the state more than it makes.”

Corry chided Democrats’ pursuit of a new business tax so soon after enacting a raft of them earlier this year.

“There will always be a need. There will always be an excuse. The excuse this year is not that we’re spending more than we take in. It’s the Trump administration,” Corry said. “We will offer what we believe are solutions to help manage the state’s fiscal challenge without resorting to new taxes.”

Rep. April Berg, D-Mill Creek, who chairs the House Finance Committee, said Nov. 26 she had not seen the draft legislation. She also didn’t think it would be the last revenue bill to emerge.

“Everything’s on the table. Members are going to have lots of ideas as we enter another season of dealing with a deficit,” she said.

This story is republished from the Washington State Standard, a nonprofit, nonpartisan news outlet that provides original reporting, analysis and commentary on Washington state government and politics.