A year ago, Senate Majority Leader Jamie Pedersen, D-Seattle, signed onto legislation to create a statewide version of a Seattle tax on the payrolls of Washington’s largest employers.

But it didn’t gain traction as the Democrat-led Legislature settled on other means of raising more than $9 billion in taxes from businesses over four years to bridge an operating budget gap.

This year, Pedersen has signalled the payroll expense tax is a nonstarter, even as his district seatmate in the House, Democratic Socialist Rep. Shaun Scott, has become the driving force for it.

Pedersen’s focus is an income tax bill he’s authored on individuals earning over $1 million a year. It was unveiled Feb. 3. 

Pro-tax activists are frustrated at the lack of interest in the payroll tax from Democratic legislative leaders and Democratic Gov. Bob Ferguson. 

They want both tax ideas pursued with equal exuberance. They also suspect a fix is in: That corporate interests won’t fight the “millionaire’s tax” as long as the payroll levy — which business leaders detest — doesn’t move.

Washington faces a budget challenge with a slowing economy and expected increased demand for services due to changes in federal law. Payroll tax proponents argue that the tax can raise money quickly to solve these pressures, whereas the income tax will take years to implement.

With the imminent arrival of the income tax legislation, the Standard tracked down Pedersen for a quick conversation on the situation. The following interview was lightly edited for clarity and length.

The payroll expense tax you sponsored last session is still alive. And there’s a new version in the House. Yet you’ve made clear the Senate bill won’t be heard and have made less than friendly comments toward the House bill. What’s changed?

We had a big discussion about it. The end result was that by the time we had to decide what our strategy was going to be for funding the budget last year, we probably didn’t have 10 votes in our caucus for that bill.

Did you make a deal with leaders of big companies that if you did not pass the payroll expense tax, they wouldn’t oppose your efforts on the millionaire’s tax?

There isn’t any deal right now. 

Some of them were concerned that the approach (last session) was more adversarial than it needed to be, that there was a way of working together that they wanted us to get back to so that they could help us solve the problems that we have.

Where that may be possible on the millionaire’s tax, that is absolutely not a possibility on the payroll tax. For a lot of them, that is existential about their ability to grow in this market.

But you still need revenue for this budget. The payroll tax would produce it faster than the income tax.

That is a falsehood that is coming from certain people who want to make people believe that there’s not a problem in the current budget that we can’t solve with additional revenue. Both of them could go into effect in 2028.

A persistent criticism from leaders of the largest statewide business organizations is that a payroll tax will drive companies from the state. Do you share their concern?

No matter what tax we do, there’s some suggestion like, ‘Oh, you’re gonna cause people to leave.’ That is a universal claim, sometimes borne out, sometimes not borne out.

Speaking for myself, I have learned over the last few years that when we do badly is when our tax system is out of alignment with the mainstream.

Probably the most hated tax that we have in the state is the B&O (business and occupation) tax. It’s riddled with exemptions and preferential rates. It’s constantly being lobbied and it’s not a surprise that 91 years after we enacted it, there’s not one single other place on Earth that has decided to follow us in taxing gross receipts.

We have pretty high aggregate business taxes. We’re probably in the top five. Our estate tax, when we increased the top marginal rate, we were the highest in the entire country. That echoes some of the concerns that we heard from the governor and others about the wealth tax (last year) and being the only state in the country that would have something like that.

By contrast, we did something like capital gains tax, which is just very middling in terms of how most places tax capital gains. Not much of a ripple on that and a good revenue stream that started up for the state. Similarly the millionaire tax establishes this relatively modest tax on income only above $1,000,000. Forty-one states have income taxes. You’re not creating a giant incentive (to leave).

Now, how do you evaluate the payroll tax? We’ve certainly imposed some other payroll taxes where that has not caused a giant exodus. There’s some indication that some of our more prominent employers have grown jobs more in Bellevue than in Seattle since the imposition of the JumpStart tax, you know. So that’s a factor to consider.

It’s also probably worth noting that they, the people who really didn’t want that tax to happen, were in the process of amassing a pretty significant war chest with a direct threat that they were going to undo it with an initiative.

Speaker (Laurie) Jinkins, Representative (Joe) Fitzgibbon, and I have been consistently engaging the business community to figure out how we can get them at least to be neutral, if not to being supportive, of an individual tax on millionaires.

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.