Washington's 9.9% Tax: Why Wilson's 'Bye' May Backfire

Seattle Mayor Katie Wilson said last week that wealthy residents leaving Washington over the state's new 9.9% income tax on earnings above $1 million could say 'bye.' The audience cheered. Former state senator Reuven Carlyle called the tone unwise. Seattle has no 'inherent constitutional right' to a vibrant tech economy, he said. It has to be earned.

Wilson's remark reflects an assumption that the tax base will hold regardless of the rate. Economic theory and recent evidence suggest otherwise. Capital flows toward opportunity and away from obstacles. Businesses expand where taxes are lower and the expected return justifies the risk. Entrepreneurs build where their efforts will be rewarded rather than punished.

Washington's 9.9% tax is one of the highest state-level income taxes on top earners. The state had no income tax until a 2023 supreme court ruling allowed a capital gains tax on high earners. The new bracket extends the same logic to ordinary income above $1 million, covering salaries and carried interest.

The migration response is already public. Starbucks, headquartered in Seattle, announced a $100 million investment and 2,000 new jobs in Nashville rather than its home city. Fisher Investments moved its headquarters from Camas, Washington, to Texas. Jeff Bezos relocated his primary residence to Florida. Each move had multiple factors. Each followed a change in Washington's tax environment.

Ludwig von Mises, the Austrian economist, argued that economic decisions are made by individuals responding to incentives. When policymakers ignore those incentives, their calculations diverge from reality. A politician sees a successful business owner as a source of additional tax revenue. The entrepreneur asks a different question: is it still worth investing here? Should future expansion happen in this state or somewhere else? The politician assumes behavior remains unchanged after a policy is implemented. The entrepreneur decides whether it does.

The damage is rarely immediate. A business does not relocate overnight over a single policy. Expansion plans shift elsewhere. New investment slows. Entrepreneurs choose different cities for their next venture. By the time the consequences are visible in slower growth and a shrinking tax base, the politicians responsible are blaming external forces rather than their own decisions.

Wilson may view departing millionaires as insignificant. Capital, investment, and jobs have no obligation to stay where they are unwelcome. They rarely announce their departure in advance. And unlike a mayor waving goodbye at a podium, they do not come back for the applause.