[Editor’s note: Alex Murray is a small business owner who has previously written for GeekWire about taxes in Washington state.]
Washington state’s tax debate has become trapped inside a single question: Who pays?
That question matters. But it is not the only question that matters.
Taxes serve two purposes. They raise revenue for public services, and they shape behavior. Every tax system encourages some activities while discouraging others. A tax on cigarettes is intended to reduce smoking. A carbon tax is intended to reduce emissions. A payroll tax makes hiring more expensive. A capital gains tax reduces the after-tax return on investment.
Yet when Washington’s tax structure is discussed publicly, nearly all of the attention centers on one claim: that Washington has one of the nation’s most regressive tax systems.
The label comes largely from reports by the Institute on Taxation and Economic Policy, or ITEP, which regularly rank Washington near the bottom nationally on tax fairness. Those rankings are widely cited by politicians, advocacy groups and media outlets as proof that Washington’s tax code harms lower-income residents while favoring the wealthy.
But the debate is more complicated than the rankings suggest.
ITEP’s analysis attempts to estimate the effective tax burden paid by households at different income levels. To do that, the model includes not only visible taxes like sales taxes, but also business taxes, payroll taxes, property taxes and other embedded costs. The model then estimates who ultimately bears those taxes economically.
That distinction matters because Washington relies heavily on taxes that are largely invisible to consumers.
Most residents see sales tax on a receipt. They do not see the state’s Business & Occupation tax embedded throughout the economy. They do not see employer payroll taxes, compliance costs or gross receipts taxes layered into supply chains and operating costs.
Washington’s B&O tax is particularly unusual because it taxes gross revenue rather than profit. Businesses owe it regardless of whether they make money. It also compounds through multiple stages of production and distribution.
The critical question in judging Washington’s level of tax regressivity is who ultimately bears those taxes economically, a question that is far more uncertain than many public discussions imply.
ITEP’s regressivity rankings depend heavily on the assumption that businesses can pass much of those costs on to consumers, and that consumers therefore bear the majority of those burdens rather than business owners, investors or workers.
That assumption may hold in some industries. In others, especially globally competitive sectors, it may not.
A Seattle software company competing nationally cannot always raise prices simply because local taxes increase. A cloud computing provider competing globally may absorb part of those costs through lower margins, slower hiring, reduced investment or lower compensation growth.
Small changes to those underlying assumptions can materially alter Washington’s estimated regressivity ranking. That does not make the model illegitimate. But it does mean the conclusions should be treated with more caution and nuance than they often receive in public debate.
Generally, when the outcome of a model depends heavily on a difficult-to-observe economic assumption, policymakers and media outlets should present those conclusions with appropriate humility rather than as settled fact.
That uncertainty matters because Washington’s tax structure differs fundamentally from states that rely primarily on income taxes. Washington historically chose to tax consumption more heavily than productivity, a model built around a specific set of economic incentives.
The logic was straightforward. Taxes on work discourage work. Taxes on investment discourage investment. Taxes on entrepreneurship discourage entrepreneurship.
Whether one agrees with that philosophy or not, it helped shape one of the country’s most successful economic regions. Washington became home to some of the world’s most influential companies, including Microsoft, Amazon, Costco and generations of aerospace and technology firms.
Critics often portray Washington’s reliance on sales taxes as inherently harmful to lower-income residents. But even that discussion lacks nuance.
Washington exempts many necessities from sales tax, including groceries and prescription medications. A household purchasing primarily essential goods pays relatively little direct sales tax compared with one spending heavily on discretionary consumption, travel, entertainment or luxury purchases.
That structure reflects policy choices about incentives. Consumption taxes discourage discretionary consumption while exempting many essentials. Policymakers routinely use taxes to influence behavior in other contexts, including environmental policy, yet that same logic is often ignored in broader tax debates.
In recent years, Washington and especially Seattle have moved away from the state’s traditional tax structure. Policymakers have increased B&O taxes, imposed payroll taxes and enacted a capital gains tax. Those decisions may raise revenue in the short term, but they also change incentives.
And incentives matter.
Seattle now faces office vacancy rates approaching 35% in parts of downtown, among the highest in the country. Across the lake, Bellevue and the broader Eastside market sit materially lower, generally in the low-to-mid 20% range depending on the submarket. The difference cannot be explained by geography alone. Both cities compete for many of the same employers, workers and industries.
Housing costs, public safety concerns and the local political climate have all contributed to Seattle’s struggles. But tax policy influences business decisions too, particularly at the margin where firms decide where future hiring and expansion will occur.
According to the Bureau of Labor Statistics, Seattle’s unemployment rate reached 5.7% as of January 2026, the highest level since the pandemic recovery period. Seattle’s heavy concentration in technology partly explains the increase. But taxes influence business behavior too. Higher payroll and business taxes raise the cost of hiring and expansion at precisely the moment many firms have more flexibility about where growth occurs.
The broader problem is that modern tax debates increasingly confuse progressive taxation with progressive outcomes.
Those are not the same thing.
Some states with highly progressive tax systems continue to struggle with persistent poverty, severe housing affordability problems and widening inequality.
California provides perhaps the clearest example. Despite having one of the nation’s most progressive tax structures, California posts one of the country’s highest Supplemental Poverty Measure rates once housing costs, taxes and cost-of-living adjustments are considered. According to recent Census Bureau data, California’s Supplemental Poverty Measure rate stands at 17.7%.
Washington, despite regularly being labeled one of the nation’s most “regressive” states, performs materially better under the same methodology at 10.8%.
That does not prove progressive taxation causes poverty. But it does challenge the assumption that more progressive taxation automatically solves it.
A state can redistribute wealth progressively while simultaneously becoming less effective at creating broad-based prosperity.
A tax code can appear highly progressive on paper while producing disappointing real-world outcomes for working families.
Likewise, a system that taxes consumption more heavily than productivity may create stronger incentives for investment, hiring and long-term economic growth that ultimately benefit workers over time.
Most regressivity rankings are fundamentally static exercises. They estimate who pays taxes today. They are not designed to fully capture the long-term effects of tax policy on investment, migration, wage growth, business formation or economic dynamism.
Those factors matter. Especially in a state whose prosperity depends heavily on innovation, entrepreneurship and high-skilled industries that can increasingly relocate elsewhere.
Washington should absolutely debate fairness, affordability and inequality. Those are legitimate concerns. But the conversation should also acknowledge that taxes shape behavior, hidden taxes are difficult to model and economic competitiveness matters.
The goal of tax policy should not simply be to optimize a distribution table. It should be to create a prosperous economy that expands opportunity broadly and remains competitive over the long term.
Washington’s future depends not only on how much revenue it raises, but on what kind of economy its policies encourage.
[Editor’s note: GeekWire publishes guest opinion pieces representing a range of perspectives. The views expressed are those of the author.]
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