Washington’s Millionaires Tax would ask very high earners — less than 1% of all households in Washington — to pay a 9.9% tax on their annual income above $1 million. But the proposed tax rate in the Millionaires Tax isn’t the total tax rate most high earners will be paying.

The 9.9% rate only applies to the portion (or margin) of household income above $1 million — this is referred to as a marginal tax rate. By contrast, effective tax rates reflect the share of total income that is paid in taxes.

For example: If a person in Washington earns $1.2 million per year, only $200,000 of their earnings would be taxed at the marginal tax rate of 9.9%, bringing their effective tax rate to just 4.6%.

Other states levy state income taxes differently by including rates and brackets, along with deductions. Minnesota, which by comparison has a modestly progressive tax system, uses four brackets of marginal tax rates:

1. On income up to $32,570, a single filer pays 5.35%,
2. on income between $32,570 and $106,990, they pay 6.80%,
3. on income between $106,990 and $198,630, they pay 7.85%,
4. and on income higher than $198,630 they pay 9.85%.

These rates are applied consecutively, so for that same $1.2 million per year income in Minnesota, a person filing taxes would apply the standard state deduction ($14,950), decreasing their taxable income to $1,185,000, then would pay a 5.35% marginal tax rate on their first $32,570 ($1,743), 6.80% on $74,420 ($5,061), 7.85% on $91,640 ($7,194), and 9.85% on $986,420 ($97,162), for a total of $111,159 in state taxes or an effective rate of 9.38%.

Compared to other state tax structures, Washington’s proposed Millionaires Tax would impose one of the lowest effective rates nationwide on high earners. The following table displays the effective state income tax rates for a single filer earning $150,000 and $1.2 million per year in Washington and other locations with high marginal income tax rates on high earners. The effective tax rates include Medicare and local payroll taxes. Only wages are considered income for the purpose of calculating effective income tax rates — not capital gains, interest, or dividends. (Note that this likely overestimates the effective tax, as most wealthy people earn a significant portion of their income from sources that are not subject to payroll taxes.)

A single filer earning $1.2 million per year in Washington state pays the lowest effective income tax rate (4.60%) of all states that levy a state income tax. At even higher income levels, the effective income tax rate increases because more income after the initial deduction is taxed.

For example: A household earning $1.5 million in annual income would face a 6.25% effective income tax rate. That said, higher effective tax rates would be paid only by the households with the most resources to contribute to the public services we all rely on.

Even after paying the proposed Millionaires Tax, a household earning $1.5 million per year would still be left with $117,188 per month. By contrast, Washington’s current median household income is $98,141 per year.

It’s important to keep in mind that the proposed Millionaires Tax would apply to fewer than 1% of Washingtonians — these are households that, on average, earn more in a single month than the entire 20% down payment on a median-priced Seattle home. Based on 2022 state tax returns, the average household that would be subject to the Millionaires tax earns over $3 million in annual income; that’s over 30 times the income of the median household in Washington.

Washington’s current tax system asks more of middle- and low-income households than of the wealthiest earners in our state. The Millionaires Tax is a sensible and measured first step in balancing our tax code.