Washington State’s New Payroll Tax Proposal: A Bridge for Social Services or a Burden for Business?
A new tax proposal in Washington State has sparked debate between business leaders and legislators. House Bill 2100, pre-filed this week in Olympia by Seattle Democrat Rep. Shaun Scott, would create the “Well Washington Fund” through a 5% payroll expense tax on large companies for employee wages exceeding $125,000. The bill targets businesses with more than 20 employees and over $5 million in gross receipts, while exempting employers with total wages under $7 million in the previous year and Seattle-based companies already paying the city’s JumpStart payroll tax. According to Scott, the tax would affect approximately 4,300 businesses statewide, including major employers like Microsoft and T-Mobile, and would generate more than $2 billion annually to support critical social services.
Rep. Scott frames the proposal as a necessary safeguard against federal funding cuts to essential programs like Medicaid, higher education, and housing assistance. “People are looking to the state legislature for leadership on protecting the programs that make our state actually a healthy climate to do business in,” Scott explained to GeekWire. He argues that well-funded social infrastructure creates a “corollary effect” that ultimately benefits corporations through a better-trained workforce and improved quality of life that makes Washington more attractive for talent recruitment and retention. Scott believes public sentiment supports this view: “My sense of it is that the public is on our side on this issue. They understand that when you have very well-funded higher education, what that means is a well-trained workforce that could seek employment at a place like Microsoft or Amazon — and the company would benefit as a result.”
The tax proposal has met resistance from business groups and leaders who worry about its economic impact. Rachel Smith, the new CEO of Washington Roundtable, characterized the bill as a “tax-first, plan later” approach that could harm the state’s business environment. Smith expressed concern about companies potentially relocating jobs to less expensive regions, particularly given the state’s recent tax increases and ongoing economic uncertainty. “If a job is cheaper somewhere else, and a company has an operational environment that allows them to deploy that job somewhere else, of course that’s going to be something they consider,” Smith noted. Similarly, Gabriella Buono, interim president and CEO of the Seattle Metro Chamber, warned that “raising taxes in an affordability crisis will mean higher prices on everyday essentials, fewer job opportunities, and more closures in sectors that are already on the edge.”
Rep. Scott dismisses these concerns as inconsistent, pointing out that the business community rarely raises similar alarms about job losses when companies invest in technologies like artificial intelligence “which is designed to divest from human labor.” He calls it “disingenuous” that critics worry about companies leaving when the state considers funding safety net programs but accept corporate downsizing as a normal business practice. The debate highlights Washington’s unusual tax structure as one of the few states without personal or corporate income taxes, relying instead on sales, property, and Business & Occupation taxes—a system that critics argue places disproportionate burden on lower-income residents and creates recurring budget challenges for public services.
The revenue mechanism in the proposed bill is carefully structured. Initially, all proceeds would go to the state general fund in 2026. Beginning in 2027, the revenue would be split, with 51% directed to the dedicated Well Washington fund and 49% remaining in the general fund. A newly established oversight and accountability board would guide spending priorities and provide annual reports. The bill specifically limits expenditures to four key areas: higher education, healthcare (with emphasis on Medicaid), cash assistance programs, and energy and housing initiatives—all sectors facing potential federal funding reductions.
This isn’t Washington’s first attempt at implementing a statewide payroll tax. A similar proposal failed to advance earlier this year, drawing criticism from industry leaders including Microsoft President Brad Smith, who argued it would increase consumer prices, reduce jobs, and damage the tech industry. Microsoft declined to comment on the new proposal when contacted by GeekWire. As the legislative session approaches, the bill represents the continuing tension between Washington’s need to fund public services and concerns about maintaining business competitiveness. Rep. Scott’s fundamental argument—that public investment creates the conditions for business success—stands in contrast to industry warnings about tax burden consequences. The outcome may ultimately depend on whether legislators and the public view the tax as an investment in shared infrastructure or an impediment to economic growth.
