SEATTLE — In an effort to address a looming budget deficit and protect vital services such as education, mental health care, and law enforcement, outgoing Washington Governor Jay Inslee has introduced a unique tax on individual wealth exceeding $100 million. This new tax is projected to generate approximately $10.3 billion over the next four years, impacting around 3,400 residents, including well-known figures such as Microsoft co-founder Bill Gates, Inslee announced on Tuesday.

This tax structure is relatively rare within the United States and is mirrored by only a handful of countries, according to insights from the Tax Foundation, a policy think tank with a conservative stance. The incoming governor, Bob Ferguson, who is set to take over, is currently assessing Inslee’s proposal. Earlier, Ferguson hinted that he may consider increasing taxes as a method to bridge the expected budget shortfall, which Inslee estimates to be around $16 billion over the next four years.

In recent years, Democratic leaders in several states, including Washington, have floated ideas for new wealth taxes or similar measures targeting the affluent. Notably, in 2022, Massachusetts voters endorsed a “millionaire tax,” imposing an additional income tax on those earning over $1 million annually. Washington, which does not impose an income tax, has been criticized for having one of the most regressive tax systems in the nation—a situation where lower-income individuals contribute a higher percentage of their income compared to wealthier residents. Following a recent vote in favor of the state’s new capital gains tax, Inslee mentioned this reflects a public desire for a more equitable taxation framework.

Inslee remarked, “The state and the nation must tackle this profound inequality. We cannot sustain a healthy and vibrant community while facing significant poverty and need alongside such immense wealth.” Critics of the proposed wealth tax, particularly from the Republican side of the legislature, have expressed strong disapproval. Representative Travis Couture, a prominent Republican on the House Appropriations Committee, characterized the proposal as misguided. He stated in an email, “Governor Inslee’s massive tax increase and reckless spending demonstrate how disconnected his administration is from the financial challenges confronting Washington families.”

The Tax Foundation has described wealth taxes as detrimental to the economy, urging that they prompt questionable avoidance tactics. Jared Walczak, the organization’s vice president for state projects, noted that aside from a few countries like Norway, Spain, Switzerland, and recently Colombia, many others have abandoned such taxes. He highlighted the complexities involved in administering wealth taxes, admitting that certain assets—such as privately held businesses that have not been sold—are challenging to appraise. Moreover, unlike taxes based on profits, wealth taxes may diminish the fundamental value of an asset, creating tax liabilities even during losses. Walczak cautioned, “This could significantly deplete capital and discourage investment and economic development.”

Washington joins several states grappling with budgetary issues, with Inslee attributing the shortfall to various factors including inflation, increased demand for social programs, and lower-than-anticipated revenue from home sales and taxes on capital gains. Aside from the proposed wealth tax, Inslee’s budget plan advocates for higher taxes on around 20,000 businesses that report annual incomes exceeding $1 million, particularly in fields like law and accounting. Additionally, the plan entails $2 billion in cuts or postponed expenditures, which includes closing the Mission Creek Corrections Center for Women, citing decreased need for lower-security accommodations.

This article has been revised to clarify that the governor announced the proposal on Tuesday rather than Monday.