The tax debate in Washington is locked within one question: Who pays?
That question is important. But it is not the only important question.
Taxes serve two purposes. They raise money for public services, and shape behavior. Every tax system encourages certain activities while discouraging others. Tobacco tax is intended to reduce smoking. A carbon tax is intended to reduce carbon emissions. Payroll tax makes renting more expensive. Capital gains tax reduces the after-tax return on investment.
But when Washington’s tax structure is discussed publicly, almost all attention centers on one claim: that Washington has one of the most regressive tax systems in the country.
The label appears prominently in reports by the Institute on Taxation and Economic Policy, or ITEP, which consistently ranks Washington near the bottom nationally for tax fairness. Those positions have been widely cited by politicians, civil rights groups and the media as evidence that Washington’s tax code hurts low-income residents while favoring the wealthy.
But the argument is more complex than the estimates suggest.
The ITEP analysis attempts to estimate the effective tax burden paid by households at different income levels. To do that, the model includes not only physical taxes such as sales taxes, but also corporate taxes, payroll taxes, property taxes and other embedded costs. The model then estimates who ultimately bears those taxes economically.
That distinction is important because Washington relies heavily on taxes that are invisible to consumers.
Most residents see sales tax on the receipt. They don’t see the country’s Business & Occupation tax embedded in the entire economy. They do not recognize the taxes paid by the employer, compliance costs or gross receipts taxes imposed on the supply chain and operating costs.
Washington’s B&O tax is very unusual because it taxes all income instead of profits. Businesses are in debt regardless of whether they are making money. It is also integrated in many stages of production and distribution.
The key question in judging the extent of Washington’s tax rollback is who ultimately bears those taxes economically, a question that is far more uncertain than public debate suggests.
The extent of ITEP’s regression depends largely on the assumption that businesses can pass on a large portion of those costs to consumers, and that consumers bear most of those burdens rather than business owners, investors or workers.
That thinking may hold in other industries. In some, especially globally competitive sectors, it may not be possible.
A nationally competitive Seattle software company can’t always raise prices just because local taxes go up. A globally competitive cloud computing provider may recover part of those costs through lower margins, less hiring, reduced investment or lower compensation growth.
A small change in that basic assumption could dramatically change the extent of Washington’s backsliding. That does not make the model illegal. But it does mean that the conclusions should be treated with more caution and nuance than they often find in public debate.
In general, when the output of a model depends heavily on economic assumptions that are difficult to observe, policy makers and the media should present those conclusions with appropriate humility rather than as established fact.
That uncertainty is important because Washington’s tax structure is very different from states that rely heavily on income taxes. Washington has historically preferred to use taxation rather than production, a model built around a specific set of economic incentives.
The idea was straightforward. Taxes on work discourage work. Taxes on investment do not encourage investment. Business taxes encourage businesses.
Whether one agrees with that philosophy or not, it helped shape one of the most successful economic regions in the country. 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 low-income residents. But even that discussion is not unique.
Washington exempts many items from the sales tax, including groceries and prescription drugs. A household that buys mainly essentials pays less direct sales tax compared to spending more on discretionary purchases, travel, entertainment or luxury.
That structure reflects policy choices about benefits. Consumption taxes discourage discretionary spending while exempting many valuable items. Policymakers often use taxes to influence behavior in other contexts, including environmental policy, yet that common sense is often overlooked in broader discussions of taxation.
In recent years, Washington and especially Seattle have moved away from the traditional state tax structure. Policymakers raised B&O taxes, imposed payroll taxes and slapped a capital gains tax. Those decisions may increase revenue in the short term, but they also change incentives.
And incentives matter.
Seattle now faces office vacancy rates approaching 35% in parts of the city, among the highest in the country. Across the pond, Bellevue and the broader Eastside market sit much lower, typically 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 affects business decisions as well, especially at the margins where firms decide where future employment and expansion will take place.
According to the Bureau of Labor Statistics, Seattle’s unemployment rate reached 5.7% as of January 2026, the highest rate since the pandemic recovery. Seattle’s heavy focus on technology partly explains the expansion. But taxes also influence business behavior. Higher payroll taxes and corporate taxes raise the cost of hiring and expansion at a time when many firms have more flexibility about where to grow.
A broader problem is that modern tax discussions increasingly confuse progressive taxation with progressive consequences.
Those are not the same.
Some states with progressive tax systems continue to struggle with persistent poverty, high levels of housing affordability and growing inequality.
California provides perhaps the clearest example. Despite having one of the most progressive tax structures, California posts the nation’s highest Supplemental Poverty Measure when housing costs, taxes and cost-of-living adjustments are taken into account. According to the latest Census Bureau data, California’s Supplemental Poverty Measure rate stands at 17.7%.
Washington, despite being often called one of the most “regressive” states, does much better under the same method at 10.8%.
That does not prove that progressive taxation causes poverty. But it challenges the assumption that progressive taxation automatically solves the problem.
The state can redistribute wealth continuously while at the same time being ineffective in creating broad prosperity.
The tax code can appear very progressive on paper while producing disappointing real-world results for working families.
Similarly, a system that taxes more than productivity may create stronger incentives for investment, employment and long-term economic growth that ultimately benefit workers in the long run.
Most regression coefficients are static tests. 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 creation or economic dynamics.
Those factors matter. Especially in a state whose prosperity depends heavily on business innovation and high-skilled industries that can move to another area.
Washington must fully discuss fairness, affordability and inequality. That’s a legitimate concern. But the discussion should also acknowledge that taxes shape behavior, hidden taxes are difficult to model and economic competitiveness matters.
The goal of tax policy should not be simply to improve the distribution table. It should be to create a successful economy that expands opportunities broadly and remains competitive in the long term.
Washington’s future depends not only on how much money it raises, but also on what kind of economy its policies promote.
[Editor’s note: GeekWire publishes guest opinion pieces representing a range of perspectives. The views expressed are those of the author.]
