Small Business Rundown
Small Business Rundown
Ep. 91: State Tax Hikes Crush Small Business
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NFIB State Directors explain tax hikes proposed by their state legislatures and their impact on small businesses. They discuss what small businesses nationwide could face as these policies gain popularity and how small business owners can take action.
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If someone asked me if they should start a business in Washington state, I would tell them, run. In 2017, we were one of the best states for business. And ever since then, it's getting worse and worse and worse.
SPEAKER_02The Small Business Rundown is the official podcast of the National Federation of Independent Business, the member-driven voice of small business. Every two weeks, a new episode offers resources for small business owners and information on relevant laws and regulations. NFIB and our members advocate to keep U.S. small businesses strong and independent in Washington, D.C., all 50 states, and the nation's courts.
SPEAKER_05Welcome to the Small Business Rundown. I'm Tim Goodrich, NFIB's Vice President of State Government Relations. On today's show, we'll find ourselves out in the Northwest to talk about two state tax issues that follow a trend in state tax policy across the nation. I'm joined by three NFIB government relations experts: Greg Barilla, a regional director for NFIB, Anthony Smith, State Director in Oregon, and Patrick Connor, NFIB State Director in Washington State. Thank you all for joining me.
SPEAKER_04Good to be here, Tim. Thank you, Tim.
SPEAKER_05Thanks for having us, Tim. Well, I'd like to start out asking you both, Anthony and Patrick, if you would uh rank your business tax climates from one to ten, with ten being outstanding. Patrick, I'll start with you.
SPEAKER_04Good question, Tim. We have really fallen in the rankings nationally by a number of different organizations. So I would put us with a new millionaire tax at about a two.
SPEAKER_03Anthony? And Tim, I'd probably give us a three, just one bump above what Patrick's dealing with, just because of the fact that we don't have a general sales tax in Oregon.
SPEAKER_05Well, I remember not too long ago that both of your states were excellent states for small business owners. And I'd have to say that it's taken a lot of uh hard work by those who impose mandates to uh get us to a two and a three. So unfortunate for small business owners. And Patrick, let's start by talking about the millionaires tax that was proposed this year by the legislature. Can you give us a kind of a what is it? What's the update? What do you see happening with it?
SPEAKER_04Well, the 2026 legislature passed and our governor signed into law a new so-called millionaire tax that would put a 9.9% tax on federal adjusted gross income above a million dollars. It's expected to raise about $4 billion annually, increasing over time based on government estimates. We'll see if that actually pans out.
SPEAKER_05So, Patrick, when people hear the term millionaires tax, sure they're thinking about people like Bill Gates. So, you know, why would small business owners be concerned about a millionaires tax?
SPEAKER_04No, great question. And one we have fielded quite a bit, Tim. So in this bill establishing a millionaire tax, small businesses were specifically targeted. And what I mean by that is if you are a sole proprietor, you're a member of a partnership or a limited liability corporation, an LLC, or you're organized as an S-corp, you're subject to this law. If you're a full C corporation, the bill doesn't affect you. So our big business owners, you know, the Bill Gates's and others in our state, most of their companies and their personal wealth is not going to be impacted by the millionaire tax. But if you're a sole proprietor, if you're a partnership, LLC, and you've got business earnings that exceed a million dollars, you're going to be hit with a new 9.9% tax on those dollars above a million that you have to report through your personal federal income tax for business earnings. We think it should be wages, not business earnings that are covered, but we lost that argument in the legislature.
SPEAKER_05Patrick, am I correct though? Doesn't Washington state have a constitutional ban on income taxes?
SPEAKER_04Sort of. Our state constitution requires that property, uh, and property has been defined by prior courts as including income, must be taxed uniformly and at no more than 1%. That's the so-called Cullatin case in our state. So there is litigation against the millionaire tax on those very grounds that the state constitution, based on case law going back nearly a hundred years, prohibits this kind of taxation, both because it taxes income and also because it it treats different levels of income earners differently.
SPEAKER_05Now, I'm sure the uh folks that are the proponents for this tax have indicated that there's a great need for revenue. Can you talk a little bit about what they're saying?
SPEAKER_04I'll do my best. Uh, in our state, we have been hit with a plague of new tax increases to cover new spending demands. This $4 billion millionaire tax was passed on the heels of last year's nearly $10 billion tax package that was supposed to put us on solo financial footing going forward. So uh we have got a terrible tax and spend attitude here in Olympia, where we have got nearly 60% of both chambers controlled by one party. We've had one party rule in this state, primarily going back to about 1985. So there seems to be an insatiable demand to continue to spend more and more money. And in fact, our former Democrat governor Chris Gregoire here has made the news by complaining that when she was in office, the state budget was about $30 billion, and that was a decade or so ago. And now we're at $80 billion. So we have increased spending more than double in about 10 years, and there's really no end in sight.
SPEAKER_05Well, building on that, Patrick, we have a short segment from an interview with NFIB member Lois Cook in Washington State to further illustrate the impact of the millionaires tax. She co-owns America's Phone Guys in Vancouver, Washington with her husband, and they have two employees. So let's listen to the clip now.
SPEAKER_00I'm very frustrated with the millionaire tax because it's an attack on small businesses that are LLCs, sole proprietors, and that sort of thing, while not going after the big businesses at all. Because of the millionaires tax and our age getting towards retirement, we are considering moving out of the state of Washington, either so that we can be out of Washington when it's time to sell our business, or so that we can protect ourselves from future iterations of the millionaire tax, which are not on millionaires. If we were forced to stay in Washington, for some reason we couldn't move, we would likely eliminate at least one position and look at offshoring that work as well as utilizing more AI for technical support of our clients. If someone asked me if they should start a business in Washington state, I would tell them run. In 2017, we were one of the best states for business. And ever since then, it's getting worse and worse and worse.
SPEAKER_02Small businesses are celebrating one year of the small business tax deduction being permanent. With this tax certainty, owners nationwide can invest in equipment for their businesses, their employees, and their communities. This huge victory prevented a massive tax hike from impacting over 33 million small businesses. Learn about this landmark tax win and what the deduction does for your business and the economy at smallbusinessdeduction.com.
SPEAKER_05Welcome back. We talked before the break about the millionaires' tax in Washington State. Oregon's had some tax challenges as well, Anthony. One of the things that we hear from our members around the country on transportation issues, they often tell us they're frustrated. They feel that, you know, government has a role to play, and oftentimes that's federal government providing a military, providing defense for the country. While state and federal government provide funds for transportation and infrastructure, our members often are frustrated because they feel that the money that should be going to transportation and infrastructure is used for other purposes, and then they're asked to raise taxes. So I'm wondering, could you tell me a little bit about the ballot measure 120 in Oregon and was that a similar situation?
SPEAKER_03Yeah, Tim, thanks. You you hit the nail on the head, really. The transportation is one of those expenditures that people expect their tax dollars to go to. It's really a non-controversial way to spend taxpayer money. The problem is that there's not a lot of confidence from Oregon voters at this point in time that legislators are prioritizing those non-controversial uh items for spending taxpayer dollars on those basic services of government before funding other things that may be more controversial. So, you know, when it comes to public safety, education, transportation, these are the things that taxpayers expect their tax dollars to go to. But in reality, it's one of the last things to get funded when budget writers are crafting their state budget.
SPEAKER_05So, Anthony, I'm sure you heard from members in Oregon. What are they saying? Are they confused by some of the actions that are happening there, or what's the situation?
SPEAKER_03Well, for ballot measure 120 specifically, which thankfully voters rejected overwhelmingly, a 83% of the vote was against the new taxes. This was a six cent gas tax increase, taking our state gas tax from 40 cents a gallon to 46 cents a gallon. There were title and registration fee increases, essentially doubling those, and then doubling a payroll tax on employee wages for the next two years. And thankfully, Oregonians overwhelmingly rejected those tax and fee increases. And we were happy that they did that. We were involved in a campaign with our members' support to try to raise awareness about the taxes and uh and fee increases because this was a legislative proposal from the 2025 legislative session that then was referred to the voters by the people by way of the referendum process. And we had a lot of small businesses who opened their doors as signature gathering locations because of what I said prior, which was that even though this is a legitimate expenditure of government to fund transportation, they felt like our state budget, similar to Washington, it's doubled in the last 10 years. There's lots of tax money flowing into Salem. They just need to prioritize the basic services that government should provide before they do anything else.
SPEAKER_05Now I just want to clarify, did I hear you say a payroll tax for transportation?
SPEAKER_03That's correct. So in 2017, the legislature created a payroll tax on employee wages, statewide transit tax is what it's called. And it's a very small fraction of your employee wages, but that it is. It's a tax on employee wages. So it's a an employee payroll tax, not an employer payroll tax. But that's still money coming out of our members' employees' paychecks. And when it goes up, it's the business owner that has to explain why they're taking more money out of their employees' paychecks.
SPEAKER_05Well, that's a very unusual way to raise money for transportation. Not sure any other state is doing it, none that I'm aware of. Anthony, I guess this begs the question. So taxpayers have said no to these increases. There appears to be a need for improvements in the infrastructure in Oregon. So, you know, what's the next step?
SPEAKER_03Well, the next step is that the legislature is going to try again. There are ongoing meetings already, just with the election last month, trying to revive this conversation going into our 2027 session. The reason that we were involved in the no campaign was to try to defeat this ballot measure by as big a margin as possible, knowing that the legislature is going to bring another proposal back. And they can't ignore the voters when the voters reject their last proposal by such an overwhelming margin. So they're going to try again. And if they don't get buy-in from the business community, who is not against government spending money on filling potholes and making sure that congestion doesn't impact the flow of goods and services. But how we go about raising revenue or even just prioritizing how we spend our money is very important.
SPEAKER_05As the old saying goes, what part of no don't they understand? All right. Well, I want to shift to you now, Greg Barella. NFIB got involved very heavily in these two states with some issue campaigns. And I wonder if you can walk us through this, you know, both states, what NFIB did.
SPEAKER_01Sure. In both cases, I think it's important to note that the campaign sort of emerged organically and naturally from what Anthony was doing in Salem and Patrick was doing in Olympia and what they were hearing from our members. I'll start in Washington, which occurred a little bit differently than in Oregon. It was a short session in Washington. Proponents kept the details of what they were trying to do on a millionaires' tax or an income tax relatively quiet. And our small business day was in mid to late February, and Patrick had identified this issue, the potential of a millionaires tax, as the priority issue of the day. Weeks before our members were set to gather in Olympia, before there was any legislative language or even a bill. And then in early February, language dropped and a bill began to advance. We had our lobby day with members from across the state in Olympia to talk about this and a number of other issues, but this issue of a millionaires tax quickly became the priority of the day. And from there, we started our paid advertising campaign just a matter of days afterwards. Um that night, Patrick and some of our members were asked to do local media and statewide media on the potential of a millionaires tax in Washington. We immediately began contacting our members. And, you know, I looked up the numbers this morning in a relatively short period of time, a couple of weeks, 1,500 messages were sent to lawmakers or the governor from NFIV members in Washington. That's a tremendous amount. And that told us right then and there that there was an appetite, even if we knew the odds were long at this point in the process, there was an appetite from our members and small business owners in Washington to fight and fight forcibly against the imposition of a millionaire's tax. We did paid radio ads and paid digital ads targeted to key markets and communities and regions across the state throughout the remainder of legislative session in Washington. And as long as that bill sat on the governor's desk, which was several weeks after session had gabbled out. So Washington's was a quick legislative process that the campaign followed along with and heated up with throughout, and a little bit different in Oregon. In Oregon, we had the foresight of seeing this from a mile away. Anthony had dealt with this issue in the 2025 legislative session. And because of his work and others, we were successful in getting it tabled during a regular session. So the governor and proponents brought back the transportation and gas taxes to a special session. And the proposal kept on getting smaller, and they tried to peel off more votes here and more votes there until eventually they passed something in the summer of 2025. Immediately, allies of NFIB and the legislature and the business community and others sought to force a referendum and a repeal of this transportation tax. Initially, it was scheduled to be in November of 2026 on the general election day. Lawmakers, I think, and proponents knew how unpopular this proposal was. So we saw even in 2026 session a bill to move it to primary day on May 19th. Less electoral activity, less electoral participation on primary day. And I think proponents thought they had a better or their only shot was getting it off of general election when voters are paying attention. And we wanted to make sure that tactic didn't work. So we really wanted to hammer home how important a no vote was and the no campaign was on May 19th for Oregon's election day. So we did digital advertising across the state to small business owners and targeted electoral areas and districts, making sure they knew this issue wasn't done, even though it had failed in Salem once, it had, you know, been in the news. We just wanted to make sure they were aware that an incredibly important vote was coming up and that they had an opportunity for the time being to put the nail in the coffin of this proposal and this monstrous tax increase in Oregon.
SPEAKER_05So, Greg, we were successful in Oregon, a big success, and we're being vigilant and uh preparing, it sounds like for a November ballot in in Washington State. If I'm in one of the other 48 states, what does this mean to me? Why why would I care?
SPEAKER_01Well, both Washington and Oregon are places where we see ideas, often bad ideas, uh, if you're a small business owner, start and then they trickle east to a number of other states. And in both cases, we are seeing state governments prioritize new revenue over responsible spending and prioritize spending, as both Patrick and Anthony discussed. In the case of Washington, it's really part of a trend we're seeing in a number of states across the country with these so-called millionaires taxes or wealth taxes. They can look a little different depending on the state, depending on the jurisdiction. But we have seen these become very popular, specifically in blue states like California, Connecticut, Massachusetts, New Jersey, and New York, who have targeted a certain segment of their population for additional taxation. Those are the five states that currently have a millionaires or wealth tax operating. Both Washington and Maine are in the process. And we have seen proposals similar to what we're talking about today in Washington in 12 states across the country, even New York and California, looking to increase the wealth and millionaires' taxes they already have on the books. The problem with something like this is often it's a very important but mobile segment of your tax base. Patrick, you might want to chime in here, but in Washington, we've already seen some business leaders and community leaders concerned about this level of taxation, their ability to continue doing business in Washington, their ability to attract and retain talent in Washington.
SPEAKER_05So Patrick Greg mentioned that there's been some movement out of Washington State. I think I read Starbucks either has or is moving their headquarters to Tennessee. Certainly they're not a small business, but is that a trend we're seeing in your state?
SPEAKER_04It appears to be, Tim. Like we heard from Lois, Washington is a tough place to be a small business owner. And unfortunately, a lot of our small business owners are running for other states with warmer economic climates that are more welcoming to small businesses. I don't think it was a coincidence that within days of the millionaire tax being passed, that Howard Schultz, one of the lead executives at Starbucks, announced that the corporation was moving a good portion of its Seattle-based workforce from the Seattle headquarters to Tennessee for a new or secondary headquarters. I think there's already at least 2,000 jobs that are being located with potentially thousands of more to come. Schultz himself followed Jeff Bezos, moved to Florida personally. And again, that is hard to believe that it's a coincidence of some sorts that when these kinds of wealth taxes, millionaires taxes are put into place, those with the means to leave do so. We're hearing from our membership already on a at least weekly, sometimes several times a week basis, of members who are looking to move to Oregon or more and more to Idaho, Utah, Texas, because of not just the millionaires' tax, but that millionaires tax sort of being the frosting on a terrible cake of tax and regulatory policy here. And I think that we have seen nationally a similar kind of wealth flight from some of those other jurisdictions that Greg mentioned. California, with its potential billionaire tax, that proposition is driving some of their billionaires out of town. New York has also seen an exodus of a lot of folks heading out of state. Massachusetts has experienced the same thing within a year or two of passing their surcharge on high earners. So it said that capital is a coward and that it flies uh to places where it's welcome. And places like Texas, Utah, Florida are welcoming businesses and business owners in droves, while blue states like Washington, Oregon, California, New York, New Jersey uh seem intent on taxing those job creators out of state.
SPEAKER_05Well, and the unfortunate thing is a lot of small businesses, as you know, 10 employees or less, they can't just pick up and move to another state. So it it's it's very uh very difficult for them to do what Starbucks has has done. I think we want to wrap up here a little bit. Anthony, I want to start with you. Is there anything you want to add to anything that we've talked about in terms of what's happened in Oregon or what the next steps might be?
SPEAKER_03be yeah Tim thanks you know one of the things that that I always like to mention is that going back to that issue of prioritization and and and what legislators are prioritizing and not prioritizing uh one of the things I I always like to mention is the fact that in the same timeframe that in the waning weeks of the 2025 legislative session they put forward you know a proposal to fund transportation for the next 10 years and as Greg mentioned uh that bill ultimately failed and so we had to come back into special session a couple months later for the legislature to pass what eventually became ballot measure 120. However in virtually the same breath that legislators are saying we have no money to pay for transportation, they're also passing a $1 billion end of session spending bill that includes raises for state employees that they haven't even negotiated yet with the unions, one time dollars for new projects things that the government has never spent money on before. And you can't have a billion dollars in new spending and say that there's a $300 million budget hole for the Oregon Department of Transportation. Those things both can't be true at the same time. So this is what I'm talking about when I'm talking about priorities is we've always funded transportation. What the tax and spend politicians in our state capitals are trying to do is they're trying to have dedicated funding going from specific taxing events like the gas tax or an employee payroll tax so that the transportation system essentially self-funds so that it preserves that general fund revenue that they like to spend on all of their pet projects. So it's not an issue of there's not enough money. It's almost always an issue of spending taxpayer dollars on the things that taxpayers want them to spend the money on and not on the pet projects.
SPEAKER_05Sounds like the legislators in the Salem have been out here to DC too much. I would agree with that.
SPEAKER_01Tim I would also offer one more thought what's the most common buzzword in politics or in state houses across the country and certainly in DC as well it's affordability. Affordability affordability in the case of Oregon is there anything that undermines the efforts to make day-to-day life more affordable for taxpayers, for residents, and for small business owners than adding taxes to gasoline and adding taxes to common transportation services? It flies in the face of the notion of affordability as it does in Washington too. They may call this a millionaires tax but as Patrick so eloquently put, this is an income tax that is going to affect many small business owners who are not bringing home a million dollars a year. What is that going to do to the cost of goods and services in our communities across Washington? In both cases this is not going to alleviate the affordability crisis in Oregon or in Washington. It's going to both cases it's going to be exacerbated.
SPEAKER_05And Patrick I'm gonna let you have the last word here what what can members do in Washington state to get involved and defeat this millionaires tax?
SPEAKER_04Thanks, Tim NFIB is not giving up the fight. NFIB is an organization and a few of our members are named in the lawsuit. We brought the lawsuit challenging the constitutional grounds of the millionaires that litigation is underway. We are also encouraging our members to sign petitions on an initiative that would repeal the millionaire tax. And as we go into our midterm election season we are asking candidates for the state legislature what their position is on the millionaire tax. Should it apply to big corporations the same as small businesses? And we intend to fight this at the ballot box, in the courtroom, before the agencies as the legislation is enacted wherever the fight is is to be had NFIB and its members will be there to engage.
SPEAKER_05And if you're listening and you are not an NFIB member we certainly encourage you to become one. Anthony, Greg, Patrick, thank you all for joining me today. It's a pleasure Ted thank you. Thanks Tim thank you very much. Thanks for joining us today if you'd like to find out more information about the Millionaires tax in Washington State or the Oregon ballot victory please take a look at the show notes for links to the landing pages.
SPEAKER_02Thanks for joining us for this week's episode of the Small Business Rundown. Your continued support helps us amplify the issues that matter most. If you liked this episode please help small business owners find the podcast by giving it a rating, like or review. You can find us at nfib.com and on YouTube, X, LinkedIn, Instagram, and Facebook