Ryan Frost argues that relying on volatile tax sources like income and capital gains taxes risks destabilizing Washington’s budget and undermining long-term fiscal planning.

Ryan Frost says Washington’s absence of a personal income tax protects the state when economic conditions deteriorate

Ryan Frost
Washington Policy Center

Governor Bob Ferguson is pushing a 9.9% income tax on high earners to “rebalance” Washington’s tax system. The Spokesman-Review’s recent coverage discussed whether history might repeat itself, noting that voters approved an income tax back in 1932 but have rejected it 10 times since, and the inevitable constitutional challenges ahead. But the piece overlooks a more fundamental question: What happens when you build a state budget on the most volatile tax sources?

Not all tax sources provide equal revenue stability. In 2019, we noted that state tax officials recognize capital gains and income taxes as notoriously volatile and unpredictable. When economic conditions shift, these revenue sources collapse.

California’s budget is a perfect example. The state went from a ~$100 billion surplus in 2022 to a $56 billion deficit by 2024. Research from the Hoover Institution shows that even a moderate recession could cause California’s income tax revenues to decline by 14%, with capital gains revenues plummeting $30-50 billion. The problem is California built its budget around taxing high earners, and when the stock market tanks, so does their revenue. Washington leaders are seeking to mimic this exact scenario by relying on capital gains taxes and high-earner income taxes to fund our state budget. The idea should be rejected.

Property and sales taxes, on the other hand, are much more predictable. Washington’s reliance on consumption taxes has provided a stable revenue base that allows long-term budget planning.

Therefore, should Washington trade its current system for one that is more progressive? The credit rating agencies have a clear answer: no.

S&P Global Ratings downgraded Washington’s outlook from “Positive” to “Stable” in their October 2025 report, citing the spending blitzkrieg in Olympia that’s created broader budget pressures. But their assessment of Washington’s tax structure has remained unchanged and emphatic.

S&P has consistently identified Washington’s lack of a state income tax as a key credit strength. Washington’s “sales-tax-based revenue structure… has demonstrated less sensitivity to economic cycles than that of income-tax-reliant states,” they noted. The rating agencies view our independence from volatile income tax revenue as a strong indicator for Washington bonds being a sound investment.

These credit ratings affect state finances immensely. When S&P and Moody’s assign Washington high ratings because of our stable tax structure, state taxpayers pay lower interest rates on the bonds that fund schools and highways. Lower interest rates mean more tax revenue funds services rather than debt payments. The State Department of Revenue’s analysis of Washington’s tax structure confirms this assessment: “The sales tax, although volatile, is less volatile than a graduated personal income tax.”

The Governor and income tax supporters frame their proposal as advancing fairness. But as Thomas Sowell observed, there are no solutions, only trade-offs. The trade-off with an income tax is we would replace one of Washington’s most valuable fiscal assets, revenue stability, with a system that has consistently proven to be less stable.

Washington’s absence of a personal income tax protects the state when economic conditions deteriorate. We can either continue with a tax system that supports 4-year budget planning or move to one where revenue swings make that legally mandated requirement unworkable. The credit agencies have spoken. The question is whether Olympia will listen.

Ryan Frost is the director of budget, tax policy at the Washington Policy Center.

Under the Grok Lens

Analysis created with Grok

This independent analysis was created with Grok, an AI model from xAI. It is not written or edited by ClarkCountyToday.com and is provided to help readers evaluate the article’s sourcing and context.

Quick summary

In this opinion column, Washington Policy Center’s Ryan Frost argues against Gov. Bob Ferguson’s proposed 9.9% income tax on high earners, contending that Washington’s current reliance on sales and property taxes is less volatile and therefore more predictable for budgeting. He points to credit‑rating assessments and contrasts Washington’s revenue stability with income‑tax‑heavy states such as California, which he says experience larger revenue swings.

What Grok notices

Cites credit‑rating agency commentary and state fiscal analyses to support the claim that Washington’s tax mix contributes to steady, predictable revenue for government budgeting.
Uses comparisons to income‑tax‑reliant states—especially California—to argue that heavy dependence on high‑earner income taxes can increase volatility during market downturns and boom‑and‑bust cycles.
Frames Washington’s strong bond ratings as evidence that the current system is viewed favorably by financial markets, and suggests an income tax could alter that calculus.
Notes that readers may want to review primary source documents—such as the full S&P Global Ratings report—along with more recent performance of existing capital‑gains revenues when evaluating volatility arguments.
Explicitly treats the issue as a trade‑off between progressivity and predictability, reflecting Ryan Frost’s viewpoint rather than offering a neutral cost‑benefit assessment of an income tax.

Questions worth asking

If enacted, how might a high‑earner income tax influence Washington’s bond ratings and long‑term borrowing costs for infrastructure and public services?
Beyond tax type, what factors drive revenue volatility—such as economic concentration, capital‑markets exposure, or dependence on particular industries?
Could diversification of tax sources improve both stability and equity, and what specific mixes have other states used to balance those goals?
How do Washington’s balanced‑budget requirements and reserve policies interact with economic cycles under the current tax structure?
What non‑income‑tax approaches have been proposed to address concerns about regressivity, and what trade‑offs do those proposals carry?

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Opinion: What happens when you build a state budget on the most volatile tax sources?