Latest / Industrial Advisors / Washington's Millionaires Tax: What It Could Mean for Wealth, Tech, and Commercial Real Estate

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Washington's Millionaires Tax: What It Could Mean for Wealth, Tech, and Commercial Real Estate · Industrial Advisors

• 0:00
  The interesting thing is what I didn't know about it prior to
• 0:02
  doing research for this podcast, is it is a joint household one.
• 0:07
  Correct.
• 0:07
  So it's really, really a half a million, right?
• 0:09
  Y- y- yeah, if you have a two income- If you have two income household.
• 0:13
  Yeah.
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  And they're each making a- And pretty, pretty big income, right?
• 0:14
  Yeah.
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  And then by the way, there are, you know, you look at like a company like Amazon,
• 0:19
  who employs a bunch of ... And, and other tech workers in the area that are, you
• 0:23
  know, of- oftentimes- Heavily stocked.
• 0:24
  Yeah.
• 0:25
  Yeah.
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  And, and two income earning family, you know, individuals in a family, and that
• 0:30
  can get to a million dollars quickly.
• 0:46
  Welcome to our Industrial Advisors podcast.
• 0:49
  You have Bill Condon and Matt McGregor, and, uh, today we're gonna be talking
• 0:53
  about the proposed Washington State- Approved ... approved- ... proposed
• 0:59
  Washington State millionaires tax.
• 1:02
  So let's start by talking about what it is, right?
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  So it's a 9.9% proposed tax on earners of $1 million and
• 1:10
  greater in Washington State.
• 1:11
  Well, it is that, but it's more co- way more complicated than that, as you know.
• 1:16
  Yeah.
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  And as the listener will find out in this podcast.
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  So without trying to take sides, I think it'll be obvious what side of it
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  we're on, but for what reason, right?
• 1:25
  First, when you say that, the interesting thing is what I didn't know about
• 1:29
  it prior to doing research for this podcast, is it is a joint household one.
• 1:34
  Correct.
• 1:34
  So it's really, really a half a million, right?
• 1:36
  Y- y- yeah, if you have a two income- If you have two income household.
• 1:40
  Yeah.
• 1:40
  And they're each making a- And pretty, pretty big income, right?
• 1:41
  Yeah.
• 1:42
  And then by the way, there are, you know, you look at like a company like Amazon,
• 1:46
  who employs a bunch of ... And, and other tech workers in the area that are, you
• 1:50
  know, of- oftentimes- Heavily stocked.
• 1:52
  Yeah.
• 1:52
  Yeah.
• 1:52
  And, and two income earning family, you know, individuals in a family, and that
• 1:57
  can get to a million dollars quickly.
• 1:59
  A great example, but one thing that the listener probably isn't aware of
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  this, let's say somebody's at Amazon making, you know, 250 or 150, whatever,
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  but companies like Amazon, a lot of your deferred income is in stock.
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  Let's say you worked there for 12 years, and now you want to retire,
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  and you want to, you know, now move those stocks into something, right?
• 2:23
  The way this tax looks at it is no.
• 2:25
  For that one year, it hits you.
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  It, it doesn't say, "Hey, that took you 12 years." You're going to be hit, and if you
• 2:34
  live in Seattle, this is the interesting thing, once again, the listener will learn
• 2:37
  in this podcast in detail, is it's if you're a Seattleite, it's closer to 18%.
• 2:43
  Mm-hmm.
• 2:43
  If you're, if you hit- That one time year, right?
• 2:47
  Right.
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  Or if you hit it every year for those individuals that are in that bracket.
• 2:51
  Why is that?
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  Because it's a 10% state tax, but then in Washington, there's three different
• 2:57
  taxations that will hit you that will be 18% for those earners before you
• 3:04
  get into the federal government part.
• 3:06
  So you're talking 55 to 60% income tax, and it'll hit Seattle higher than New York
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  or California by a significant amount.
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  It'll be the number one taxed state in the union.
• 3:20
  Yeah, so the, the other things you were referring to is you have the
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  millionaire's tax- Yes ... which is 9.9.
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  Yes.
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  You have the Seattle s- social housing tax at 5%.
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  At 5%.
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  Seattle JumpStart payroll tax, top tier of tax bracket, 2.4%.
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  That's right.
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  And then you factor into your point, just the federal income tax, and
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  all of a sudden you could be 55 to 60% of your income- Well, well,
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  and- ... is being taxed ... and, and leave the federal alone.
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  Right now, and historically in Washington, it's constitutionally
• 3:48
  illegal for them to impose this.
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  And now it goes from 0 to 18, where New York is the highest at
• 3:56
  14, and then California is the second-highest at 12-point something.
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  We're substantially now moving beyond that.
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  And then I would say the scary thing, 'cause a lot of people will go,
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  "It's 20,000 people this affects." L- let's talk- To start ... about that.
• 4:10
  Yeah.
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  Well, yeah, because the thing is, is, is, is the governor and everybody
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  associated with it are saying, "No, no, no, this is only going to affect...
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  We're never going to change this," right?
• 4:19
  Yeah.
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  In a stroke of a pen, they could change this to any number they want,
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  once they- It's approved ... have that document approved.
• 4:26
  Yeah.
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  Right?
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  So that is the problem.
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  Not only do you say if you don't care and you say, "Forget those people
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  that make a whole bunch of money," the unfortunate thing about that is that
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  will affect people that want to create companies here in Washington State or
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  grow their companies that now say, "That makes no sense to just tack that on.
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  I'm gonna move all those jobs." So all of those jobs are affected from
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  an employment perspective, right?
• 4:53
  Well, jobs and- Contractors- Yeah, yeah ... everything else, right?
• 4:56
  Yeah, and then y- you know, you look at y- you want your high net worth people
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  that are making money to be spending their money in the community, right?
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  That's right.
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  And you do you want them here- Yeah ... because that also helps-
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  And innovation and jobs ... s- innovation, jobs, that helps create
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  small businesses as well, right?
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  Yeah, I mean, John Schneider, the GM of the Seahawks, made mention
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  of this tax and how it'll have an impact potentially on free agents
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  for sports teams in the future.
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  Right.
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  Right?
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  I mean, if you're- Yes ... an athlete looking- Yes ... to sign somewhere
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  and you have an additional 10% tax to pay that you h- haven't had to
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  in the past, right, like that is something that they're gonna look at.
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  Yeah.
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  And then you're gonna, on the commercial real estate side, you
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  could potentially have an exodus.
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  We have a client- That is now selling properties because, and I, I specifically
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  asked this, I said, "Well, why don't you do what all, all the other, you
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  know, rich people do, which is, you know, go live in one of your other
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  houses and just enjoy the income?" That's not the way this is written.
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  So if the income is derived in Washington, let's say you go to a
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  zero tax base place like Nevada.
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  So historically, when it happened in California or New York, when they threw
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  on all these taxes and the millionaires moved out, that revenue 100% moved out.
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  In this case, they're saying, "No, no, no. If you have any income, even if you
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  live in another state," this is gonna be the first one, uh, they set a precedent
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  on this, that income will be taxed at that 10% if it comes out of Washington.
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  So let's say you own a building in Kent, Washington that's producing a couple
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  million dollars a year in income, and you live in Nevada where it's 0% income tax.
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  They're going to expect their 10% because that income d- was derived in Washington.
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  So what that's going to do is devalue real estate and have
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  people say, "No, thank you.
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  Not only am I pulling my jobs, money, tax bases, revenue out of
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  here, but I'm selling that building.
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  I'm completely out of here." Yeah, and it'll impact investor
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  demand too, if that's the case.
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  That, that's what I'm saying- Yeah ... is that investor m-
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  demand will go down considerably.
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  So this doesn't just affect those 20,000 people that are lucky
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  enough to make the wage to do that.
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  This is a, this is a massive impact to our state, and there's no question, I
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  think, in our minds that it not only will affect the state, and, and, and
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  the evidence is already there with New York and California, but it will
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  affect people of much lower income.
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  That's right.
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  I mean, and, and to your point, it, it creates one of the, the highest
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  marginal tax rates in the US if all this stuff gets- That's right
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  pushed through.
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  In a state that our innovation has created unbelievable companies.
• 7:34
  Oh, great education here.
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  UDub, all the surrounding universities- Yeah ... and innovation and tech
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  and all these really awesome things.
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  Yeah, you got Starbucks moving out.
• 7:43
  Yeah, it's- Jeff Bezos already moved out.
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  Um- You got, you know.
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  Yeah, so it's like we wanna keep the innovative minds here and, you know,
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  those folks that have already started companies and built these incredible
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  businesses that have created a bunch of jobs, we wanna keep them here.
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  We don't want them moving out.
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  So we'll have more of a in-depth look at this.
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  Oh.
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  Yeah.
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  Let's talk about that.
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  Yeah.
• 8:01
  So for the listeners that remember, about a year ago we did a podcast- On Amazon.
• 8:08
  And truth be known, although we know a good amount about
• 8:10
  Amazon, we don't represent them.
• 8:12
  We don't know what's going on behind the curtain.
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  So we use some unique technology then called, uh, NotebookLM, which is an
• 8:19
  AI podcast forum that Bill and I use occasionally on topics that we're not
• 8:24
  as familiar with to get ready to make sure we've got good information for the
• 8:28
  listeners, that creates a bot podcast for us so that we can take all the documents,
• 8:33
  dump it in, listen to what that AI format does for a podcast, then we go,
• 8:38
  "We like this, we don't like that," and we can adjust our podcast accordingly.
• 8:42
  Well, in the case of the Amazon one, it was so detailed- Mm-hmm ... of
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  stuff we didn't know a lot about, we decided to show the technology and
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  let the bots do our podcast, right?
• 8:53
  Yeah.
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  That was, uh, for the listeners that wanna go back, I think it was in early 2025.
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  But in any event, this was another one.
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  Look, we're real estate brokers.
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  We're not tax consultants- Tax a- right ... tax attorneys.
• 9:05
  Yeah.
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  So we read some stuff to know enough, and we've heard enough of our customers
• 9:09
  complain about it to go, "Hey, we should do a podcast on this, 'cause this is a,
• 9:13
  a relevant tar- topic for commercial real estate." So we use that LM Notebook AI
• 9:20
  podcast format to take all the documents to get us ready for this podcast.
• 9:25
  We dump it in there, and it creates this AI podcast with bots, okay?
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  And we decided for the rest of this podcast for you to enjoy
• 9:35
  the detail from these AI bots.
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  So the voices doing the rest of this podcast are not real, they were bots,
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  and this entire thing was created with about 15 documents I dumped into
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  the AI format, and it created this podcast in about 10 seconds It's great.
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  Yeah.
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  And I decided there's no way we could regurgitate this.
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  Right.
• 9:54
  It's, yeah.
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  Let's just play it.
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  AI's smarter than we are- Yes ... is what you're saying.
• 9:58
  Yeah.
• 9:58
  So yeah, that's right.
• 9:59
  So if you really wanna know the details behind these bills coming up with this
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  legislation and how it impacts the economy, how it impacted New York, how
• 10:08
  it impacted California, and what the predictions are for Washington, listen
• 10:12
  to the rest of this AI bot co- podcast.
• 10:15
  So back in 2021, over 12,000 millionaires just packed their bags,
• 10:20
  you know, hired moving companies, and completely fled the state of New York.
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  Right.
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  And the goal was to escape one of the most punishing tax environments in the country,
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  and at the time, this was heralded as, like, the ultimate proof of tax flight.
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  The smoking gun, essentially.
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  Exactly.
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  But here is the data point that absolutely breaks everything we thought
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  we knew about that whole narrative.
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  Nearly 73% of those wealthy individuals who left New York, they moved to states
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  where the taxes are just as high.
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  Yeah, it's wild.
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  I mean, they left Manhattan, crossed a bridge, and just unpacked in
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  the notoriously high-tax suburbs of New Jersey and Connecticut.
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  Right, which completely flips the script.
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  It really does.
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  Yeah.
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  So today on the Deep Dive, we are taking a hard look at the actual
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  mechanics of wealth, migration, and frankly, the limit of state power.
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  Welcome to the show.
• 11:09
  Glad to be here.
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  We've got a lot to get through today.
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  We really do.
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  So we're looking at this massive real-time test case that's unfolding
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  right now in the Pacific Northwest.
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  We're talking about Washington State's unprecedented millionaires tax.
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  Officially, Senate Bill 6346.
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  Right, SB 6346.
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  So the mission of this deep dive, and we've got a whole stack of sources
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  here, including a quantitative briefing on the bill itself, plus some really
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  dense national policy reports on wealth migration from California and New York.
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  Which present some very conflicting viewpoints, I should add.
• 11:43
  Oh, absolutely.
• 11:44
  Yeah.
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  And just to be clear for you listening, we're not taking sides here.
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  The sources have a lot of politically charged angles from different think
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  tanks, but we are just gonna impartially analyze the data they've provided.
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  Just sticking to the numbers.
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  Exactly.
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  We are going to unpack the exact nuts and bolts mechanics of how this new
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  Washington legislation works, how the ultra-wealthy are, frankly, actively
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  restructuring their assets to avoid it, and whether that traditional thread
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  of the rich just packing up their laptops and leaving actually holds
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  water in a post-remote work economy.
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  It's the perfect storm of policy and mobility.
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  Okay, let's unpack this.
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  Because looking at the landscape, Washington isn't just
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  tweaking a tax bracket here.
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  They are attempting to fundamentally rewire the financial
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  ecosystem of a major tech hub.
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  They are, and it really serves as a laboratory for every other
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  municipality in the country.
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  I mean, they are all watching to see if this model holds up.
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  Because the stakes are huge.
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  Exactly.
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  What we are witnessing is a collision between aggressive municipal
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  revenue generation and, well, the hypermobility of modern wealth.
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  Right.
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  Historically, if you were, say, a top executive in finance, you
• 12:53
  had to be anchored to Wall Street.
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  You had to physically be there.
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  Right.
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  Or if you were a senior engineer at a major tech firm, you had to
• 13:00
  physically badge into a campus in Seattle or Silicon Valley.
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  Your income was geographically captive.
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  Not anymore.
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  No, not at all.
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  Today, we're testing the absolute limits of state-level taxation in
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  an era where the people being taxed have-- I mean, they've never had more
• 13:16
  leverage to simply optimize their residency based on a spreadsheet.
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  Right.
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  They can just pick up and go.
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  So let's get right into that spreadsheet.
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  The core metric driving everything we are discussing today is this nine point
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  nine percent state tax on household income above one million dollars.
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  The headline number.
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  Yeah.
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  And right out of the gate, there is a massive misconception we need to clear
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  up Because the political rhetoric, the headlines, they constantly refer
• 13:43
  to this as the Seattle millionaires tax Which is very misleading.
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  Extremely.
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  I mean, if you are a listener sitting in Spokane, or maybe you're
• 13:51
  running a logistics company down in Vancouver, Washington, this
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  dragnet still catches you, right?
• 13:56
  Precisely.
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  The Seattle label is really just political shorthand.
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  Because that's where the money is.
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  Exactly.
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  King County is the economic engine generating the vast majority
• 14:05
  of this projected revenue.
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  But the jurisdiction of SB 6346 is statewide.
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  It applies to every single resident.
• 14:12
  Wow.
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  And critically, it also applies to non-residents who derive
• 14:16
  Washington-sourced income above that $1 million threshold.
• 14:19
  Oh, so you can't even just live in Idaho and commute over the border and escape it.
• 14:22
  Nope.
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  If the income is sourced in Washington, they tax it.
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  That is a massive net.
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  But when you look at the concentration of who actually pays this, the numbers
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  are- Uh, incredibly narrow Very narrow We're looking at roughly 21,000 filers.
• 14:38
  Yeah.
• 14:39
  To put that in perspective for everyone listening, that is less than one half of
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  1% of all households in Washington State.
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  It's a microscopic slice of the population.
• 14:48
  Right.
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  And the state is pinning a revenue projection of, what, $3.4 to $3.7
• 14:53
  billion annually on a group of people small enough to fit inside
• 14:57
  a mid-sized basketball arena.
• 14:59
  Though, to be fair to the data, the adjusted models, the ones taking
• 15:02
  behavioral economics into account, they suggest that revenue might actually
• 15:06
  land closer to the $2 to $2.8 billion mark Because people will react.
• 15:10
  They'll change their behavior.
• 15:11
  Exactly.
• 15:12
  But regardless of the final yield, this tax doesn't exist in a vacuum.
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  It sits on top of an existing framework.
• 15:18
  Oh, man, the framework.
• 15:19
  Right, and that framework is what wealth advisors are now referring
• 15:22
  to as the Seattle tax stack.
• 15:24
  The Seattle tax stack.
• 15:25
  Okay, explain this, 'cause the numbers here get crazy.
• 15:28
  Really do.
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  If you are a high-wage earner in Seattle, you aren't just absorbing
• 15:33
  a 9.9% hit, you are dealing with a cumulative compounded burden.
• 15:40
  A layer cake of taxes.
• 15:41
  Let's break down the mechanics of this stack for, say, a top-tier W-2 earner.
• 15:45
  First, you have this new 9.9% state tax on your income over a million.
• 15:50
  Okay, that's layer one.
• 15:51
  Right.
• 15:52
  But then the City of Seattle layers on its own levies.
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  You have the Seattle social housing tax, which aggressively targets
• 15:59
  compensation over a million dollars.
• 16:01
  And what's the rate on that?
• 16:02
  That's at a 5.0% rate.
• 16:04
  Okay, so we're already at basically 15%.
• 16:06
  Right.
• 16:06
  Then you hit the top tier of the Seattle JumpStart payroll
• 16:09
  tax- Which is another one
• 16:10
  adding another 2.4%.
• 16:12
  Wow.
• 16:12
  And finally, you have the WA Cares payroll tax, which takes a flat 0.58%.
• 16:18
  So when you stack all those together... Wait, let me just add that up.
• 16:21
  A Seattle-based W-2 earner clearing over a million dollars is looking at a
• 16:25
  combined top marginal rate of over 18%.
• 16:29
  Greater than 18%, yes.
• 16:30
  Yeah.
• 16:30
  Just at the state and local level, that is like having an invisible business partner
• 16:35
  who just skims nearly a fifth of your paycheck without doing any of the work.
• 16:40
  It's a leaky bucket where every single jurisdiction is, you know,
• 16:43
  drilling its own separate hole.
• 16:45
  And that 18% is before the federal government even enters the room?
• 16:48
  Oh, exactly.
• 16:49
  If we connect this to the bigger picture, the federal burden turns that
• 16:53
  leaky bucket into an absolute sieve.
• 16:55
  Break that federal part down for us.
• 16:57
  So the top federal bracket sits at 37%.
• 17:00
  Then you factor in FICA and Medicare, which run at least two point three
• 17:04
  five percent for high earners.
• 17:06
  Okay.
• 17:07
  And if any of this income is investment-based, you trigger
• 17:10
  the net investment income tax.
• 17:12
  Which adds what?
• 17:12
  Another three point eight percent.
• 17:14
  Mm. So if you're a Seattle executive or a tech founder clearing two million dollars,
• 17:19
  you are facing a combined marginal tax rate of fifty-five to sixty percent.
• 17:23
  Oh my God.
• 17:24
  Every dollar earned over that threshold means more than half immediately
• 17:28
  vanishes into the tax apparatus.
• 17:30
  I mean, that crosses a massive psychological barrier, doesn't it?
• 17:33
  It's one thing to pay heavy taxes, but it's another to sit down, do the
• 17:36
  math, and realize you keep less of your dollar than the government does.
• 17:40
  It completely shifts your mindset.
• 17:42
  Let's anchor this eighteen percent local stack against,
• 17:46
  like, the historical heavyweights.
• 17:48
  Because you listening, you probably assume California and New York are the
• 17:51
  absolute ceilings for taxation in America.
• 17:54
  That's the common perception.
• 17:55
  Right.
• 17:56
  But look at California, their top marginal rate sits at thirteen point three percent.
• 18:00
  New York City, if you combine the state and the city, hits roughly
• 18:03
  fourteen point eight percent.
• 18:05
  Yep.
• 18:05
  With this new legislation, Seattle, a city that has spent decades marketing
• 18:10
  itself as this business-friendly, no income tax haven, they now significantly
• 18:16
  exceed both of those jurisdictions.
• 18:18
  For sheer wage income, Seattle has quietly built the highest top
• 18:22
  marginal rate in the United States.
• 18:24
  Which is just staggering.
• 18:25
  And it fundamentally alters the risk-reward calculus of living there.
• 18:29
  I mean, when the cost of doing business in a specific geography
• 18:32
  jumps that violently, capital doesn't just sit still and absorb the blow.
• 18:36
  It seeks shelter.
• 18:37
  Exactly.
• 18:38
  Capital is fluid.
• 18:39
  Which brings us to, and here's where it gets really interesting, the
• 18:43
  most counterintuitive carve-out in this entire piece of legislation.
• 18:46
  The real estate exemption.
• 18:48
  Yes.
• 18:49
  If wage income, like your salary, your RSUs, your cash bonuses- Mm ... is
• 18:53
  getting hammered at eighteen percent locally, you'd assume wealthy people are
• 18:58
  looking for places to park their money.
• 19:00
  Right.
• 19:00
  And the legislation actually encourages this.
• 19:03
  SB sixty-three four six explicitly exempts real estate gains from the tax base.
• 19:09
  Which is a huge detail.
• 19:10
  It's massive.
• 19:11
  You can sell a fifty million dollar commercial high rise in downtown
• 19:14
  Seattle, or, I don't know, a waterfront compound on Mercer Island- Yeah ... and
• 19:19
  the capital gains from that specific transaction are entirely shielded
• 19:23
  from the nine point nine percent tax.
• 19:24
  It is a massive structural decision by the legislature.
• 19:27
  And to understand the mechanics of why they deliberately protected real estate,
• 19:32
  you know, while placing a giant target on liquidity, you have to look down south.
• 19:35
  At Los Angeles.
• 19:35
  Exactly.
• 19:36
  You have to look at the catastrophic failure of Los Angeles' Measure ULA.
• 19:40
  Which people often call the mansion tax.
• 19:42
  You're right, the mansion tax.
• 19:43
  And Los Angeles took a totally different approach, right?
• 19:46
  Right.
• 19:46
  Because they didn't tax income, they taxed the transaction itself.
• 19:51
  Measure ULA implemented a transfer tax on the sale of high-value real estate.
• 19:56
  But the distinction is critical here.
• 19:58
  It was a gross receipts tax, not a tax on net profit.
• 20:03
  Oh, wait, a gross receipts tax.
• 20:05
  Okay, explain the mechanics of that, 'cause that sounds dangerous.
• 20:07
  It's the difference between a functional market and a frozen one.
• 20:10
  Let's walk through an actual commercial real estate deal
• 20:13
  under a gross receipts tax.
• 20:14
  Okay, lay it out.
• 20:15
  Imagine a developer in Los Angeles builds a multifamily complex.
• 20:19
  The land acquisition, the materials, the labor, the financing, let's
• 20:24
  say it all cost them $95 million.
• 20:26
  All right, 95 million all in.
• 20:28
  They go to sell the building for $100 million.
• 20:30
  So on paper, they have a $5 million profit margin.
• 20:33
  Yeah, it's like a solid win.
• 20:34
  Right.
• 20:35
  But Measure ULA imposes a 5.5% tax on the total sale price.
• 20:40
  Oh.
• 20:41
  Oh, no.
• 20:42
  Yep.
• 20:42
  That means the tax bill is $5.5 million.
• 20:45
  Which instantly wipes out the entire $5 million profit- Yeah
• 20:49
  and puts them half a million dollars in the red.
• 20:51
  Exactly.
• 20:52
  It completely breaks the entire capital stack.
• 20:55
  I mean, it's like putting sand in the gears of a transmission.
• 20:58
  It doesn't just slow the car down.
• 21:00
  It seizes the engine entirely.
• 21:02
  Why would anyone build?
• 21:03
  They wouldn't, and that is precisely what happened.
• 21:06
  The Los Angeles real estate market experienced an immediate roughly
• 21:10
  50% drop in high-value sales- 50% ... because sellers pulled
• 21:15
  their properties off the market.
• 21:16
  The math no longer worked.
• 21:18
  Buyers couldn't get financing because the lenders looked at the
• 21:21
  deals and saw the margins evaporate.
• 21:23
  Right.
• 21:23
  The banks aren't gonna touch that.
• 21:25
  This friction caused developers to just abandon projects.
• 21:29
  It resulted in a loss of about 1,900 housing units per year
• 21:33
  in the development pipelines.
• 21:34
  Wow.
• 21:35
  And ironically, that included over 160 affordable units that
• 21:39
  were tied to those developments.
• 21:40
  So a tax meant to help housing actually killed affordable housing units.
• 21:44
  Yes.
• 21:45
  And because the transactions simply stopped happening, the
• 21:48
  projected revenue fell off a cliff.
• 21:50
  What were the numbers on that?
• 21:52
  Los Angeles estimated they would collect up to $1.1 billion annually.
• 21:57
  They actually collected about 288 million.
• 22:00
  That is a massive miss.
• 22:01
  Almost an 80% shortfall.
• 22:03
  So Washington lawmakers They looked at Los Angeles, saw them
• 22:07
  effectively destroy their own commercial deal flow, and decided to
• 22:10
  take a completely different route.
• 22:12
  Precisely.
• 22:13
  By making SB 6346 a recurring income tax rather than a transaction
• 22:18
  tax, they avoid creating that friction at the point of sale.
• 22:21
  So if you own an apartment complex in Seattle, this tax doesn't force you to,
• 22:26
  like, reprice your capitalization rates.
• 22:28
  Right, because it doesn't penalize the act of selling the building.
• 22:31
  That makes sense.
• 22:32
  From a macroeconomic perspective, exempting real estate protects the
• 22:36
  state from the liquidity lockup that Los Angeles is currently suffering.
• 22:40
  The commercial real estate sector-- so we're talking industrial logistics,
• 22:43
  port throughput, warehouses-- it remains functionally immune.
• 22:47
  And what about office space?
• 22:48
  Well, office space is already fighting existential headwinds from remote
• 22:52
  work and AI, you know, so this tax is really a non-factor there.
• 22:55
  They have bigger problems.
• 22:56
  But wait, the luxury residential market isn't entirely insulated, is it?
• 23:00
  No, not at all.
• 23:01
  Because wh- while the physical properties aren't taxed, the people
• 23:05
  who buy those properties are the exact twenty-one thousand filers
• 23:10
  being targeted by the income tax.
• 23:11
  You're hitting on the exact vulnerability.
• 23:13
  Right.
• 23:14
  Like, if you look at the Eastside luxury corridors, Bellevue,
• 23:17
  Mercer Island, Medina, Conner, the absorption depth of that specific
• 23:23
  housing market relies entirely on this microscopic pool of buyers.
• 23:27
  This is the second-order effect that real estate analysts are, you know,
• 23:31
  aggressively modeling right now.
• 23:33
  If even five percent of those twenty-one thousand taxpayers decide
• 23:37
  that an eighteen percent local tax stack is just too punishing- And
• 23:40
  they migrate out of Washington.
• 23:42
  Right.
• 23:42
  If five percent leave, that is one thousand and fifty ultra-high
• 23:45
  net worth households permanently removed from the buyer pool.
• 23:49
  Wow.
• 23:49
  Over a thousand buyers just gone.
• 23:51
  And when you extract a thousand buyers from a highly concentrated
• 23:54
  luxury ecosystem, the days on market metrics skyrocket, and the price
• 23:58
  ceilings inevitably begin to compress.
• 24:00
  So the house itself is safe from the tax, but the buyer is gone, which pivots us
• 24:04
  perfectly into the logistics of leaving.
• 24:06
  Right.
• 24:07
  Because for those buyers, right now, the clock is ticking.
• 24:10
  Wildly.
• 24:10
  The tax goes into effect on January first, twenty twenty-eight,
• 24:14
  with the first payments actually due in twenty twenty-nine.
• 24:16
  Right.
• 24:17
  So as of March twenty twenty-six, we are sitting inside a
• 24:20
  twenty-two-month planning window.
• 24:23
  If you are sitting in a family office or an accounting firm in Seattle
• 24:26
  right now, you aren't debating the political fairness of the tax anymore.
• 24:30
  No, the politics are over.
• 24:31
  You are executing behavioral math The 22-month window is critical because
• 24:36
  establishing a defensible change of domicile is a highly scrutinized,
• 24:40
  very rigorous legal process.
• 24:42
  You can't just fake it.
• 24:43
  No.
• 24:44
  Oh.
• 24:44
  You cannot simply rent a condo in Incline Village, Nevada, on
• 24:48
  December 28th and claim you've moved.
• 24:50
  Washington's Department of Revenue will audit that aggressively.
• 24:53
  They track everything.
• 24:54
  They do.
• 24:54
  The migration calculus requires severing ties.
• 24:57
  It means moving your primary residence, shifting your voter registration,
• 25:01
  transferring your bank accounts, and physically relocating your family.
• 25:04
  And we are already seeing the leading edge of this, right?
• 25:07
  I mean, the physical relocation play is pretty straightforward.
• 25:11
  Yeah.
• 25:12
  You just map the distance to zero income tax states.
• 25:15
  Right.
• 25:15
  You look at the geography.
• 25:16
  Nevada is 775 miles away.
• 25:19
  Mm-hmm.
• 25:19
  Wyoming is 830 miles.
• 25:21
  Mm. Texas is further down, what?
• 25:23
  At 108 and 50 miles.
• 25:24
  Yep.
• 25:25
  And you see public examples of this playing out right now, like the
• 25:28
  CEO of Moment explicitly announcing the relocation of both himself
• 25:33
  and his entire company to Wyoming.
• 25:35
  We're gonna see more of those announcements, but physical
• 25:38
  relocation is really only an option for those who are unencumbered.
• 25:41
  Right.
• 25:41
  What if you can't leave?
• 25:42
  Exactly.
• 25:43
  What if you are an executive whose physical presence is mandated
• 25:46
  at a Seattle headquarters?
• 25:48
  Or what if your children are in their junior year of high school
• 25:50
  and you don't wanna pull them out?
• 25:52
  Yeah, you're stuck.
• 25:53
  If you cannot leave the geography, your advisors immediately shift
• 25:56
  to income timing strategies.
• 25:58
  Pulling the future forward.
• 25:59
  Yeah.
• 25:59
  So if you are a startup founder and you're planning a massive liquidity event
• 26:03
  like selling your company or taking it public in 2028, you are suddenly highly
• 26:08
  incentivized to accelerate that timeline.
• 26:11
  Push it into 2027.
• 26:12
  Right, into 2027, to recognize the cash while the state tax rate is still zero.
• 26:18
  But here's the thing, founders have control over their timelines.
• 26:21
  The W2 tech employee does not.
• 26:24
  And that is a huge problem.
• 26:25
  Let's talk about how this impacts the rank and file tech sector, a massive percentage
• 26:29
  of total compensation in this ecosystem is paid in restricted s- stock units or RSUs.
• 26:35
  This introduces what compensation analysts call lumpy vesting risk.
• 26:39
  Lumpy vesting risk.
• 26:40
  I love that term, but it sounds terrifying.
• 26:42
  It is if you're on the wrong side of it.
• 26:43
  Yeah.
• 26:44
  The structure of this tax fundamentally misunderstands
• 26:46
  how tech compensation works.
• 26:47
  Okay, give me an example.
• 26:48
  Imagine a mid-level engineer, they make a base salary of, say, $200,000.
• 26:52
  Okay, totally normal.
• 26:53
  They are nowhere near the million-dollar threshold, but they joined a startup four
• 26:58
  years ago, and they've been accumulating equity on a standard four-year vest.
• 27:02
  Right, just holding onto paper money.
• 27:03
  Then in year five, the company goes public.
• 27:06
  Or gets acquired And suddenly, all of that illiquid paper
• 27:10
  wealth crystallizes at once.
• 27:12
  Mm. In one single calendar year, their income spikes from two hundred thousand
• 27:17
  dollars to one point five million.
• 27:19
  Exactly, and for that single year, the State of Washington classifies
• 27:23
  them as an ultra-wealthy millionaire.
• 27:26
  They hit them with a nine point nine percent tax on the overage.
• 27:30
  On that five hundred thousand above the line.
• 27:32
  Right, but this wasn't sustained wealth.
• 27:35
  It was an anomaly triggered by an event the employee had zero control over.
• 27:39
  They didn't pick the IPO date.
• 27:40
  No, the board did.
• 27:41
  So they are being penalized at an ultra-wealthy rate for a once-in-a-decade
• 27:46
  liquidity event, and after that year, their income immediately reverts back
• 27:50
  to a standard engineering salary.
• 27:52
  Wow.
• 27:52
  It's effectively punishing a single year of explosive success that probably
• 27:56
  took half a decade of grinding to build.
• 27:58
  It's a huge blind spot in the policy.
• 28:01
  And the mechanical flaws in the legislation don't stop there.
• 28:04
  I mean, the marriage penalty embedded in this bill is staggering.
• 28:08
  It really is.
• 28:09
  Let's walk through the math on this because, honestly, it
• 28:12
  feels like a drafting error that somehow made it into law.
• 28:15
  The million-dollar threshold is a static line, right?
• 28:18
  Yeah.
• 28:18
  It applies to a single filer, but it also applies to a dual income married couple.
• 28:23
  It is a textbook example of what happens when state legislation awkwardly
• 28:28
  piggybacks on federal tax definitions without adjusting the brackets.
• 28:32
  It's this lazy drafting.
• 28:33
  Basically.
• 28:34
  A state wants to simplify compliance, so they tie their tax triggers to the
• 28:38
  federal adjusted gross income, or AGI.
• 28:41
  Right.
• 28:41
  But by doing so without creating a separate doubled threshold for
• 28:45
  married couples filing jointly, say- Mm ... bumping the line to two million
• 28:48
  dollars, they create a perverse incentive.
• 28:51
  So if you have two partners- Right ... and they each make six
• 28:53
  hundred thousand dollars- Mm ... which is exceptional income obviously, but
• 28:57
  entirely realistic for two senior tech workers at Amazon or Microsoft.
• 29:01
  Very common in Seattle.
• 29:03
  Right.
• 29:03
  So as two single individuals, they pay absolutely nothing in state income tax.
• 29:07
  Zero.
• 29:08
  Neither one crosses the million-dollar line, but if they sign a marriage
• 29:11
  certificate, their combined household AGI becomes one point two million dollars.
• 29:16
  Yep.
• 29:17
  They are now two hundred thousand dollars over the threshold, and they
• 29:21
  instantly owe a twenty thousand dollar state tax bill every single year.
• 29:25
  Every year they hit that mark.
• 29:27
  Wait, so two single people making six hundred K pay zero, but if they
• 29:31
  get married, they owe twenty grand.
• 29:34
  That sounds like an accidental state-sponsored divorce incentive.
• 29:37
  Is that normal in tax law?
• 29:39
  It happens, but usually not with stakes this high, which is exactly
• 29:43
  why the structural planning phase is so frantic right now in Seattle.
• 29:47
  You literally have wealth advisors mathematically proving
• 29:49
  to clients that getting legally married is a six-figure financial
• 29:53
  mistake over a five-year horizon.
• 29:54
  That is insane.
• 29:55
  Just insane.
• 29:56
  So if you can't leave the state, and you can't delay your RSUs, and you
• 29:59
  don't wanna get divorced, you have to look for structural shelters.
• 30:02
  Right.
• 30:02
  And currently, the most powerful tool in the Washington ecosystem
• 30:05
  is this really obscure piece of the federal tax code known as QSBS.
• 30:10
  QSBS, qualified small business stock, specifically Section 1202
• 30:17
  of the Internal Revenue Code.
• 30:18
  That's the one.
• 30:19
  For the founders listening right now, how does a federal law designed to
• 30:24
  encourage small business investment become the ultimate state-level
• 30:27
  tax shelter in Washington?
• 30:30
  It all comes back to that mechanical link between the state and federal
• 30:33
  tax systems we just discussed with the marriage penalty.
• 30:36
  Okay, tie it together for us.
• 30:37
  Section 1202 was designed by the federal government to
• 30:40
  incentivize early-stage risk.
• 30:42
  If you found a C corporation or you are an early investor, and you
• 30:46
  hold that qualifying stock for at least five years- Five years, got it
• 30:50
  the federal government allows you to exclude up to $10 million of capital gains
• 30:55
  from your federal taxes when you sell.
• 30:57
  A complete federal shield on a $10 million exit.
• 31:00
  That's incredible on its own.
• 31:02
  But how does that shield block the state of Washington?
• 31:05
  Because Washington's millionaires tax calculates your obligation based on
• 31:09
  your federal adjusted gross income.
• 31:11
  Right.
• 31:12
  If you execute a successful QSBS exit, that $10 million is excluded at
• 31:17
  the federal level, meaning it never enters your federal AGI calculation.
• 31:21
  And if it never hits your federal AGI- It is entirely invisible to the
• 31:24
  Washington Department of Revenue.
• 31:25
  It legally does not exist in their tax base.
• 31:28
  Oh, wow So a Seattle startup founder could build a company, sell it for ten
• 31:33
  million dollars, clear the entire amount, and pay zero federal capital gains
• 31:37
  and zero Washington millionaires tax.
• 31:40
  Precisely.
• 31:40
  That is an incredible structural loophole.
• 31:43
  But wait, it requires the entity to be a C corporation
• 31:47
  from the very beginning, right?
• 31:48
  You can't just run an LLC and claim this at the end.
• 31:50
  Correct, which is exactly why corporate attorneys in Seattle are currently
• 31:54
  working overtime executing LLC to C corp conversions for their clients to start
• 31:58
  that five-year holding clock right now.
• 32:00
  Gotta get the clock ticking before twenty twenty-eight.
• 32:02
  But this strategy carries immense legislative risk.
• 32:05
  How so?
• 32:06
  The state lawmakers in Olympia are acutely aware this loophole exists.
• 32:10
  They aren't blind to it.
• 32:12
  During a recent session, they introduced Senate Bill six two twenty-nine.
• 32:15
  And what did that do?
• 32:16
  It was explicitly drafted to decouple the state tax from the
• 32:20
  federal QSBS exclusion, which would effectively strip away the shelter.
• 32:25
  Oh, so they tried to close the door.
• 32:27
  They tried.
• 32:27
  It failed to pass this time around.
• 32:29
  But neighboring Oregon just successfully passed very similar legislation tearing
• 32:35
  down their own QSBS protections, right?
• 32:37
  Exactly.
• 32:38
  The blueprint is there.
• 32:39
  If Washington closes that loophole before the twenty twenty-eight effective date,
• 32:43
  the ultimate shelter collapses, and all those founders who spent money to
• 32:47
  convert to C corp are suddenly trapped.
• 32:49
  It's a huge gamble, and this constant legislative maneuvering is exactly
• 32:54
  why analyzing the macro data on wealth migration is so crucial.
• 32:58
  Right.
• 32:58
  Zooming out?
• 32:59
  We have anecdotes of CEOs moving to Wyoming.
• 33:02
  We have the granular mechanics of QSBS sheltering.
• 33:05
  But when we look at the national data, does a high tax environment actually
• 33:09
  cause a systemic state-level exodus?
• 33:11
  Right.
• 33:12
  We see founders packing up, but is that just a loud minority?
• 33:15
  What happens when we zoom out?
• 33:16
  Mm-hmm.
• 33:17
  This is where we have to look at the conflicting data regarding
• 33:19
  California and New York.
• 33:21
  Let's look at the numbers.
• 33:22
  So on one side, you have The Heritage Foundation report, and
• 33:25
  they look at the raw IRS migration data and conclude that tax flight
• 33:29
  is an undeniable reality, period.
• 33:31
  The numbers they present are striking.
• 33:33
  Between April twenty twenty and July twenty twenty-three, states with
• 33:37
  high individual and corporate income taxes saw a net out-migration of
• 33:41
  two point eight million Americans.
• 33:43
  And when you look specifically at the twenty twenty-one to twenty twenty-two tax
• 33:47
  year, the capital flight is staggering.
• 33:50
  Yeah, break those down.
• 33:51
  California experienced a net loss of over twenty-four thousand high-earning
• 33:55
  households in that single year.
• 33:56
  Twenty-four thousand.
• 33:57
  And the average adjusted gross income of those departing households was
• 34:00
  one point three million dollars.
• 34:02
  So these aren't just slightly wealthy people.
• 34:04
  These are major economic contributors.
• 34:06
  Exactly.
• 34:07
  And New York, in that same year, lost a net twelve thousand high
• 34:11
  earners, with an average AGI of one point one million dollars.
• 34:15
  Wow.
• 34:15
  The National Taxpayers Union Foundation correlates this directly, showing
• 34:19
  that states that lower top brackets gained wealthy taxpayers, while states
• 34:22
  that raised them suffered an exodus.
• 34:24
  Okay, so if you look exclusively at that data set, the causal
• 34:27
  link seems obvious, right?
• 34:30
  You raise taxes, capital flees, and you lose billions in taxable revenue.
• 34:35
  That's the narrative.
• 34:36
  But then you look at the research from the Fiscal Policy Institute.
• 34:39
  They analyzed New York's specific tax hikes in twenty seventeen and
• 34:43
  twenty twenty-one, and they present a radically different interpretation
• 34:46
  of the exact same landscape.
• 34:48
  And this is where the nuance is critical.
• 34:50
  The FPI data argues that, yes, while wealthy individuals do leave,
• 34:55
  they leave at one quarter the rate of the general population.
• 34:58
  Wait, really?
• 34:59
  The rich stay put more than the middle class?
• 35:01
  Exactly.
• 35:02
  The ultra-wealthy are actually far more deeply anchored to their physical
• 35:06
  locations than middle-class earners.
• 35:08
  Why is that?
• 35:09
  I mean, they have the money to move anywhere.
• 35:10
  Sure, but think about their lives, their businesses, their social
• 35:13
  networks, their philanthropic ties, their country clubs, and crucially,
• 35:17
  their children's elite private schools.
• 35:21
  All of that creates tremendous friction against moving.
• 35:23
  That makes a lot of sense.
• 35:24
  You don't just pull your kid out of Dalton's on to save a
• 35:26
  few points on your tax bill.
• 35:28
  Right.
• 35:29
  And this brings us back to the stat we opened the show with.
• 35:32
  When high earners finally do decide to leave New York, the cliché assumes
• 35:36
  they are fleeing straight to zero income tax havens like Miami or Austin.
• 35:41
  Right, the whole finance bros moving to Florida thing.
• 35:44
  Exactly.
• 35:45
  But the FPI data shows that nearly seventy-three percent of departing
• 35:49
  high earners move to neighboring New Jersey or Connecticut.
• 35:53
  States with incredibly aggressive tax structures of their own.
• 35:56
  Right.
• 35:57
  If taxes are the primary driver of migration, moving from Manhattan
• 36:00
  to Greenwich, Connecticut makes- Absolutely no logical sense.
• 36:04
  What is the actual driver then?
• 36:07
  It forces us to differentiate between a convenient excuse and a root cause.
• 36:11
  Taxes are highly visible and very easy to complain about at dinner parties.
• 36:15
  Right.
• 36:16
  But the data suggests that structural affordability, housing space, and
• 36:19
  family dynamics are the true drivers.
• 36:22
  So a financial executive moving to New Jersey isn't
• 36:24
  actually fleeing a tax bracket.
• 36:26
  No, they are trading vertical density for a larger yard and a
• 36:29
  different public school system.
• 36:31
  It's lifestyle migration masquerading as tax flight.
• 36:34
  But wait, does remote work fundamentally change that equation?
• 36:37
  Because it's one thing to be anchored to Manhattan because you have to literally
• 36:41
  be on the trading floor at 6:00 AM.
• 36:43
  Right.
• 36:43
  It's another if you are a senior software architect in Seattle who
• 36:46
  only needs a broadband connection.
• 36:48
  It absolutely changes the friction coefficient.
• 36:51
  Remote work has disconnected the bonds of place.
• 36:55
  It allows top earners to optimize for low tax jurisdictions without severing
• 37:00
  their high-paying employment connections.
• 37:02
  You can work for Amazon from a ranch in Wyoming.
• 37:04
  Exactly.
• 37:06
  However, even with that reduced friction, the FPI highlights an
• 37:10
  economic counterbalance that completely disrupts the traditional doom and
• 37:13
  gloom narrative of capital flight.
• 37:15
  The internal economic engine.
• 37:17
  Right.
• 37:17
  So despite losing 2,400 actual millionaire households to outmigration
• 37:22
  during a specific window, New York actually gained 17,500 millionaire
• 37:27
  households between 2020 and 2022.
• 37:29
  A massive net positive.
• 37:30
  But let me ask you this.
• 37:31
  Is that actual new wealth creation, or is that just inflation pushing
• 37:35
  upper middle management salaries over a static $1 million line?
• 37:39
  It is a combination of both, frankly.
• 37:41
  Wage inflation absolutely plays a role, pushing standard high
• 37:45
  earners over that threshold.
• 37:46
  Right.
• 37:47
  A million dollars isn't what it used to be.
• 37:48
  Exactly, but it is also a function of a booming underlying economy.
• 37:53
  The point is, people didn't move to New York to become millionaires.
• 37:57
  The internal ecosystem elevated 17,500 existing residents into that bracket.
• 38:03
  So the economy minted new millionaires significantly faster than the
• 38:06
  tax code could chase them away.
• 38:08
  That completely flips the traditional narrative on its head.
• 38:11
  It really does.
• 38:11
  Yeah.
• 38:12
  As long as the underlying economy is a juggernaut-like- Mm. As long as Wall
• 38:16
  Street is booming in New York or big tech is just surging in Seattle- Mm ... the
• 38:21
  state can theoretically sustain the loss of the thousands who leave because it
• 38:25
  is internally regenerating that wealth.
• 38:27
  Yes, in theory.
• 38:28
  In theory.
• 38:29
  But that reliance on an endless boom is exactly the vulnerability.
• 38:33
  The Achilles heel.
• 38:34
  Exactly.
• 38:34
  Yeah.
• 38:35
  And it brings us to the ultimate anxiety surrounding Washington's new
• 38:38
  tax, because whether people leave or stay, the individuals remaining
• 38:43
  face a threat that has nothing to do with the 9.9% rate itself.
• 38:47
  It has everything to do with the integrity of the $1 million threshold.
• 38:50
  Okay, let's get into this, because if you are listening to this right
• 38:55
  now, and you make, say, $150,000 a year, you might think this entire
• 39:00
  discussion is purely academic.
• 39:02
  Right.
• 39:02
  Not my problem.
• 39:03
  Exactly.
• 39:04
  You might assume you will never hit that million-dollar mark, so, you
• 39:07
  know, let the state tax the ultra-rich.
• 39:09
  But that's a dangerous assumption.
• 39:11
  Right.
• 39:12
  The structural history of this legislation proves that assuming the threshold will
• 39:16
  stay at $1 million- Is incredibly naive To understand why, we really have to look
• 39:21
  at the political fuel behind the tax in the first place, Washington's notoriously
• 39:26
  regressive system Break that down for us.
• 39:28
  The data on this is stark.
• 39:30
  Under the existing framework, the bottom twenty percent of Washington households
• 39:34
  pay roughly thirteen point eight percent of their income in state and local taxes.
• 39:38
  Thirteen point eight percent for the lowest earners?
• 39:40
  Yes, and they absorb this through heavy sales taxes, aggressive gas
• 39:44
  taxes, and property taxes that are just passed down through rent.
• 39:47
  Meanwhile, the top one percent of earners pay only four point one percent of their
• 39:52
  income towards state and local burdens.
• 39:54
  Wow, that thirteen point eight percent versus four point one percent gap,
• 40:00
  that is the battering ram used to pass this legislation, isn't it?
• 40:02
  It is.
• 40:03
  It is a genuine attempt to balance the scale.
• 40:05
  But here is the critical structural vulnerability.
• 40:08
  Hmm.
• 40:09
  The one million dollar floor is just a number written in a statute.
• 40:13
  It does not require a constitutional amendment to alter.
• 40:15
  This is the fundamental precedent problem The camel's nose under the tent.
• 40:19
  Exactly.
• 40:19
  Once the bureaucratic machinery to collect a personal income tax is built,
• 40:23
  staffed, and turned on, tweaking the dial requires minimal political friction
• 40:27
  Because the hard part is already done.
• 40:29
  Right, and we have historical proof of how rapidly the Washington legislature
• 40:32
  can pivot on this exact issue.
• 40:34
  That twenty twenty-four initiative?
• 40:35
  Yes.
• 40:35
  In twenty twenty-four, the legislature codified Initiative 2111.
• 40:39
  This was a citizen initiative explicitly banning state and local income taxes.
• 40:44
  They codified it into law.
• 40:45
  Okay.
• 40:46
  A mere twenty-four months later, in twenty twenty-six, they overrode their
• 40:49
  own codification to pass SB 6346.
• 40:53
  Wow, once you build the tollbooth on the highway, you can charge whatever you want.
• 40:57
  Precisely, and we don't have to guess if a state will actually lower the
• 41:01
  threshold once they taste the revenue.
• 41:03
  Right.
• 41:03
  Look at Massachusetts.
• 41:04
  Exactly, Massachusetts.
• 41:06
  They enacted a four percent millionaire surtax in twenty
• 41:10
  twenty-three, and what happened?
• 41:12
  In year one, the revenue blew past their projections.
• 41:16
  They made more than they thought.
• 41:17
  And almost immediately, the political appetite to expand the tax base grew.
• 41:22
  Lawmakers looked at the windfall, and the conversation instantly shifted to,
• 41:26
  "Well, if taxing a million dollars works so well, why not drop it to eight hundred
• 41:30
  thousand dollars? Why not five hundred thousand to fund this new program?" It's
• 41:34
  incredibly tempting for future lawmakers to just tweak the dial from a million down
• 41:38
  to five hundred K to balance a budget.
• 41:40
  The Rubicon has been crossed in Olympia The historical taboo
• 41:44
  against an income tax is broken.
• 41:46
  Whether this specific bill survives the inevitable court challenges
• 41:49
  or, you know, gets tangled up in a ballot initiative next year,
• 41:52
  the strategic shift is permanent.
• 41:54
  The fist fracture's there.
• 41:55
  Every wealth advisor is operating under the assumption that one million
• 41:59
  dollars is a tactical starting point, not a permanent floor.
• 42:03
  Tomorrow, to close a budget deficit, the legislature can simply cross out the one
• 42:07
  M in the text and write in five hundred K. Man, we have covered a tremendous
• 42:13
  amount of mechanical ground today.
• 42:14
  Let's pull this all together.
• 42:15
  Sounds good.
• 42:16
  The eighteen percent local tax stack in Seattle is a mathematical reality,
• 42:21
  creating the highest top marginal rate on wage income in the entire country.
• 42:25
  Undeniably.
• 42:26
  To avoid freezing the commercial real estate market and repeating the
• 42:29
  disaster of Los Angeles's Measure ULA, physical property gains are
• 42:34
  entirely exempt, placing the crosshairs firmly on liquidity and W-two wages.
• 42:39
  Right.
• 42:39
  Section twelve oh two QSBS remains the ultimate invisible shield for founders,
• 42:44
  provided the state doesn't tear it down.
• 42:47
  And while the narrative of a mass exodus is complicated by lifestyle factors
• 42:50
  and internal wealth generation, the political infrastructure to lower that
• 42:54
  million-dollar floor and capture more of the middle class is fully operational
• 42:58
  If we connect all of this to the bigger picture, I wanna leave you with one
• 43:00
  final structural scenario to consider.
• 43:03
  Yeah, let's hear it.
• 43:04
  We discussed how New York survived the migration of the wealthy because
• 43:08
  their economy was booming, minting new millionaires to replace the ones who left.
• 43:12
  Right, the internal engine.
• 43:13
  Well, Washington State is currently projecting three point four
• 43:16
  billion dollars in new revenue based entirely on the valuations
• 43:20
  of today's massive tech ecosystem.
• 43:22
  Right.
• 43:23
  They are banking on the paper wealth of Amazon, Microsoft, and
• 43:27
  the startup sector holding steady.
• 43:29
  So, what happens if a massive market correction hits the tech
• 43:33
  sector in late 2027- Yeah ... right before this tax goes live in 2028?
• 43:37
  If tech valuations crater, the value of those employee RSUs collapses.
• 43:43
  Suddenly, thousands of tech workers who were projected to cross the
• 43:46
  million-dollar threshold drop back down into standard tax brackets.
• 43:50
  Oh, man.
• 43:50
  The state budget, which will be newly reliant on this billions of dollars
• 43:54
  of projected earmarked revenue, will instantly face a catastrophic shortfall.
• 43:58
  The money just won't be there.
• 44:00
  And if the state is suddenly short two billion dollars, the legislature
• 44:04
  won't just scrap their spending plans.
• 44:07
  They will be forced to lower that one million dollar threshold much faster
• 44:11
  than anyone anticipates, casting a wider net to make up the difference.
• 44:15
  Just to cover the hole in the budget.
• 44:16
  It is an economic house of cards built entirely on the assumption
• 44:19
  of permanent high stock valuations.
• 44:22
  Something to keep an eye on, for sure.
• 44:24
  Because if the economy stops minting new wealth naturally, the state
• 44:28
  has to rewrite the definition of wealth to capture what's left.
• 44:31
  Exactly.
• 44:31
  It all comes back to the leaky bucket.
• 44:34
  When the jurisdictions drill too many holes, the capital drains out,
• 44:38
  or the taxpayers build new buckets.
• 44:40
  So what does this all mean?
• 44:41
  It means everyone has to plan.
• 44:43
  Exactly.
• 44:44
  Whether you're a wealth advisor mapping out a 22-month exit strategy,
• 44:48
  a tech worker sweating your next lumpy RSU vest, or just a curious
• 44:52
  local wondering how this impacts your city, you now have the blueprint.
• 44:56
  You understand the mechanics turning behind the headlines.
• 45:00
  Thank you for joining us on this deep dive.
• 45:02
  Until next time, keep asking the hard questions, and keep exploring.
• 45:06
  Thanks for listening.
• 45:06
  That, that was amazing technology, is it not?
• 45:09
  Great, uh, technology, very detailed, knowledgeable.
• 45:12
  Uh, we hope you enjoyed it, and it was informational for you.
• 45:15
  And, uh, we hope you continue to listen to us.
• 45:17
  Thank you very much.