Renfrew Report… Why the so called “Millionaire income tax” will make housing more expensive.
The “Millionaire Income Tax” in Washington: Why I Believe It Will Make Housing More Expensive
By Arron Renfrew | Asset Manager | Renfrew Team | AUM Real Estate
There is a proposal gaining traction in Washington often referred to as the “Millionaire Income Tax.” The concept is straightforward on the surface: place a new tax on the highest earners in the state to generate additional government revenue.
But when I look at the numbers, the historical patterns of taxation, and the economic effects of similar policies elsewhere, I believe the result could ultimately be a more expensive state for everyone — particularly when it comes to housing.
Washington’s Revenue Growth vs. Spending Growth
A key point that often gets overlooked is how quickly state revenue has already been growing.
Over the past several years, tax collections in Washington have increased at a rate far faster than both inflation and population growth. In fact, revenue growth has been roughly three times the rate of inflation and approximately nine times the rate of population growth.
When government revenue grows at that pace, it raises an important question:
If revenues are expanding that quickly, why are we still facing budget shortfalls?
From my perspective, that suggests the core issue isn’t necessarily revenue.
It’s spending growth that has outpaced sustainable levels.
Unless residents can clearly point to public services improving at multiples of inflation and population growth — something most people would struggle to identify — the numbers suggest a structural spending problem.
The Historical Pattern of Targeted Taxes
Another reason I’m cautious about policies like the “Millionaire Income Tax” is the historical pattern of how targeted taxes evolve over time.
Across the United States and internationally, new taxes are often introduced by focusing on a relatively small segment of the population. Politically, this approach is easier to pass because it impacts fewer voters directly.
But history shows that once a tax framework is created, it rarely remains limited to the original group forever.
For example:
In the early 20th century, the federal income tax introduced after the ratification of the Sixteenth Amendment to the United States Constitution initially applied to a very small percentage of the highest earners. Over time, the tax base expanded significantly.
Several high-tax states such as California and New York introduced higher marginal tax rates targeting top earners, but over time the economic effects spread through broader tax structures, housing markets, and business costs.
This doesn’t necessarily mean policymakers intend for taxes to expand. But budget pressures and revenue shortfalls often lead governments to broaden existing tax systems over time.
The Budget Timing Problem
Another challenge with the current proposal is that future revenue is often assumed before it actually materializes.
The state of Washington is already facing budget pressure, and policymakers are looking at new revenue sources to close those gaps.
But projected revenue doesn’t always match reality.
There are several reasons why a “Millionaire Income Tax” might not generate the expected revenue:
High-income earners relocating to lower-tax states
Reduced business investment or entrepreneurial activity
Changes in income reporting strategies
Economic slowdowns that reduce taxable income
If the revenue projections fall short while spending remains high, the result is usually another budget gap, which can lead to additional taxes or expanded tax structures.
Why This Matters for Housing
As someone who works directly in real estate markets every day, I look at these policies through the lens of housing affordability and investment.
Taxes that increase the cost of operating in a state don’t stay isolated to one group. They ripple outward through the economy.
They affect:
Business owners
Employers
Real estate investors
Developers
Housing construction costs
When the cost of doing business rises, those costs typically flow through the system in the form of:
Higher rents
Higher home prices
Reduced housing development
Slower housing supply growth
That’s one reason why fiscal policy and housing costs are often closely connected.
The Trend Line
The broader trend is clear: when government spending grows faster than economic fundamentals like inflation and population, policymakers eventually look for additional revenue sources to close the gap.
The concern I see is that if spending growth continues at its current pace, even new taxes may not resolve the underlying structural issue.
And when that happens, the economic pressure tends to spread beyond the original target group.
My Perspective
As an asset manager and someone who studies housing markets across Washington, I believe it’s important to look beyond the short-term political framing of any tax proposal and consider the long-term economic effects.
If government spending continues to grow faster than population and inflation, simply increasing taxes on a smaller group of residents may not solve the underlying problem.
What it may do, however, is gradually increase the overall cost of living and the cost of housing in our state.
And that’s something that ultimately affects everyone who lives and works in Washington.
