Why forecast uncertainty matters for Washington
By Joe Wallin | The Startup Law Blog | @joewallin
Updated September 10, 2026
Washington should be cautious about committing recurring spending against a new tax on a concentrated, variable income base. But uncertainty is not proof that a tax will miss its forecast. Revenue can fall below or exceed expectations.
This article previously claimed that state income-tax increases almost always raise less than promised. The cited sources do not establish that claim. The narrower argument is that forecast assumptions deserve scrutiny and budgets need room for error.
Start With the Right Forecast
A revenue comparison needs a specific bill version, forecast date, tax or fiscal year, and measure of receipts. Gross income-tax collections differ from the net effect of a bill that also changes other taxes. The March 6, 2026 fiscal-note package 77469 concerns a House-amended version of ESSB 6346; it should not be presented as an undated final-law forecast. The earlier article also cited package 77319, which concerns SB 6229 and small-business stock gains, not the income-tax proposal.
The Behavioral Response Problem
Taxpayers may change the timing of income, investments, or residence in response to a tax. The size of those responses must be estimated, not assumed. The March 6 DOR note expressly assumes no reduction in taxable income in response to the new tax. That is a concrete assumption worth testing. The same note includes separate collection-compliance and other adjustments, so it would also be wrong to describe it as assuming perfect collection.
Young and Varner's 2011 New Jersey study found a small overall migration response to the 2004 tax increase and substantial additional revenue. Their revenue calculation acknowledged limits in capturing income manipulation. The study does not establish that New Jersey missed its original forecast or that Washington will lose 30% of projected receipts.
Tax-induced changes, recessions, market gains, and differences in the forecast itself can all affect collections. A claim that a tax caused a shortfall requires a comparison that separates those effects. This article does not supply such a comparison for New York or New Jersey.
California Shows Volatility in Both Directions
California's experience supports caution about revenue concentrated among high-income taxpayers. It does not establish that the direction of forecast error is always downward.
In its January 2016 analysis, California's Legislative Analyst's Office explained that Proposition 30 revenues could differ substantially from estimates in either direction as the economy and markets changed. Its May 2016 update also reported increases to some earlier estimates after reviewing data and methodology. Those findings support planning for volatility, not a universal shortfall rule.
Nor does shifting income into a pass-through entity automatically avoid a personal income tax. The actual tax base, owner-level treatment, sourcing rules, and available adjustments matter.
What This Means for Washington
Washington's income-tax law is scheduled to apply beginning in 2028. Its treatment of income and interaction with the capital-gains excise tax must be modeled under Washington's rules. Another state's experience cannot simply be converted into a percentage haircut to Washington's receipts.
The useful questions are how much revenue is concentrated in a small number of filers, how variable their taxable income is, which responses the forecast assumes, and how quickly new information is incorporated. Scenario analysis should show both weaker and stronger outcomes.
Legal uncertainty is a separate issue. A court ruling can change what the state may collect, but that should not be confused with an economic forecast error under an otherwise operative tax. The particular tax and relief a court actually orders matter.
A Better Way?
My policy preference remains cautious budgeting: maintain reserves, test downside scenarios, and distinguish recurring receipts from unusually strong years before making lasting spending commitments.
That argument does not require claiming an inevitable revenue collapse. Publish the assumptions and compare actual collections with a dated, clearly defined benchmark when the data exist.
For the separate constitutional issue, see the analysis of ESSB 6346 under Quinn and Culliton.
Sources (key references):
- Washington fiscal-note package 77469 (March 6, 2026, House-amended bill version)
- Young and Varner (2011), original New Jersey migration study
- California LAO: January 2016 Proposition 30 estimates
- California LAO: May 2016 Proposition 30 estimates
This post is general information, not legal advice. Talk to your advisor about your specific situation.
The conclusion is limited: Washington faces forecast risk, and the assumptions deserve scrutiny. The evidence cited here does not support a claim that income taxes almost always underperform or a specific prediction that Washington will collect only $2 billion.
Need help assessing how Washington tax developments could affect your company, equity, or liquidity planning? Book a call to discuss your situation. Also see: Washington State Taxes Guide | Services
Related: For a comprehensive overview of Washington State tax planning strategies — including QSBS, entity structuring, domicile planning, and the 2026–2028 planning window — see our complete guide: Washington State Income Tax Planning Guide for High Earners.
This post is part of our Complete Guide to Washington's New Income Tax.
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This post is for educational purposes only and is not legal or tax advice. Consult a qualified attorney about your specific situation.
