Microsoft leads lobbying blitz to fend off WA wealth tax

On a night in mid-December, then-Gov. Jay Inslee called Microsoft President Brad Smith with a heads-up.

The next day, Inslee would be rolling out a budget proposal with higher business taxes and a new “wealth tax” on the state’s richest residents.

For Smith, the governor’s news came as an unwelcome surprise.

“What are you doing to us?” Smith says he told the governor, recalling the conversation in an interview last week with The Seattle Times.

A wealth tax bill had been kicking around the Capitol for a couple years, but Inslee had never publicly backed it. Now, in a lame-duck budget plan, the governor was endorsing the levy on his way out the door.

“I was like ‘Wait a second. Listen, you don’t even have to produce a budget,” Smith said he told Inslee. “It was like ‘Have you talked to anyone?’ So, I was concerned.”

Since that phone call, Democrats in the Legislature have rolled out budget plans that also include the wealth tax and a statewide payroll tax on high wages at big companies such as Microsoft and Amazon, similar to one already imposed in Seattle.

Microsoft and other major businesses have responded with a furious multimillion-dollar lobbying campaign to kill the taxes, which they argue will lead companies to relocate or slow job growth in Washington.

To help direct the effort, Microsoft dispatched its longtime chief lobbyist, DeLee Shoemaker to the Washington Roundtable, the state’s association of top business executives.

Companies including Microsoft, Costco, Nordstrom and T-Mobile have bankrolled a PAC, People for an Affordable Washington, which lists Shoemaker as an officer and has spent more than $1.7 million in two months on ads, polling and hundreds of thousands of text messages to voters.

Microsoft is also signaling it will throw its weight behind an anti-tax ballot initiative, if necessary.

The company has pledged $1 million toward a newly formed PAC called the Washington Coalition for Responsible Taxes and Spending, according to a filing last week with the state Public Disclosure Commission.

The PAC, which also lists Shoemaker as an officer, has already shelled out more than $180,000 for polling and retainers to top national initiative-campaign consultants.

Steve Mullin, the longtime president of the Washington Roundtable, said the effort is the most coordinated tax pushback by the state’s major employers that he’s seen in decades.

“It’s just the unprecedented scope and scale of these proposed increases that has caused such deep concern and led to a historically unified business community,” Mullin said.

Smith said he and the chief executives of T-Mobile and McKinstry, a green construction company, personally met last month with Gov. Bob Ferguson, House Speaker Laurie Jinkins, D-Tacoma, and Senate Majority Leader Jamie Pedersen, D-Seattle, to discuss their tax concerns.

Unions and other supporters of the taxes are waging their own lobbying effort, including protests at the Capitol, to convince lawmakers that tapping the wealthiest people and corporations is preferable to cutting public services and furloughing state workers.

The head of the largest state employee union recently blasted Ferguson as a “ratfink” for proposing state worker furloughs while opposing a wealth tax and refusing to meet with the union’s representatives.

“It’s not surprising that wealthy corporations are trying to make excuses for why they should not have to pay what they truly owe in taxes,” said Treasure Mackley, executive director of Invest in Washington Now, a labor-backed group supporting the tax proposals, in a statement.

Working people are “fed up” with a state tax code that is “rigged for the wealthy few but requires regular folks to pay substantially higher percentage of their income in taxes than mega-millionaires and billionaires.”

Unions are sitting on a pile of campaign cash they could use if a ballot battle erupts over the proposed taxes. SEIU 775, the influential Democratic-aligned home-health care worker union, has more than $6 million cash in its ballot fund, PDC reports show.

In the middle of the debate are state lawmakers and Ferguson, who are racing to craft a state budget by the scheduled end of the Legislative session April 27.

They’re facing a projected shortfall of as much as $16 billion over the next four years. While state tax collections are still expected to grow substantially, the Legislature in recent years has committed to much more spending, leading to what critics say is a self-inflicted deficit.

Ferguson has vowed to not sign any budget that relies on a wealth tax, arguing it would be foolish to count on a tax that would be immediately challenged in court. No U.S. state has imposed such a levy, and some other countries have repealed their similar taxes over concerns about wealthy people moving away.

The proposed wealth tax in Washington would apply to a few thousand people with financial assets, such as stocks and bonds, worth more than $50 million. Democratic budget leaders estimate such a tax could pull in $2 billion to $4 billion a year.

Democratic lawmakers also have proposed a payroll tax modeled on Seattle’s JumpStart tax, which took effect three years ago. Under the state proposal, companies with payrolls of more than $7 million would pay a 5% tax on wages above the Social Security wage limit, or about $176,000.

Both taxes are strongly opposed by Microsoft, one of the world’s most valuable companies, with a market cap of nearly $3 trillion, headquartered at a massive Redmond campus.

In the Seattle Times interview, Smith emphasized Microsoft is not reflexively anti-tax and has historically had a cooperative relationship with state leaders.

Last year, Smith recalled that Inslee personally asked him to have Microsoft and other businesses “sit on the sidelines” last year during the debate over whether to repeal the state’s new capital gains tax on wealthy residents. Microsoft complied and voters overwhelmingly upheld the tax in November.

In addition, Smith pointed out, Microsoft donated $1 million to the campaign to defend the state’s Climate Commitment Act — a signature Inslee-signed law aimed at cutting greenhouse gas emissions while raising billions of dollars for state projects. Voters also upheld the law last fall.

“We have had this track record and have been criticized by some for being supportive of tax and revenue growth for the state. So, I was very surprised when I heard the very night before Jay’s announcement that he was going to call for the wealth tax,” Smith said.

Through a spokesperson, Inslee confirmed a conversation with Smith but declined an interview request. When he proposed the wealth tax in December, Inslee called it “a fairly modest” levy on “incomes of extraordinary amounts.”

Former Gov. Chris Gregoire has weighed in against the wealth and payroll taxes, saying in an interview they’d hurt the state’s economic competitiveness.

“You are going to dry up the startups, the Microsofts and Amazons and the Nordstroms of tomorrow,” said Gregoire, who is now CEO of Challenge Seattle, a business-backed alliance of the state’s largest employers.

Business leaders have raised the specter of moving tech jobs out of state, pointedly noting in a recent letter to lawmakers that it costs 30% less to employ software engineers in Vancouver B.C. than in the Seattle area.

Smith declined in the interview to say whether Microsoft would move jobs out of state.

State Sen. Noel Frame, D-Seattle, who has been leading on Senate Democrats’ proposals for the wealth tax and other options, said it’s past time for the state to grapple with its “archaic” and “uniquely weird” tax system. Washington, unlike most states, does not have an income tax and relies largely on a sales tax.

She said she’s been somewhat frustrated with “very loud voices out there” shutting down certain tax proposals.

“Tech is not the only industry in Washington state and we’re trying really hard to be responsive to what we are hearing in this moment from all the voices,” Frame said.

With the legislative session racing toward a close, Smith said he’s hopeful a “common ground” compromise can be found. He said Washington has had a “collaborative political culture” compared with divisions in much of the country, but that’s now at risk.

“I do worry that all the moderates in the roadkill caucus have now been run over,” Smith said, referring to the nickname for a shrinking core of business-friendly moderate Democrats. “They’re no longer there, and we therefore are at a moment in time where we could risk more polarization.”