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Record Tax Increase Casts Pall Over 2025 Session
Morgan Irwin AWB Vice President, Government Affairs
Whenever our team is asked to sum up a legislative session, the natural instinct is to talk about a mix of good and bad bills. After all, no one wants to hear a steady stream of bad news, and the truth is we actually did see some good bills get through. But let’ s be honest: 2025 was a tough year for employers. Lawmakers passed a budget that included $ 9.4 billion in new and higher taxes, the largest tax increase in state history. As Max Martin writes later in this issue, the tax package fundamentally reshapes key areas of the state’ s tax code by introducing sweeping changes to the business and occupation tax( B & O) tax— first adopted in 1933 as a temporary tax to address declining revenues during the Great Depression— as well as a sales tax expansion that’ s hitting small businesses especially hard.
We also saw:
• Passage of a bill extending unemployment insurance benefits to striking workers, a move that not only jeopardizes the stability of the state’ s UI trust fund but is also a fundamental misuse of unemployment insurance.
• Adoption of statewide rent control, something that’ s intended to make housing more affordable, but which is going to have the exact opposite effect by discouraging construction of new multifamily housing in our state.
• Expansion of the state’ s Paid Family and Medical Leave program. The PFML was created following passage of carefully crafted bipartisan legislation in 2017 that included both business and labor input. Unfortunately, it’ s now on shaky financial ground.
• Passage of a transportation budget that included gas tax increases indexed to inflation. AWB was neutral on the budget, recognizing that any decision to increase gas taxes is challenging and also recognizing the desperate need for transportation infrastructure funding. However, the decision to index the gas tax to inflation means that future increases will not require votes from the Legislature and therefore violate AWB’ s policy and could not be supported.
If you’ re looking for silver linings, there are a few. At the start of the session, lawmakers were talking about a budget shortfall in the range of $ 14-20 billion. Passage of a $ 9.4 billion tax package is, by comparison, somewhat less bad.
Another silver lining bill is SB 5408, which passed with strong support from AWB and others in the business community. It makes some important changes to the state’ s wage transparency law, including allowing employers an opportunity to correct deficient job postings before being penalized or sued.
As you read through the rest of this issue, you will find more examples of positive bills— but not nearly enough to offset the challenges created by a record tax increase and a host of other bills that make it more difficult and more expensive to start and run a business in Washington.
As we look ahead to 2026, the AWB Government Affairs team is bracing for more challenges. Despite passing $ 9.4 billion in new taxes in 2025, lawmakers are anticipating another revenue shortfall due in part to reductions in federal funding. That will undoubtedly prompt discussion about even more taxes, such as a corporate income tax, a wealth tax or a head tax on employees.
Wherever the conversation goes, AWB will be there, advocating for solutions that help foster economic growth and prosperity in every corner of the state. special edition 2025 7