SEATTLE — Seeking to cover a looming budget shortfall and stave off cuts to state services, Gov. Jay Inslee is throwing his support behind a proposed "wealth tax" on the state's richest residents.

The proposal would levy a 1% annual tax on worldwide wealth of more than $100 million. It would affect roughly 3,400 of the state's wealthiest people, raising an estimated $10.3 billion over four years, according to the governor's office.

"What we need is a fairer tax system that will help Washington not go backwards, and that's what we're doing," Inslee said at a morning news conference.

Inslee also wants to raise taxes on businesses.

His plan would start with a temporary one-year 20% business and occupation tax rate increase on bigger businesses, followed by a 10% boost in business tax rates.

Inslee unveiled the tax proposals as part of his final budget proposal to the Legislature. He'll leave office Jan. 15, when Governor-elect Bob Ferguson is sworn in.

In asking for new and higher taxes, Inslee said he wants to leave office without making deep cuts to state services, like the state did after after Great Recession in the 2000s, when lawmakers slashed spending by some $11 billion.

Ferguson has not ruled out support of tax increases, but said in a recent interview with The Seattle Times that he's committed first to scouring the budget looking for savings. A spokesperson for his transition team said Tuesday they're reviewing Inslee's budget proposal.

Imposing a new wealth tax in Washington — the first such tax in the nation — would likely prove difficult, raising questions about counting on the money in the near-term budget as proposed by Inslee.

That's the conclusion of the state's Department of Revenue, in a recently released study which predicted a state wealth tax would be "daunting" to administer.

Among the challenges cited by the report were difficulties in valuing the far-flung personal assets of wealthy taxpayers, unknown compliance rates and "aggressive tax-planning" strategies.

The tax could cause wealthy taxpayers to avoid it by leaving the state, raising further budget problems.

"A state-level wealth tax in the United States will be novel and the risk of capital flight might be increased due to relatively limited barriers to changing one's domicile," the report stated.

The report said it was "unclear how reliable of a revenue source a wealth tax would be... at least in its early years" and that it was "difficult to estimate revenues from a proposed wealth tax."

Overall, Inslee's operating budget proposal would grow state spending from about $72 billion in the current two-year budget to about $79 billion in the 2025-27 biennium.

The higher taxes and spending drew quick criticism from Republican lawmakers.

"Let's be clear: there is a deficit ahead, but it's caused by overspending, not by a recession or a drop in revenue," said state Sen. Chris Gildon, R-Puyallup, the budget leader for Senate Republicans, in a statement.

Gildon said Inslee could have come up with a budget that lives within the state's means.

"Instead, he wants to spend even more and impose additional taxes on Washington employers to help make up the difference. When the cost of doing business goes up, consumers feel it too. His budget would make living in Washington even less affordable," he said.

Democrats hold solid majorities in the state House and Senate, and will ultimately decide what parts of Inslee's proposal to adopt and what to cast aside, along with Ferguson, who will wield the veto pen starting next month.

Majority Democrats have signaled they'll embrace a wealth tax or other tax options to fund priorities such as childcare, health care and education.

"I think a wealth tax is absolutely a way to not only increase revenue, but to do it in a way that is not regressive," said state Rep. April Berg, D-Mill Creek, who chairs the House Finance Committee, in an interview. "We very much need structural change."

State Sen. June Robinson, D-Everett, who chairs the Senate Ways and Means Committee, thanked Inslee in a statement for a "thoughtful and future focused" budget providing a "strong starting point" for negotiations.

Inslee's plan also includes some cuts and savings, amounting to about $2 billion.

He's proposing to delay expanded eligibility for child-care subsidies under the state's new Fair Start for Kids Act, which he signed into law in 2021. The expanded benefits, while politically popular, were expected to cost billions of dollars.

Inslee is proposing to close residential habilitation centers for individuals with developmental disabilities, including the Rainier School in Buckley and a facility in Yakima Valley. Also on the chopping block under Inslee's plan is the Mission Creek Corrections Center for Women in Belfair.

The governor's budget proposal also pauses pay bonuses for teachers who are nationally board certified.

The head of the state teachers union criticized Inslee's proposal, saying it "misses the mark" for students by continuing a chronic underfunding of schools.

"Students' unmet needs are more urgent than ever and it takes significantly more resources to support their learning. We can't keep kicking the can — we need bold leadership that prioritizes our students' education and raises the revenue to meet students' needs," said Larry Delaney, president of the Washington Education Association, in a statement.

The budget proposal allocates about 41% of its spending to K-12 education, said WEA spokesperson Julie Popper, describing it as "a new low" in the years since lawmakers boosted school funding to about half the budget after a 2012 state Supreme Court ruling finding schools were unconstitutionally underfunded.

Talk of a wealth tax in Washington is not new.

Bills proposing a similar wealth tax have been floated in the past two legislative sessions by majority Democrats, but did not advance. The proposals led by state Sen. Noel Frame, D-Seattle, and Rep. My-Linh Thai, D-Newcastle, would have imposed a 1% tax on Washingtonians with worldwide assets, such as stocks and bonds, of more than $250 million.

The efforts to tax the rich have been driven in part by critics of Washington's creaky tax code, which has consistently ranked among the most regressive in the nation because its heavy reliance on the sales tax makes the poorest residents pay a comparatively high share of their income compared to the wealthiest.

Inslee, at the morning news conference, contrasted the struggles of people facing poverty and homelessness with the vast wealth built up by millionaires and billionaires who have prospered in the state.

"We've got one of the strongest economies in the country," Inslee said, calling his plan "a fairly modest tax on incomes of extraordinary amounts."

Inslee and other supporters of the wealth tax have pointed to voters overwhelming endorsement of state's new capital gains tax on the wealthiest Washingtonians. In the November election, 64% of voters rejected Initiative 2109, which sought to repeal the tax.

While less dramatic than the wealth tax plan, Inslee's proposed business tax increase would affect more people.

The tax proposal would start by imposing a 20% business and occupation tax increase on about 20,000 service-related businesses with revenues of more than $1 million a year. That tax would start in October and run for about a year.

In 2027, the temporary increase would go away, replaced by a general 10% increase in business and occupation tax rates for all business categories. The higher taxes would raise an estimated $2.6 billion over four years.

Most small businesses would not be affected, Inslee's budget office projects, as they qualify for tax credits or have income below the tax-filing threshold, which would not change under the proposal.

Inslee's tax proposals come as the state faces a projected budget shortfall of between $10 billion and $12 billion over the next four years. At his news conference, Inslee suggested the deficit could be even higher — as much as $16 billion over four years.

That's the gap between expected state revenues and the spending needed to fund ongoing services, including new and expanded programs authorized by Inslee and the Legislature over the past few years.

Earlier this month, Inslee ordered a spending freeze at state agencies, pausing nonessential hiring, service contracts and restricting purchases and travel.

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