A newly proposed payroll tax would add new costs for large businesses in Washington state. But Rep. Shaun Scott, a Seattle Democrat sponsoring the bill, argues it would protect the basic services that help companies recruit and retain talent.

“People are looking to the state legislature for leadership on protecting the programs that make our state actually a healthy climate to do business in,” Scott told GeekWire this week.

House Bill 2100, pre-filed this week in Olympia, would create the “Well Washington Fund” and levy a 5% payroll expense tax on “large operating companies” for employee wages above a $125,000 threshold. The bill defines a “large operating company” as one with more than 20 employees and more than $5 million in gross receipts or sales, among other criteria. Employers with total employee wages under $7 million in the prior year would be exempt.

Scott is pitching the bill as a state backstop against federal cuts hitting Medicaid, higher education, housing and other programs. He said it would generate more than $2 billion annually and impact the about 4,300 businesses — including Redmond, Wash.-based tech giant Microsoft and telecom behemoth T-Mobile, headquartered in Bellevue.

Seattle-based companies such as Amazon that already pay the city’s JumpStart payroll tax would be exempt.

Scott said there is a “corollary effect” on corporations from policies that benefit “everyday people.”

“My sense of it is that the public is on our side on this issue,” he said. “They understand that when you have very well-funded higher education, what that means is a well-trained workforce that could seek employment at a place like Microsoft or Amazon — and the company would benefit as a result.”

“When you have people who have very good housing options, that makes Washington that much more of a competitive place to come and do business,” he added.

Business groups are wary of the proposal. Rachel Smith, the new CEO of Washington Roundtable, called it a “tax-first, plan later” idea. She also cited the state’s recent tax increases impacting businesses — passed in part to help address a $16 billion budget shortfall — and broader economic uncertainty.

“If a job is cheaper somewhere else, and a company has an operational environment that allows them to deploy that job somewhere else, of course that’s going to be something they consider,” Smith said in an interview with GeekWire.

Lawmakers tried to pass a similar statewide payroll tax this year, but the bill did not advance. In March, Microsoft President Brad Smith criticized that tax proposal and said it would increase prices for consumers, reduce jobs, and hurt the tech industry.

Microsoft declined to comment on Rep. Scott’s proposal when contacted by GeekWire this week.

Rep. Scott said it’s “disingenuous” that critics raise alarms about companies leaving when the state talks about funding the safety net, but don’t ask similar questions when companies cut jobs on their own. He said the relocation question “does not come up when we see large tech firms investing in artificial intelligence, which is designed to divest from human labor.”

Washington is one of a few states without a personal or corporate income tax. Most state revenue comes from sales, property, and B&O taxes — a system critics say disproportionately burdens lower-income residents.

Gabriella Buono, interim president and CEO at the Seattle Metro Chamber, said that “raising taxes in an affordability crisis will mean higher prices on everyday essentials, fewer job opportunities, and more closures in sectors that are already on the edge.”

“Voters across the political spectrum are clear: they want smart spending, transparency, and results, not new taxes that make it harder to live and work in this state,” Buono said in a statement.

Revenue from the proposed bill would initially go to the state general fund in 2026, then split beginning in 2027, with 51% directed to a dedicated Well Washington fund account and 49% to the general fund. A new oversight and accountability board would guide priorities and report annually. Spending from the account would be limited to higher education, health care — especially Medicaid — cash assistance, and energy and housing programs.