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March 4, 2026

Opinion: For Washington's builders, ‘millionaires' income tax' is really a tax on cash flow

By DAVID D'HONDT
AGC of Washington

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D'Hondt

The proposed “millionaires' income tax” in Senate Bill 6346 is being presented as a measure aimed squarely at the ultra-wealthy. But for many of Washington's construction employers, it would function very differently.

For our industry, this proposal is not a tax on idle wealth. It is a tax on cash flow.

As executive vice president of the Associated General Contractors of Washington, I represent over 680 construction firms across western and central Washington. The overwhelming majority are small and medium-sized, locally owned businesses structured as pass-through entities, S-corporations, LLCs and partnerships. Their business income flows directly onto the owner's personal tax return.

That distinction matters.

Construction is cyclical, capital-intensive, and traditionally low-margin. Profit margins are far slimmer than in industries like technology or finance. In most years, earnings are reinvested immediately back into the company for purchasing and maintaining equipment, expanding bonding capacity, covering payroll, paying rising insurance premiums, investing in safety programs, and training the next generation of skilled workers.

Income in construction also doesn't arrive evenly. It is often recognized when a large project closes out, sometimes after years of risk, borrowing and reinvestment. That can create a temporary spike in reported income in a single year.

On paper, that may push a contractor above $1 million in income.

But that does not mean there is $1 million sitting in a bank account.

More often, it means a company has just completed a major project and needs that working capital to fund the next one — to bid new work, mobilize crews, purchase materials and maintain equipment.

Under this proposal, pass-through businesses could face a 9.9% tax either at the entity level or through the owner's personal return. Either way, those dollars come directly out of operating capital.

And in construction, cash flow is everything.

Contractors front payroll for their employees. They purchase materials months before reimbursement. They finance heavy equipment that must be maintained regardless of whether the economy is booming or slowing. Their ability to compete for public and private projects depends on bonding capacity, which is directly tied to working capital and retained earnings.

When working capital shrinks, bonding capacity shrinks. When bonding capacity shrinks, fewer projects can be pursued. That affects hiring decisions, subcontractor opportunities, and the overall cost and availability of construction across Washington.

This is not about protecting extreme wealth. It is about understanding how tax policy interacts with the real-world financial structure of small and mid-sized businesses that build our roads, schools, housing, hospitals and infrastructure.

Taxing pass-through income at nearly 10% during a high-income year may sound simple in theory. In practice, it risks penalizing the very capital that keeps construction companies operating, employing thousands of Washington workers, and delivering the projects our communities depend on.

If lawmakers intend to target excess wealth, they must carefully consider the unintended consequences for industries like construction, where reported income often represents reinvested capital — not disposable cash.

When you tax construction cash flow, you are not taxing idle wealth. You are taxing the engine that keeps Washington building.


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