Small Business & Entrepreneurship Council

By SBE Council at 31 January, 2026, 10:12 am

by Raymond J. Keating –

At the start of 2026, lawmakers and activists in assorted states are pushing policy measures that, if imposed, would undercut entrepreneurship, investment, and economic, income and job growth in their states. This assessment isn’t really controversial; it’s just straightforward economics.

Consider the following:

WASHINGTON

Elected officials have been working hard in recent times to transform Washington from one of the most tax friendly states in the nation to one of the most hostile. Washington was a state that didn’t impose individual and corporate income and capital gains taxes. That has changed.

A capital gains tax on individuals was imposed in 2022, and following another tax increase in 2025, the state’s capital gains tax imposes a top rate of 9.9 percent – one of the highest in the nation. By the way, other state and city taxes pushes the total tax rate in the state even higher.

If imposed, a proposed 9.9 percent personal income tax would face some serious legislative and state constitutional issues and challenges. But the message, right now, from Governor Bob Ferguson and state Democratic lawmakers is clear: Increase taxes on upper-income earners. Never mind that many of those earners are small business owners, and that the ills of increased taxes are never limited to those targeted by government in our deeply integrated and intertwined economy.

MICHIGAN

A coalition seeking to increase spending on public schools is pushing a ballot measure that would impose a 5 percent income tax surcharge on upper-income earners, taking the top rate from 4.25 percent to 9.25 percent. As in the case of Washington, this new tax rate in Michigan would be one of the highest in the nation (with additional local income taxes making matters worse), and it would hit entrepreneurs, small businesses and investors, thereby inflicting further harm on a state that has been long suffering economic decline.

In fact, a recent Tax Foundation analysis reported: “Adopting a 9.25 percent top rate would cost an estimated 43,000 jobs, cut wages by about 1 percent, and shrink Michigan’s overall economy by $8.5 billion. The higher tax would also increase net out-migration.”

CALIFORNIA

For a state that already imposes one of the heaviest, most destructive state tax systems in the nation, apparently lessons about the ills of such burdensome taxes, such as a long, ongoing, dramatic out-migration of people to other states, have gone unlearned. Now, a proposed ballot measure pushed by labor unions would impose a 5 percent wealth tax on those in the state with a net worth of more than a billion dollars.

A wealth tax – especially on top of other onerous levies in the states – would be astoundingly destructive, draining massive amounts of resources away from entrepreneurs and investors, only to be handed over to wasteful politicians. It also would be complicated to impose, opening the door to further government abuses.

For good measure, this one-time confiscation of wealth will not satiate advocates of ever-bigger government. So, one must wonder that if this particular wealth tax were to pass, what would come next in California?

A wealth tax such as this is not born out of sound economics – indeed, not even out of something close to being common sense from a political standpoint. It is envy run amok that would make California, already with one of the least competitive tax systems among the states, even worse in terms of competitiveness, and further undermining the economic well-being of all, from billionaires to budding entrepreneurs to workers.

VIRGINIA

The list of tax increase proposals coming from Democrats controlling the state legislature in Virginia are just as breathtaking as they are wrongheaded. Consider the following from the Thomas Jefferson Institute for Public Policy:

“Start with Delegate Vivian Watt’s House Bill 979, pending in the committee the Fairfax Democrat chairs. It would create two new tax brackets on taxpayers with higher incomes, 8% on taxable incomes higher than $600,000, and then rises to 10% on income of more than $1 million.

“Do you want to tax upper income families another way? Many get much of that income from investments, and House Bill 378 from another Northern Virginia Democrat imposes a 3.8% piggyback income tax on net investment income reported on their tax returns. It will not kick in until $500,000 in such income is received. That is the same supplemental tax rate as is applied by the federal Net Investment Income Tax, but HB 378 uses a higher threshold before the tax starts.

“For some individuals, the combination of the two bills would impose a state tax rate of 13.8% on part of the investment portion of their reported income. That would move Virginia into the high tax atmosphere shared with a few other states…

“There are two substantial tax increases [Governor Abigail] Spanberger has clearly endorsed. She wants Virginia back in the Regional Greenhouse Gas Initiative, with its carbon tax of about $550 million it will impose on energy producers and passed on to customers. And she has asked the Assembly to approve a state-managed paid family and medical leave program for workers, funded by a payroll tax of to-be-determined size, divided between employees and their employers.  Combined, it will approach 1% of pay.”

The tax increases proposals – more than 50 in all, at last count – do not stop there, as documented by a WJLA ABC News7 report. For example, some of the new taxes or increases include:

● Additional local sales tax in all Virginia counties and cities

● New personal property tax on electric leaf blowers and electric landscaping equipment

● Large employer tax

● Gun and ammunition tax

● New income tax brackets

● Delivery tax, which would hit Amazon, Uber Eats, FedEx, and UPS orders in Northern Virginia

● Investment income tax

● Event tax

● Storage facility tax

● Gym membership tax

● Dog walking tax

● Dog grooming tax

● Counseling tax

● Digital personal property tax

● New car taxes and highway use fees

● Increase in the hotel tax in Arlington

● Statewide speed cameras (not a tax, but more fines for drivers)

● Vehicle repair tax

● Home repair tax

● Dry cleaning tax

● Rideshare tax

● Fantasy sports tax

This list is both breathtaking and stunningly wrongheaded.

These proposed tax increases would punish small businesses, investment and hard work, and drain resources from productive private sector enterprises only to be used for politically-driven, largely wasteful government undertakings. Like the efforts in Washington, Michigan and California, this is an agenda, that would undermine Virginia’s entrepreneurial sector, competitiveness and economy.

Whether they choose to admit it or not, the elected officials supporting these measures, and similar ones, are looking to make taxpayers, both individuals and businesses, worse off. Indeed, if they actually wanted to improve affordability – and the climate for living, working, starting up and operating businesses, and investing in enterprises in their respective states – then these policy proposals must be jettisoned in favor of a pro-entrepreneur, pro-growth agenda featuring low taxes, light regulation and limited government spending.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of “The Weekly Economist” book series, and 10 Points from Walt Disney on Entrepreneurship.