Washington Lawmakers' Tax Proposal Sparks Backlash from Seattle Startup Leaders

Tech leaders warn new taxes could trigger 'death spiral' for Washington's startup ecosystem

Published on Feb. 10, 2026

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A new tax proposal moving through the Washington State Legislature is drawing sharp criticism from the region's tech and startup community. The proposed legislation would expand the state's capital gains tax to include profits from qualified small business stock, which critics say would fall heavily on startup founders, early employees, and local angel investors. Tech leaders argue the change would undercut incentives that help early-stage companies take root and push more innovation out of the state.

Why it matters

The controversy highlights tensions between lawmakers and the startup community, with the latter warning the tax could disrupt the risk-reward bargain that underpins startup financing and lead to an exodus of founders and investors from Washington. Opponents argue the state is targeting an industry whose impact reaches far beyond high-paying tech jobs, supporting countless other local businesses as well.

The details

The proposed legislation, Senate Bill 6229 and House Bill 2292, would expand Washington's existing capital gains tax to include profits from qualified small business stock. Critics say this change would fall most heavily on startup founders, early employees, and local angel investors who accept substantial risk in exchange for equity upside. Tech leaders argue the legislation is a direct attempt to override federal treatment of qualified small business stock, which exists to incentivize risk-taking in the startup ecosystem.

  • The tax proposal is currently moving through the Washington State Legislature.

The players

Aviel Ginsberg

President of Foundation and an early-stage investor.

Dave Parker

Former board chair of the Washington Tech Industry Association's tech programs.

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What they’re saying

“It's like someone meticulously was like, 'How do I destroy this in the most perfect fashion?'”

— Ari Hoffman, Host, The Ari Hoffman Show on Talk Radio 570 KVI (Twitter)

“What these bills do... is [say] the federal rules don't apply here in Washington State.”

— Dave Parker, Former board chair, Washington Tech Industry Association's tech programs (kvi.com)

“For those investors who are going to leave, they're not going to reinvest in the next generation.”

— Aviel Ginsberg, President, Foundation (Twitter)

What’s next

The proposed legislation, Senate Bill 6229 and House Bill 2292, is currently moving through the Washington State Legislature. The outcome of the bills will determine the future tax treatment of qualified small business stock in the state.

The takeaway

This controversy highlights the delicate balance between supporting a thriving startup ecosystem and generating tax revenue. Critics argue the proposed legislation could disrupt the risk-reward equation that underpins early-stage investment, potentially leading to an exodus of founders and investors from Washington and undermining the state's position as a hub for innovation.