Governor Ferguson signs state budget with billions in tax increases into law

OLYMPIA, Wash. – Almost a month after the 2025 legislative session adjourned, Gov. Ferguson signed lawmakers’ two-year operating budget into law, capping a months-long process to close a multi-billion-dollar funding gap.

“This session, we made investments that are critical to Washingtonians,” the Democratic governor told reporters Tuesday afternoon. “We also made hard, but I think fiscally responsible choices.”

Ferguson said the $77.9 billion budget for the next two years was one that balanced spending cuts, new investments and new taxes. The budget relies on about $4.2 billion in new revenue over the next two years, with the total coming out to nearly $9 billion over the four-year outlook. The money comes from increased capital gains and estate taxes, expanded sales taxes to services like IT support and temporary staffing and bumping up taxes on businesses.

The new taxes come after the governor twice disagreed with fellow Democrats in the legislature about the amount of revenue they could bring in.

“I was very clear with the legislature on bringing down what would’ve been significantly higher taxes, to put it mildly–down to what I think is a more balanced approach,” Ferguson said.

The governor said he used his veto powers to cut about $25 million in spending from the budget. While he only vetoed one portion of the revenue package around community banks, Ferguson acknowledged adjustments to the tax bills could be needed next session.

“We’ve heard from a lot of folks these past few weeks,” he said. “We’re gonna [sic] make sure we have a lengthy conversation with folks on each of those revenue streams to make sure that there are not any unintended consequences.”

Business groups long argued the tax increases will ultimately be passed onto consumers through higher costs. Morgan Irwin, Interim Vice President for Governmental Affairs with the Association of Washington Business said the tax increases only add onto challenges coming from tariffs and trade threats from the federal government.

“It exacerbates what was already going to be a difficult business environment by adding more costs on top of it and more uncertainty,” he said. “So, in a trade-dependent state like Washington, this is really, really poor timing, really, really expensive, and really, really uncertain for businesses.”

Legislative Republicans criticized Ferguson for signing the budget and tax increases, believing the governor went back on his promises of affordability and fiscal responsibility.

“The governor’s actions have fallen short of his words,” Sen. Nikki Torres, R-Pasco, said in a statement.

“In January he said our state was unaffordable; by approving both the budget and tax increases today, he is making Washington even more unaffordable,” she added.

On the other side of the aisle, one Democratic legislator saw the revenue package’s signing as a positive development for funding crucial state services.

“It’s another step down our path to modernizing our tax code to meet the needs of our 21st century economy and to better ensure Washington’s high-grossing businesses and wealthy individuals share more equitably in funding the needs of our communities,” Rep. April Berg, D-Mill Creek, said in a statement.

With an updated revenue forecast due next month, Ferguson said he is “not optimistic” the state’s financial situation will improve. He is also weary of federal funding cuts forcing lawmakers back to Olympia to change the budget before the 2026 session starts in January. Though he believes the spending cuts and maintenance of the state’s rainy day fund in this year’s budget will help them out.

“The federal government could do something dramatic where we need to look at our situation,” Ferguson said, pointing out 20% of the state’s budget comes from federal funding. “That said, I feel we’ve done everything we could to prepare ourselves for that.

Albert James is a television reporter covering state government as part of the Murrow News Fellowship program – a collaborative effort between news outlets statewide and Washington State University.