A new tax proposal moving through the Washington State Legislature is drawing sharp criticism from the region’s tech and startup community, with founders and investors warning it could undercut the incentives that help early-stage companies take root—and ultimately push more innovation out of state.
At the center of the dispute are Senate Bill 6229 and House Bill 2292, which would expand Washington’s existing capital gains tax to include profits from qualified small business stock—a category of startup equity that can be exempt from federal capital gains taxes under certain conditions. Critics say the 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 warn of "death spiral" caused by WA Democrats' proposed taxes
“For those investors who are going to leave, they’re not going to reinvest in the next generation.”
"It’s like someone meticulously was like, ‘How do I destroy this in the most perfect fashion?’” pic.twitter.com/ZLbayQC0kn
— Ari Hoffman (@thehoffather) February 10, 2026
“A message that you should leave”
The controversy was a key topic on a recent episode of The Ari Hoffman Show on Talk Radio 570 KVI, where host Ari Hoffman argued the legislature is taking aim at an industry whose impact reaches well beyond high-paying jobs.
“It’s not just the jobs they provide to their own companies,” Hoffman said, adding that tech workers support countless other local businesses—from barbers and mechanics to grocery stores—especially in neighborhoods like South Lake Union that are still struggling to fully rebound from the pandemic.
Joining the show were Aviel Ginsberg, president of Foundation and an early-stage investor, and Dave Parker, former board chair of the Washington Tech Industry Association’s tech programs. Both said the bills strike at a core mechanic of startup financing: risk-heavy early investment paired with the possibility—rarely realized—of outsized returns.
Parker framed the legislation as a direct attempt to override federal treatment of qualified small business stock. “What these bills do… is [say] the federal rules don’t apply here in Washington State,” he said, arguing the result is a state tax on outcomes that the federal system has intentionally incentivized.
Startups fail—by the lot
A central argument from opponents is that startup investing is structurally different from investing in mature companies. Parker noted that the overwhelming majority of startups fail, and that early-stage capital often comes from “friends, families, and fools”—people willing to back an idea long before there’s certainty, traction, or a proven market.
In that context, they argue, the federal small business stock incentive exists to make the math work for risk-takers. Removing that advantage at the state level, they say, could reduce local investment and make it harder for new companies to get off the ground.
Ginsberg echoed that view, pushing back on the idea that a “small” percentage change doesn’t matter. In his day-to-day work negotiating seed rounds, he said, founders and investors absolutely react to differences that might seem modest on paper—because early-stage startups often operate on thin margins, high uncertainty, and personal sacrifice.
He painted a picture of founders quitting stable jobs, pulling kids out of private school, draining savings, and betting on something that may never pay off—only to see the state reduce the potential reward at the end of that long, risky road.
Mobility is the new pressure point
Both guests argued that the risk isn’t hypothetical: founders and capital can move. Parker said investors have already been leaving Washington because they can, and described the bills as compounding an already fragile equation. He also took issue with what he characterized as legislative estimates minimizing the impact, arguing that even if only a relatively small number of people are directly affected, the broader signal to entrepreneurs is unmistakable: build somewhere else.
Ginsberg added another layer: the tech ecosystem itself is shifting, particularly around AI. He said San Francisco has reasserted itself as a central in-person hub for AI companies and talent, and claimed he’s already seeing a steady flow of Seattle founders relocating—even before taxes enter the conversation. If Washington adds a new tax headwind on top of those market forces, he warned, the region could slide from flywheel to “death spiral,” as fewer investors reinvest locally and fewer founders choose to start here.
Not “tech bros,” but future job creators
The conversation also touched on resentment toward “big tech” and how that can spill onto startups. Parker argued that the legislation doesn’t primarily target entrenched giants—it hits the person who left a stable job at Microsoft or Amazon to start something new, hire a small team, and sweat payroll while living off savings and second mortgages.
He also emphasized that innovation-driven companies are disproportionately responsible for net job growth over time, and said Washington’s success stories—from Microsoft to Amazon to Zillow—started as risky ideas long before they were household names. In that sense, critics argue, the state’s policies should focus on cultivating the next generation of employers, not discouraging them.
A political awakening—late, but real
Asked whether the startup community is becoming more politically engaged, Ginsberg said many early-stage founders aren’t spending time on politics at all—not because they’re ideologically committed one way or another, but because building a company is consuming and chaotic. For many, he suggested, this is the first moment where policy feels immediate enough to demand attention.
Hoffman compared it to a pattern he sees frequently: people don’t engage until something happens to them personally—until they’re “mugged,” their car is broken into, or their home is burglarized. For founders, the equivalent may be realizing that policy can change the viability of the entire risk-reward bargain they’re relying on.
