We are the founders of early-stage startups in Washington. We have chosen this state to build our companies and provide family-wage jobs to a growing number of residents.

Startups are one of the pillars of the innovation economy in our state, creating new technologies that improve every facet of life, from health care and education to transportation and privacy.  While startups may begin with a small number of employees, as they succeed, they can grow into significant drivers for job creation and economic activity. They are the building blocks of the tech sector that employs more than 410,000 Washingtonians.

While we are proud of our contributions to Washington’s economy, it is becoming increasingly clear that policymakers don’t value making Washington the best place to start and build new companies. The tax and regulatory environment for startups in Washington is quickly becoming uncompetitive.

This hasn’t always been the case — Washington’s policymakers have a history of thoughtfully partnering with the innovation sector in our state. This includes programs to launch successful startups, increase funding for engineering education, support substantive paid family leave, and promote gender pay equity.  The rapid growth of our startups is in part due to these public-private partnerships and investments.

But this month in Olympia, a group of policymakers are putting the state’s startup ecosystem at risk. Legislators are considering a capital gains tax that, while intended to tax big tech, results in a punitive tax on startup compensation.

This tax impacts startups far more than companies at any other stage. Founders and early employees rely on stock options for compensation, accepting short-term salary loss for potential long-term gains. These ventures involve a high degree of risk, as 90 percent of startups fail in the first few years, which makes stock options a necessary form of compensation to get new ideas off the ground. This new tax directly taxes these potential future gains, therefore telling startups they should form outside of Washington.

The net result will be that less startups will form here, which leads to fewer jobs in our state. Also, talented people will stay in publicly traded companies, where they can get an immediate return on their stock compensation, which means even fewer startups will form here. In addition, many employees will leave the state because it is now easy to do so and keep their jobs. This means they buy groceries, go out to dinner, and buy a home in another state, which in turn cuts even more jobs in Washington. This tax will not grow our startup economy, it will shrink it.

It is surprising that policymakers are considering this measure at such a perilous time for Washington’s innovation sector. The global pandemic has created a new level of geographic flexibility for founders and entrepreneurs, who are now able to work from anywhere in the country — permanently. We are seeing tech companies and employees flock to states that are more welcoming of their businesses and the jobs they create, not to mention the tax revenue they generate. At the moment, Washington is gaining from that migration. However, the capital gains tax under consideration in Washington is above the national average, and our state is at risk of no longer being competitive. We hear daily from founders and entrepreneurs who were born and raised in Washington that they now are planning to leave if this tax is passed.

We urge policymakers to consider the impact of this punitive tax on startups and the broader economy. There are other levers to raise revenue for important state programs. For example, our entire industry recently supported an increase in B&O tax and other measures to raise revenue for higher education. Most founders would support a thoughtful and comprehensive approach to tax reform in our state.  Piecemeal measures like this capital gains tax are not reform, they make our state less competitive and push our innovators to start their business elsewhere. Call your state senator and tell them to vote no on this capital gains proposal.