A new NFIB Washington Small Business Economic Trends report delivers sobering news for the state’s small business community. The data reveals that Washington small businesses are underperforming the national average on nearly every key measure of economic health, with state policies on taxes, regulations, and labor costs emerging as primary culprits.
The report’s Small Business Optimism Index for Washington sits at 94.5, four points below the U.S. at 98.5 and 3.5 points below the long-term national average. This gap reflects broad weakness across components. Plans to increase employment stand at just 5.3 percent in Washington compared with 15.4 percent nationally. Current job openings are also lower (24.1 percent vs. 32.0 percent). Only 6 percent of Washington small business owners describe their business as “excellent,” half the national figure of 12 percent. Earnings trends are more negative in the state (-25.4 percent vs. -21.4 percent nationally).
The most striking finding concerns labor costs. Nineteen percent of Washington owners named labor costs their single most important problem, more than double the 8.5 percent national rate and a gap of 11 percentage points. Labor costs now rank as the second-biggest issue for Washington small businesses, while ranking only sixth nationally. Government regulation (14.9 percent vs. 8.2 percent nationally) and taxes (20.2 percent vs. 17.3 percent nationally) also register as significantly greater concerns in Washington.
These numbers align with Washington’s 5.1 percent unemployment rate, which ranks 45th nationally (higher unemployment). The state’s Employment Index of 99.8 trails the U.S. level of 101.2. Despite Washington’s strong overall economy, a $910 billion GDP and fourth-highest per capita income. Small businesses that drive much of Main Street employment are clearly struggling to hire and grow.
Kiro radio host, Jason Rantz highlighted these findings in a recent Seattle Red analysis, describing the report as a “bright red warning sign” for Washington small businesses. He noted that small businesses are not hiring largely because it has become too expensive to do so in Washington compared with the rest of the country. Rantz pointed to recent tax increases passed in Olympia, including measures that hit pass-through entities, as directly contributing to the deterioration in business sentiment and hiring plans. NFIB Washington State Director Patrick Connor emphasized that the data give policymakers in Olympia clear signals about why small businesses find the state a difficult place to operate.
Small businesses employ roughly half of Washington’s private-sector workforce. When optimism, hiring plans, and business health metrics all lag national averages, the consequences extend beyond individual owners to workers, communities, and state revenue. The combination of elevated labor costs, heavier regulatory burdens, and higher taxes creates a competitive disadvantage that discourages expansion and investment.
The NFIB report does not blame external forces alone. It documents how Washington-specific policy choices have made hiring and compliance more costly than in peer states. With the state’s unemployment rate already elevated and small business optimism subdued, these trends represent an early but clear warning that further burdens could deepen the challenges facing Washington’s entrepreneurial sector.
Policymakers should treat this data as a call to action. Reducing regulatory complexity, moderating labor cost mandates, and providing meaningful tax relief, particularly for pass-through businesses, would improve the environment for the small businesses that form the backbone of Washington’s economy. The 2026 NFIB findings show that the current trajectory is not sustainable if the state wants to sustain broad-based prosperity.
Mark Harmsworth is the director of the Small Business Center at the Washington Policy Center.
