Washington’s Estate Tax

Congress voted in June 2001 to phase out the federal estate tax over the next decade. At the state level, opponents of the estate tax are pressing Washington’s legislators to pursue a similar phase-out of the state estate tax. Opponents claim that estate taxes devastate family farms and small businesses.

Federal data indicate, however, that very few family farms or small businesses are impacted by estate taxes. Of the 44,000 Washingtonians who die in an average year, only 1000 owe estate taxes, and of those only an estimated 18 have a majority of their assets in a family business and 15 have a majority of their assets in a family farm.

While the estate tax has a minimal effect on farms and businesses, it significantly impacts:

  • Tax Progressivity – The estate tax is currently the only progressive tax levied in Washington State. Eliminating the tax would shift more of the tax burden onto the state’s low and middle-income families.
  • Charitable Giving – The estate tax promotes charitable giving. Studies indicate that donations could fall by 12 percent without the incentives provided by estate taxes.
  • Wealth Distribution – The estate tax is the only tax that impacts intergenerational wealth transfers. Without an estate tax, larger and larger amounts of money would accumulate in the hands of a few families, widening already large disparities in wealth.
  • Adequacy of State Services – Washington would lose approximately $100 million in general fund revenue if the estate tax were eliminated, significantly impacting state services.

As the federal estate tax is phased out, proponents of the tax urge Washington’s legislators to recapture some of the lost revenue by implementing a more robust state estate tax. Doing so, they argue, would improve the progressivity of the state’s tax system, maintain incentives that promote charitable giving, and prevent wealth disparities from growing wider. The additional revenue could be directed to the state general fund or to an area of growing public need, such as long-term care for elderly state residents.

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