Washington’s Estate Tax and the 2003 Legislature

SB 5186 / HB1401 and SB 5418 have been introduced in the 2003 legislature. These bills would phase out Washington’s estate tax by 2005.

Washington state has the most regressive tax structure in the country, with low and middle income residents paying a much higher percentage of their income in state and local taxes than wealthy residents. The estate tax is one of the few progressive taxes we have. In this time of budget deficits, with major cuts proposed in education, social services, and health care, the estate tax is an essential component of our state tax structure.

The Facts

  • The estate tax contributes over $100 million annually to Washington state’s budget for schools, social services, public safety and other essential services.
  • Of the 44,000 Washington residents who die each year, about 1,000 (2.3 percent) leave behind estates large enough to owe an estate tax.
  • Estates valued over $700,000 are subject to Washington estate taxes in 2003, rising to $1 million in 2006. Tax rates range from 2.5% on a $750,000 estate to 16% on a $1 billion estate.
  • Additional tax exemptions and flexible payment schedules help to limit impacts on family farms and small businesses.
  • For example, an estate valued at $1 million would pay about $30,000 in state estate tax, but a family farm or business valued at $2 million would be exempt from the estate tax.
  • In Washington, only about 30 people – out of the 44,000 who die in a year – will leave a taxable estate in which a family farm or business forms a majority of the estate.

Federal Estate Tax Repeal

Estate taxes paid to the State of Washington have been fully deductible from federal estate taxes. However, during 2001 Congress passed legislation to phase out the federal estate tax.  The amount of an estate exempt from federal taxation will rise in steps through 2010, at which point the federal tax will be completely eliminated. The legislation also phases out the federal credit for estate taxes paid to states, decreasing the credit by 25% in 2002, 50% in 2003, 75% in 2004, and completely in 2005.

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