Washington’s Estate Tax: Protecting Our State’s Resources

The estate tax dates back to 1901 in Washington State and until very recently was the  only progressive tax in Washington’s otherwise very regressive state tax system.  In a  decision issued February 3, 2005, the Washington State Supreme Court ruled that the  phase-out of the federal estate tax invalidates Washington’s estate tax. The amount of Washington’s estate tax had been equal to the federal estate tax credit, which, under the federal estate tax phase-out, falls to zero in 2005. The legislature must decouple Washington’s estate tax from federal legislation in order to restore this source of state revenue.

Governor Christine Gregoire has proposed restoring the state estate tax. She rightly pointed out in her March 2005 budget proposal that revenue from the estate tax is essential if the state is to keep its promises regarding education and health care.  Restoring the tax would also improve the progressivity of the state’s tax system, maintain incentives that promote charitable giving, and prevent wealth disparities from growing wider.

The benefits of restoring the state estate tax include:

  • Revenue for Essential State Services – Revenue from the estate tax is used to pay for essential state services including education and health care. Washington will lose more than $100 million of desperately needed tax revenue over the next biennium if it does not reinstate the estate tax.
  • Improved Tax Progressivity – The estate tax was the only progressive tax levied in Washington State. The loss of the estate tax makes Washington’s already extremely regressive tax system more regressive.
  • Incentives that Promote Charitable Giving – The estate tax encourages charitable giving. A recent study estimated that the elimination of the estate tax will cost Washington’s more than 5,000 non-profit organizations a total of $169 million – an average loss of almost $30,000 per organization.
  • More Equitable Wealth Distribution – The estate tax is the only tax that impacts the transfer of wealth from one generation to the next. Without an estate tax, larger and larger amounts of money will accumulate in the hands of a few  families, widening already large disparities in wealth.
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