Washington repeals estate tax increase; $340M impact on education

0:00This story was written by Jerry Cornfield with Washington State Standard. Washington will soon end its reign as the state with the nation's highest estate tax. Governor Bob Ferguson signed legislation Tuesday to erase an increase in estate tax rates that he and Democratic lawmakers pushed through last year to help overcome a multi-billion dollar budget shortfall. The tax is paid when people die, and their property is transferred to their heirs. Senate Bill 6347 ensures that Washington is not a significant outlier for our state tax rates. The first term Democratic governor set upon signing the bill Tuesday. With the stroke of his pen, he brought a quiet end to a noisy discussion on potential political and economic fallout from last year's decision to lift the top tax rate from 20% to 35% for a state values of $9 million and above after accounting for a $3 million exclusion. Supporters of the new law argued it was necessary

1:03because the gigantic hike would spur wealthy residents to shed holdings and relocate to avoid paying. Family businesses might be sold to minimize tax liability, some said at hearings. Opponents said there is no evidence that the higher tax rates would drive wealthy people to other states. Retreating would reduce the flow of dollars to public schools and colleges, the primary recipients of a state tax proceeds they argued. Ferguson skirted the arguments Tuesday in articulating his thoughts on undoing an action he took less than a year ago. Sometimes we'll do things that aren't the best things. I think we have to always be open to adjusting, and I think that's what the legislation reflects. Ferguson told the standard. What I appreciated was the legislature taking a look at what happened last year and seeing if there are things that need to be undone. In the 2025 legislative session, Ferguson and the Democratic-controlled legislature

2:03hiked the rates as part of a broad package of tax hikes to overcome the shortfall. While the lowest rate of 10% remained the same, the top rate rose to 35%. The changes took effect July 1, 2025. Senate Bill 6347 reverses course and on July 1st will restore the rate structure to what was in place prior to last year. Washington will again have a top rate of 20%, the same as Hawaii. Washington's legislation passed in the final hours of this year's session by margins of 85 to 8 in the house and 35 to 10 in the Senate. All 18 votes against the bill were cast by Democrats. What this back and forth means for the state's financial situation is unclear. Estate tax collections generated roughly $1.25 billion in the 2023 to 2025 budget. And a similar amount is counted on the current budget according to the State Department of Revenue.

3:04Those dollars get deposited in the education legacy trust account and used to support public schools and expand access to higher education. A fiscal analysis done for last year's increase predicted the higher estate tax rates would generate an additional $59.5 million for the current budget and a smaller bump, $34.9 million in the 2027 to 2029 biennium. But a fiscal analysis for Senate Bill 6347 paints a different picture. It forecasts that with the rates rolled back, the state will collect $41 million less than planned in the current budget and $340.7 million less in the next budget. Democratic supporters of the legislation insist the projected loss for the next biennium is overstated. This report was first published by the Washington State Standard.