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

This 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

because 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

hiked 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.

Those 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.