Washington State has the highest death tax rate in the country, and HB 1456, sponsored by Rep. Tina Orwall (D-33), would raise that rate to higher taxable properties and use some of the proceeds to fund a home account. While proponents say this will make state tax laws more progressive and support affordable housing efforts, critics warned at the February 9 public hearing of the law in the House Finance Committee that it would hit small business owners particularly hard.
“We’re not really concerned about billionaires,” said Paul Guppy, research director for the Washington Policy Center, to the committee. “I think you can take care of yourself. They really are small business owners … they have already paid taxes on what they have made over their lifetime, and then death becomes a taxable event. “
He added that the rate hike would make the 30 states without a death tax “more attractive to those with high net worth”.
Orwall said the bill urges the wealthy to “share their family’s inheritance for a greater good,” while Chuck Collins, director of the Inequality Program at the Institute for Political Studies, said, “A progressive estate tax will enter Washington state moving in the right direction. Maintaining a progressive estate tax will make this system more just and fairer. “
The current death tax rate is between 14 percent and 20 percent for taxable goods of $ 1 million or more. Under HB 1456, the maximum rate would increase to 40 percent and create new interest classes that include properties valued at $ 1 billion.
Professor David Gamage is a tax law and tax policy scholar at Indiana University’s Maurer School of Law and has served as special advisor to the US Treasury Department. He told the committee that Washington’s death tax compensated for the lack of a state income tax. “This bill would move Washington State further in a positive direction, away from the most unfair, unjust and perverse of all tax systems.”
However, Patrick Connor, Washington State State director of the National Federation of Independent Business (NFIB) argued that despite some exceptions in the bill, it still “adds to the regression that small business owners face in our state. Large companies do not pay death tax. It’s the small business owners. “
He added that if the new tax rates went into effect, they would force many businesses to close to pay off taxes owed. As others have noted over time, the estate tax particularly affects family businesses and has been cited as a reason why the last operation in Issaquah was sold for residential development.
Mark Johnson, senior vice president of policy and government affairs for the Washington Retail Association, said 90 percent of the organization’s membership are small businesses, which means they have fewer than 50 employees. “This move would affect many of these small retailers. This business is their savings account. A small business has paid a variety of taxes for many, many years. “
Tommy Gantz, director of the Association of Washington Business Tax & Fiscal Policy, told the committee that a working group on state tax structures is still reviewing possible changes to tax legislation and that lawmakers should wait for the group to complete its work. “We are still in the middle of a pandemic and our economy is still very fragile. We don’t think this is the time to collect taxes. While it is tempting to use these taxes to increase the budget, more economic activity will generate additional income. “
While criticism of state tax legislation has been voiced for its reliance on sales tax and property tax, WPC government reform director Jason Mercier wrote in a blog post that the state “was consistently rated as relatively stable compared to other states. This is because Washington’s three main sources of taxes (sales, gross receipts and real estate) are among the least volatile taxes. “
He went on to write that “Washington’s current tax structure does not need to be blown up, but there are common sense reforms that can be passed to actually create tax breaks.”
No further measures are planned for HB 1456.