Death and taxes? The two proverbial certainties of life come together in one ballot measure, a widely debated proposal to eliminate Washington’s estate tax.
Proponents call it a “death tax” and hammer away at their argument that the state unfairly and cruelly “makes death a taxable event.”
They say the tax bite dampens the economy by discouraging investment and accumulation of wealth here, possibly chasing businesses out of state.
But foes of repeal, including the world’s richest man, Microsoft billionaire Bill Gates, say the state has a long tradition of taxing large estates and that the revenue is badly needed for education.
The tax, they assert, is one of the few progressive taxes that eases the burden on the middle class and lets the wealthy repay society for schools, roads and other tax-supported services that supported their climb.
Initiative 920, the only tax-related issue on the statewide ballot this year, lets voters settle the debate. If approved, it would roll back the tax that lawmakers and Gov. Chris Gregoire imposed just last year.
Snohomish County school districts and community colleges know a repeal of the state estate tax would cut budgets, but they don’t know how much it would mean for them.
Estate tax money is used to reduce class sizes and help struggling students from kindergarten through high school. It also helps pay for 7,900 enrollment slots and financial aid at community colleges and universities.
Those programs would face competition from other pressing state needs, such as transportation, said Rep. Mike Sells, D-Everett, a retired teacher who served on the Central Washington University Board of Regents.
“It’s a huge impact,” Sells said.
Karen Guzak, a Snohomish businesswoman, also opposes I-920.
“When the public learns the facts about I-920, they come to understand that the havoc it would cause for thousands of kids struggling to get an adequate education far outweighs the small benefit it provides to those who are already at the very top of the income pyramid,” she said.
The concept of taxing estates isn’t new. Washington adopted an estate tax in 1901 and it stood until voters repealed it in 1981. That initiative permitted the state to keep a share of the federal tax payment.
The new “stand alone” tax, coupled with a 60-cent-a-pack increase in the cigarette tax, was earmarked to pay for politically popular programs to reduce class size in the elementary grades, boost college enrollment by more than 7,000 slots, and improve remedial programs for struggling students.
Lawmakers structured the tax so it applies to about 215 estates per year. Taxes range from 10 percent to 19 percent of the amount over the $2 million threshold, $4 million for a couple. Family farms and timber lands are exempt.
The estate tax is projected to bring in close to $100 million a year.
If the money went away, lawmakers would have to amend or abolish the voter-mandated class-size program or pay for it out of the general fund.
Gregoire and other opponents of I-920 say the beauty of the new estate tax is that a relatively few wealthy families provide a stable and predictable stream of money revenue for the education programs. She said it’s appropriate for the rich to repay society for some of the services that made their accumulation of wealth possible.
“If not the estate tax, then what?” Gregoire said.
Proponents of the rollback, including major business organizations, say the constitution makes education the “paramount duty” of the state and that lawmakers should give it first call on general taxes instead of holding the class-size program hostage to what they call an unfair tax.
Both sides raised more than $1 million. Proponents include anti-tax groups, Seattle real estate magnate Martin Selig, and newspaper owners who fear loss of family-owned media.
Opponents include education forces and political heavy-hitters, including the governor, Gates and his father, Bill Gates Sr. The Microsoft mogul, who intends to give away much of his wealth, has contributed $160,000 to the No on 920 campaign.
Supporters of the repeal say the tax brings in relatively small sums while straining small business owners and perhaps driving businesses out of state.
“We feel the estate tax hurts family businesses of all sizes,” said Don Brunell, president of the Association of Washington Business. “Most families that own small businesses don’t have cash on hand to pay the tax and even if they stretch out the payment, it puts a strain, particularly when they’re the first generation passing a startup business on to the next generation.”
The opposition, meanwhile, says it would be unwise for voters to eliminate a tax that only a few multimillionaires pay, and shift the burden for the education programs over to the middle class.
“The reality is that more than 99.5 percent of the residents of Washington state will never pay this tax,” said spokesman Sandeep Kaushik. “It only applies to the transfer of multimillion-dollar estates – 213 out of 47,000 estates this year. Of the 460,000 taxpaying businesses in Washington, the state estimates that only 35 will owe anything in estate taxes this year.
Gates Sr. said the family, including his son, are strong supporters of the state and federal estate tax. Gates Sr. has written a book on the subject and has lobbied Congress and the Legislature.
“If the state tax went away, it would be murder of the only progressive tax we have and that would be most unfortunate,” the senior Gates said. “Those of us eligible for this tax ought to be grateful, rather than angry.”
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