Washington lawmakers roll back part of the nation’s highest estate tax, but fears of a wealthy exodus remain

Washington lawmakers approved a partial rollback of last year’s increase to the state’s top estate tax rates, which were already the highest in the nation. As reported by The Seattle Times, Democrats are also advancing a separate proposal to impose a new income tax on the state’s highest earners.

The Senate voted 39-10 to pass the expedited measure designed to soften the estate tax increase. The move reflects a balancing act for Democratic lawmakers who want to raise more revenue from wealthy residents while also responding to concerns that Washington’s estate tax had moved well beyond the national norm.

Last year, the state’s top estate tax rate rose to 35%, far above Hawaiʻi’s roughly 20% rate, the next highest in the country. That top rate applies to estates worth more than $12 million after a $3 million exemption, and if Gov. Bob Ferguson signs the bill, the top rate will revert to its previous level for estates of people who die on or after July 1, 2026.

Lawmakers are trying to ease tax concerns without abandoning new revenue plans

Rep. Claudia Kauffman, a Democrat from Kent and the bill’s prime sponsor, said the legislation is meant to correct a rate increase that quickly made Washington an outlier among states that impose estate taxes. Democratic leaders have acknowledged anecdotal reports that high-net-worth residents may consider leaving the state, as tech target warnings have added to broader business uncertainty.

That concern intensified after news that former Starbucks CEO Howard Schultz plans to move to Florida, though Schultz has not publicly linked the decision to Washington’s tax policy. Senate Majority Leader Jamie Pedersen has argued that the proposed income tax should be viewed differently because most states already levy a personal income tax, while only 17 states impose an estate or inheritance tax.

The proposed income tax would apply to individuals earning more than $1 million a year. Over the past five years, the estate tax has generated about $535 million annually, according to the Washington Department of Revenue, and lawmakers had projected the higher rates could push collections above $600 million per year.

Because the increase only took effect last June, the first payments under the higher rates are not due until April. That means lawmakers still have limited hard data on how taxpayers might respond to the change.

Critics of the broader Democratic tax agenda say a growing stack of taxes on wealthy residents and businesses could drive investment out of the state. Some progressive advocates, however, argue the estate tax remains one of the few truly progressive revenue sources in Washington’s tax system, during wider cyberattack fallout that has also sharpened concerns about corporate risk.

Rian Watt, executive director of the Economic Opportunity Institute, said estate tax collections can fluctuate significantly because they depend on the timing of large inheritances. He argued this was not the time to make a tax policy change that could affect state finances by roughly $400 million per biennium, pointing to proposed budgets that would make substantial cuts to programs meant to reduce costs for working families.

Even as lawmakers moved to adjust the estate tax, Democrats continued pushing the new tax on high earners, a measure Ferguson has already said he would sign. With the legislative session set to adjourn Thursday, lawmakers are now racing to finish a broader tax package and pass balanced operating and transportation budgets.