Why It Matters
Washington state is reversing course on one of the nation’s most aggressive estate tax increases, a move that could help the state retain wealthy residents and family-owned businesses. Governor Bob Ferguson signed legislation this week to undo last year’s controversial decision to raise the state’s top estate tax rate to 35%—the highest in the nation—restoring it to 20% by July 1, 2026. The reversal affects how much money Washington families must pay when transferring property to heirs, potentially saving some estates hundreds of thousands of dollars.
What Happened
Ferguson signed Senate Bill 6347 on Tuesday, formally undoing an estate tax increase passed just months earlier. In 2025, the Democratic governor and legislature raised the top estate tax rate from 20% to 35% for estates valued above $9 million (after a $3 million exclusion) to help close a multibillion-dollar state budget gap. The new rates took effect July 1, 2025.
The legislation passed overwhelmingly in both chambers—85-8 in the House and 35-10 in the Senate—with all 18 opposing votes cast by Democrats. Ferguson acknowledged the swift reversal during remarks to the Washington State Standard, saying “sometimes we’ll do things that aren’t the best things” and that he appreciated lawmakers “taking a look at what happened last year and seeing if there are things that need to be undone.”
The move ends Washington’s brief tenure as the state with the nation’s highest estate tax rate. Once the new law takes effect, Washington will tie with Hawaii at a 20% top rate, significantly below the rate approved just months prior.
By The Numbers
- 35%: The peak estate tax rate approved in 2025, the highest in the nation at the time
- 20%: The restored top rate, matching Hawaii and eliminating Washington’s outlier status
- $9 million: The estate value threshold (after $3 million exclusion) triggering the top rate
- $3 million: The exclusion amount before estate taxes apply
- 85-8, 35-10: House and Senate margins supporting the reversal
The Estate Tax Debate
Last year’s rate increase sparked significant debate among lawmakers and economists about potential consequences. Supporters of the reversal warned that Washington’s unusually high rate could incentivize wealthy residents to relocate to lower-tax states, potentially costing the state revenue and economic activity. Some argued that family businesses might be forced to sell assets to cover estate tax liability, fragmenting long-standing operations.
Opponents of the reversal countered that no concrete evidence demonstrates wealthy individuals flee states solely based on estate tax rates. They argued that abandoning higher rates would reduce funding for public schools and colleges, the primary recipients of estate tax revenue in Washington.
Ferguson’s comments suggested political pragmatism drove the decision. The governor acknowledged the policy shift without fully endorsing either argument, instead framing it as a necessary adjustment based on legislative review. The swift reversal—approximately one year after passage—underscores the political complexity of major tax changes, even within a single-party dominant legislature.
Zoom Out: Regional and National Context
Washington’s estate tax structure has become a flashpoint in broader national debates over wealth taxation. The state’s economy depends heavily on high-net-worth individuals, particularly in the Seattle tech sector and agricultural regions. The Pacific Northwest faces increasing competition with lower-tax jurisdictions like Florida and Texas to retain wealthy residents and their capital.
The reversal reflects a growing consensus among policymakers—even liberal-leaning ones—that excessively high marginal tax rates can backfire economically. Several states have eliminated or significantly reduced estate taxes in recent years, citing competitiveness concerns.
What’s Next
Senate Bill 6347 will take effect July 1, 2026, restoring the previous rate structure. No further legislative action is expected on the estate tax in the immediate term, though the quick reversal suggests the issue remains sensitive for Washington policymakers navigating budget pressures and economic competitiveness concerns simultaneously.
**CATEGORY:** National
**TAGS:** Tax Policy, Estate Tax, Washington State, Budget, Legislation
About the Author
