Why It Matters
Washington State will no longer hold the nation’s highest estate tax rate after Governor Bob Ferguson signed legislation reversing a 2025 tax increase. The move affects wealthy residents and family businesses throughout the Pacific Northwest, including those with cross-border economic ties to Idaho.
The policy reversal comes less than a year after Ferguson and Democratic lawmakers raised the top estate tax rate from 20% to 35% to address budget shortfalls. Critics had warned the dramatic increase would drive wealthy residents and businesses to neighboring states with lower tax burdens.
What Happened
Governor Ferguson signed Senate Bill 6347 on Tuesday, eliminating the estate tax rate increases enacted in 2025. The law restores the previous rate structure, with a top rate of 20% matching Hawaii’s rate.
The estate tax applies when property transfers to heirs after death. Under the 2025 law, estates valued at $9 million and above faced the 35% top rate after a $3 million exclusion. That rate took effect July 1, 2025, and will revert to 20% on July 1, 2026.
The legislation passed with bipartisan support in the final hours of this year’s session. The House approved it 85-8, and the Senate voted 35-10 in favor. All 18 votes against the measure came from Democrats.
By the Numbers
• Top estate tax rate increased from 20% to 35% in 2025
• New law restores 20% top rate, matching Hawaii
• Estates above $9 million affected after $3 million exclusion
• Legislation passed with 85-8 House vote, 35-10 Senate vote
• All 18 opposing votes came from Democratic lawmakers
The Debate
Supporters of the repeal argued the higher rates would push wealthy residents to relocate and force family businesses to sell assets to cover tax liability. Lawmakers who backed the reversal said Washington risked becoming an outlier that drove economic activity to other states.
Opponents countered that no evidence supports claims of wealthy residents fleeing due to estate taxes. They warned the rollback would reduce funding for public schools and colleges, which receive the bulk of estate tax revenue.
Ferguson acknowledged the unusual reversal Tuesday. “Sometimes we’ll do things that aren’t the best things,” the first-term governor said. “I think we have to always be open to adjusting.”
Zoom Out
The swift policy reversal highlights concerns about tax competition among Western states. Idaho maintains no estate tax, giving it a competitive advantage for attracting high-net-worth residents and family businesses from neighboring states.
Washington’s initial rate hike came as part of a broader package of tax increases to address a multibillion-dollar budget shortfall. The state now joins Hawaii at a 20% top rate, while several Mountain West states including Idaho impose no estate tax at all.
What’s Next
The restored rate structure takes effect July 1, 2026. State lawmakers will need to identify alternative revenue sources to replace the projected tax income from the higher rates when crafting future budgets.
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