The House Finance Committee voted (8 to 3) along party lines this morning to close a loophole in Washington’s estate tax that was created by a Supreme Court ruling in the Bracken case last year. Lawmakers say the ruling left married couples’ estates untaxed, while single persons’ estates would be subject to the tax on estates valued at more than $2 million.
House Bill 2064 now goes to the House floor for a vote on Thursday – having to go through the process a second time because it did not pass the Senate in the regular legislative session that ended in late April.
The new proposal – if acted on quickly – could limit the number of tax refunds the state Department of Revenue must pay out to as little as $6 million, according to the committee chairman, Rep. Reuven Carlyle, D-Seattle. Revenue has said it intends to start paying out about refunds, and Carlyle said doing nothing could swell the refund costs to $138 million – all from K-12 public school funding.
“House Democrats are not going to let that happen,” Carlyle said in an interview.
A controversial piece of the estate tax for GOP members – including Republican Rep. J.T. Wilcox of Yelm – is that the tax measure would be retroactive to 2005 when the Legislature approved its own estate tax independent of the federal tax. It would affect estates in which one married partner died prior to enactment of the Washington estate tax.
The Finance hearing was carried on TVW here:
Lawmakers are in their 17th day of a 30-day special session. Raising revenue is a key position of Democrats, who approved the estate tax bill and a tax measure worth about $900 million last month during the regular legislative session as a piece of their proposal to put $1.3 billion of new money into K-12 schools.
Republicans leading the Senate have voiced support for no tax increases and it’s unclear if they’ll agree to the estate tax as part of slow-going budget talks.
“It’s one of the things that’s been proposed,” Senate Republican Leader Mark Schoesler of Ritzville said of the estate tax bill to close the court’s unintended loophole. “The final (budget) package is not there yet.”
Schoesler declined to discuss the status of budget talks, citing agreements with other parties. Schoesler said the Senate also has not yet discussed how soon it will convene.
UPDATE 1: Two Republican senators, Andy Hill of Redmond and John Braun of Chehalis, just introduced an estate tax bill that affects estates were the parties died on or after May 17, 2005. Their Senate Bill 5939 would raise the exemption from $2 million to $4 million by 2016 and later tie the size of taxable estate to whatever the federal estate tax level is.
UPDATE 2: Carlyle said after reviewing two Senate Republican estate-tax bills that they are proposing to raise the exemption to $5 million eventually and also reduce rates. He added:
“The House passed a responsible bill to maintain funding for 1 million school kids by keeping the estate tax exactly as the voters in every county statewide intended [in 2005]. The Senate is proposing to effectively eliminate Washington’s estate tax and unnecessarily refund hundreds of millions of dollars to a small number of our wealthiest residents instead of investing in public education.’’
Gov. Jay Inslee used the House Finance vote as a chance to urge lawmakers to pick up their pace if they want to finish work by June 11, the 30th day of special session. Inslee said in a statement:
“Today’s House Finance Committee vote is good progress towards addressing one of the key budget issues known as the Bracken decision and I expect the Legislature to reach agreement on that in the next couple of days. However, there is still much that remains to be done and time is running out. There are less than two weeks left. If budget negotiators are able to reach key compromise agreements in the next week, we will be able to finish on time. But negotiators need to pick up the pace to make it happen.”
During the bill’s hearing, assistant attorney general Cam Comfort argued that the retroactive application of the tax would pass legal tests, and he pointed out the bill would shield the state from an unexpected revenue loss.
But Kathryn Leathers of the tax section of the Washington State Bar Association argued otherwise. Leathers said the bar had no objection to having the tax take effect prospectively but that a retroactive application to couples whose estates were drawn up before 2005 would be unconstitutional.
Because lawmakers have not acted yet, the state Department of Revenue says it is under pressure of lower court rulings to start handing out refunds. The agency plans to pay out about 70 refunds by the end of June – worth up to $50 million, the Seattle Times
reports in a post from Andrew Garber.
The estate-tax bill that passed out of the committee differs only slightly from an earlier version (HB 1920), which the House approved last month on a party line vote of 8 to 5. The new version includes an emergency clause that would prevent a referendum challenge – but not an initiative challenge at the ballot box in November. (Referenda require half as many votes as initiatives and allow more time in July to collect signatures.)
Rep. Drew Hansen, D-Bainbridge Island, also inserted an amendment that would protect personal representatives in estate matters from becoming liable for taxes owed.
Republicans were opposed to the measure in committee, and all three GOP members present – including Reps. Wilcox, Ed Orcutt of Kalama and Brandon Vick of Felida – voted against the bill, which Democratic Rep. Timm Orsmby of Spokane has sponsored. All eight Democrats on the committee voted in favor.
Wilcox said Republican amendments may be in the works for the floor vote.
In testimony before the vote, the typical interest groups lined up on opposite sides of the tax question. Lobbyists for the Washington Education Association, Washington State Labor Council, Our Economic Future Coalition, Planned Parenthood and other social advocacy groups supported the tax to go for K-12 schools.
The Association of Washington Business, National Federation of Independent Business, Washington Retail Association, Washington State Bar Association, and professional initiative promoter Tim Eyman all spoke against the bill. Amber Carter of the AWB said that “funding education based on a death is poor public policy.’’
Eyman went on about how many times voters will be casting advisory ballots on Democrats’ tax proposals in November.
After Carlyle asked him not to stray from the bill itself and he kept talking about advisory ballots, Carlyle turned off Eyman’s microphone and ended his testimony.
Eyman said later he counts 15 different tax bills in the Democrats’ various tax proposals and estimates they are worth $7 billion over a decade.