THE OLYMPIAN

Sept. 22, 2006

I-920 backers: Estate tax unfair to business

BY BRAD SHANNON

Washington's estate tax puts an unfair, difficult burden on smaller businesses to help pay for improvements to the state public school system, opponents argued Thursday.

The activists, who included the National Federation of Independent Business and owners of two Olympia-based family businesses, made their pitch in favor of Initiative 920 to The Olympian's Editorial Board.

I-920 would repeal an estate tax adopted by the Legislature in 2005 to replace a decades-old one rendered unconstitutional after federal tax changes.

The tax affects about 210 rich families' estates this year, raising an estimated $100 million that is dedicated for K-12 class-size reductions, enrichment programs, new college enrollment slots and student financial aid.

The No on I-920 campaign also made its arguments in favor of retaining the estate tax. The supporters said it is one of the state's few taxes that weigh more heavily on those well-to-do than on the poor, and repeal would set off a scramble for new dollars.

But "making death a taxable event is wrong," said Carolyn Logue, state leader for the NFIB, which joined forces with the Association of Washington Business to form a campaign committee after I-920 qualified for the ballot. "The reality is it is a tax on people unable to buy their way out of a tax."

Logue claimed that super-rich individuals such as Bill Gates Sr. and his Microsoft-founding son, who are donors to the No on I-920 campaign, can buy their way out of the estate tax through costly legal and insurance maneuvers not always available to less-rich millionaires.

Dean Eklund, owner of the Lew Rents stores in Olympia, said the tax creates uncertainties for a small family held business such as his, which started as a hardware store his grandfather bought in 1928. An exemption of $2 million per spouse is not high once a home is added to the estate, and costs for appraisal, legal and accounting advice and insurance can be costly, Eklund contended.

Dean Hartman of Capital Business Machines also said the tax poses a problem, although he and Eklund both acknowledged their businesses have survived previous transfers from generation to generation despite the estate tax. And Logue, who claimed the estate tax puts businesses and jobs in peril, could not identify a single business that folded or had to be sold because its inheriting owners could not pay the tax.

Supporters of the tax pointed out, in contrast, that Washington has had some form of estate tax since 1901. The present tax is one of few remaining that is progressive, said Barbara Flye, executive director of the Washington Tax Fairness Coalition, which supports keeping the tax.

Flye said that state Department of Revenue figures show that only 210 estates out of 47,000 would be subject to the estate tax this year, and those liable for the tax would pay modest amounts.

The tax ranges from 10 percent to 19 percent on amounts above certain thresholds, and family owned farms are exempted. Spouses also have unlimited exemptions when passing wealth to each other, and some estate costs can be deducted from the taxable amount.

As a result, a $3 million estate passed on to children by a single person would be taxed on $1 million, yielding a total tax of $100,000 at most.

State figures show 105 estates are expected to fall in the $2 million to $3 million range this year, each paying on average $40,000. That works out to a tax rate of 1.5 percent on the entire estate - an amount that is separate and on top of anything owed under the federal estate tax, the Revenue Department Web site says.

And, Revenue spokesmen say, closely held businesses facing liquidation because of the tax can qualify for installment payments over 15 years.

Logue said that spreading the tax out over time doesn't give comfort to family owned businesses that struggle to make ends meet and must pay unemployment and worker compensation taxes - without also paying a tax debt for 15 years.

Literature put out by the Yes on I-920 group says estates can be subject to nearly 70 percent taxation, but that includes a federal estate tax that could be repealed or reduced in Congress.

Bill supporters ahead in money

So far, proponents of tax repeal have outraised those who want to keep the tax. I-920 sponsor Dennis Falk of Fox Island has reported raising $1.16 million for his Committee to Abolish the Washington State Estate Tax, according to Public Disclosure Commission data. Of that, $807,000 came from Seattle developer Martin Selig and $75,000 from John N. Nordstrom of the department store family.

Falk, who has ties to the conservative John Birch Society, has spent $790,000 alone on signature gatherers who qualified the measure for the ballot.

Carolyn Logue's committee, National Federation of Independent Business, which includes the Association of Washington Business, formed separately, claiming they could better target a message for the benefit of family owned businesses. Her group has raised $102,605, including $25,000 from Tumwater-based Port Blakely Tree Farms, $20,000 from Pioneer Newspaper Service in Seattle and $10,000 from Washington, D.C.-based NFIB. She estimated they would try to raise $1 million.

Opponents are planning for a $3 million campaign, Flye said.

Thus far, No on 920 has raised $908,207, including $500,000 from the Washington, D.C.-based National Education Association, $105,000 cash and more than $40,000 of in-kind help from the Washington Education Association, $160,000 from William H. Gates of Microsoft, and $15,000 from Gates' father, William Gates Sr.