Spin Control

Panel passes estate tax change

OLYMPIA -- A bill that would fix what some believe is a loophole in the estate tax created by a state Supreme Court ruling passed a House committee Wednesday. Supporters said it would provide fairness to the state tax system by requiring the wealthiest residents to help pay for education, while opponents denounced it as "picking at the carcasses of dead people."

On an 8-3 vote, the House Finance Committee approved a bill that would retroactively apply the state's estate tax on property for high-income residents who put their property in a type of trust known as a qualified terminal interest property or QTIP trust.

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That arrangement allows taxes to be deferred when the first spouse dies, making it collectable when the remaining spouse dies.  A state Supreme Court ruling last year said the state was improperly applying the estate tax retroactively to trusts in which the first spouse died before the estate tax law was revised in 2005 and the second spouse died after it went into effect. The state faces refunds totalling more than $160 million as a result of what's commonly known as the Bracken decision.

Rep. Timm Ormsby, D-Spokane, said the bill was a way to provide equity between married couples and single people through a system that has been approved by both the Legislature, which passed it in 2005, and voters who approved a referendum on that legislation later that year. The law requires the money collected from the estate  tax be spent on education.

Members of the state Attorney General's staff said the proposal does fix what some refer to as a loophole in estate tax law created by the Bracken decision and apply the tax retroactively, even to trusts in which one spouse died before 2005. Kathryn Leathers of the state Bar Association, however, said that's not the case -- it could only apply it to cases in which the first spouse died after the law passed in 2005.

"Doing that is unconstitutional," Leathers said about efforts to reach back to couples where one spouse died before the law passed.

The hearing represented one of the few substantive public sessions of the 17-day old special session and lined up familiar allies and adversaries on the bill.

Unions and progressive groups supported it. Jeff Johnson of the state Labor Council said Washington's estate tax was reasonable and helps "reduce the inequalities" between the very rich and the rest of the state. Nick Federici of the Our Economic Future coaliltion said it was one of the few taxes in the state that doesn't fall disproportionately on the poor and told legislators "no matter what you do, you're going to get sued."

Business groups and anti-tax activists opposed the bill. Amber Carter of the Association of Washington Business said paying for schools "based on death is poor public policy." Patrick Connor of the National Federation of Independent Business argued the Supreme Court didn't create a loophole, it discovered "a misapplication of the law by a state agency."

Tim Eyman, sponsor of numerous anti-tax initiatives, denounced the estate tax as "picking at the carcasses of dead people."

But the state has had some form of estate tax since 1901, Rep. Larry Springer, D-Kirkland, said. The tax usually has been tied to the federal estate tax but it was never intended to be applied differently to married people and single people, he said.

Eyman said said legislators would be ignoring a clear message from last year's voters against higher taxes by passing this bill and others that have been proposed, creating a long November ballot and a thick voter's pamphlet. Committee Chairman Reuven Carlyle, D-Seattle, told Eyman to stick to the the estate tax bill, and when he wouldn't, Carlyle turned off Eyman's microphone and called on the next witness.

Rep. Ed Orcutt, R-Kalama, later gave Eyman a chance to finish his prepared speech, asking him if the proposed emergency clause would keep voters from expressing their will in November. "That's my final point," Eyman replied. 

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Jim Camden
Jim Camden is the Olympia bureau chief, covering the Legislature and state government. He also is a political columnist and blogger for Spin Control.

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