Estate-tax repeal may be on ballot

OLYMPIA — An initiative to repeal Washington's estate tax, backed by more than $630,000 in contributions from Seattle developer Martin Selig, appears headed to the November ballot.

Supporters estimate they turned in more 377,000 signatures Friday and say they'll file even more next week. They need 224,880 valid signatures of registered voters by July 7.

Initiative 920 pits two powerful forces against each other — educators who want more money for schools versus the wealthy who don't want their life's worth taxed when they die.

Several hundred million dollars in funding for public schools and colleges are at stake. The estate tax is expected to bring in more than $480 million during the next five years, all of which is dedicated to education.

The measure is opposed by Democratic leaders, the League of Education Voters, and the Washington Education Association, the state's largest teachers union, among others.

"You have a choice: Do you want an educated work force, do you want smaller class sizes ... or not? That's really what the issue is," said Gov. Christine Gregoire, who opposes the initiative.

On the other side, the Association of Washington Business, the National Federation of Independent Business and some prominent business leaders have lined up behind I-920. Selig, who's given the bulk of the $800,000 raised by initiative backers so far, could not be reached for comment.

Estate-tax repeal


Initiative 920 would eliminate Washington's estate tax

Supporters: Committee to Abolish Washington State Estate Tax has raised more than $800,000. More than $630,000 of that came from Martin Selig, a Seattle developer. Other major contributors include John Nordstrom, who contributed $50,000.

Opponents: Committee to Protect Our Children's Legacy has raised a little more than $15,000, including $10,000 from Bill Gates and $5,000 from the Service Employees International Union. The Washington Education Association has contributed more than $30,000 through in-kind contributions, including polling.

Source: State Public Disclosure Commission

Mollie Lesh, assistant state director for the National Federation of Independent Business chapter in Washington, said Selig's money "was critical in the sense of the timing."

The money helped accelerate signature gathering, she said. But she didn't know if the measure would have gotten enough signatures regardless. Initiative sponsor Dennis Falk would not discuss Selig's contributions.

Seattle Times Publisher Frank Blethen, a strong opponent of estate taxes, has not contributed to the I-920 campaign. He opposes estate taxes on the national and state levels because of their effect on family-owned businesses, said Times spokeswoman Jill Mackie. But "in terms of a contributor, he has no intention of being involved," she said.

I-920 supporters argue that the estate tax is a threat to small businesses, like the one owned by Charles Mott in Edmonds.

"If something happened to my wife and I today, my daughter and family would have to sell the business because of the tax liabilities. It's just that simple," said Mott, who runs Innovac, a duct-cleaning business with 35 employees.

Washington has had some form of an inheritance or an estate tax for more than 100 years. An inheritance tax hits beneficiaries after they've received their share of an estate. An estate tax targets assets before they're distributed to heirs.

Voters repealed the state inheritance tax by initiative in 1981. However, the measure allowed the state to collect an estate tax based on certain provisions in the federal tax code.

In 2005, the Washington Supreme Court ruled the state could no longer collect that tax because of changes in the federal law. The reprieve didn't last long. The court ruling also allowed the state to pass a new estate tax that didn't conflict with federal law. Within a few months, the Legislature approved a new tax.

The threshold for deaths occurring in 2006 and later is $2 million. Taxes only apply to the portion of the estate above $2 million in value. Family farms are exempt.

The state Department of Revenue projects that about 213 estates will pay the tax this year. About half of the estates are in the $2 million to $3 million range and are expected to pay an average of $40,000 in taxes. An estimated five estates worth $20 million or more will pay an average of nearly $8 million in taxes.

All the tax money goes to a special fund called the Education Legacy Account.

One of the biggest benefits of the move, Democratic leaders say, is that it secured funding for Initiative 728, which was aimed at reducing school class sizes. I-728, approved by 72 percent of voters in 2000, included no funding source.

Dedicating the money to education also created an instant constituency with clout — teachers and parents, and the groups that represent them.

"It would be a serious rollback on our commitment to education at the precise moment when we're all saying it matters more than ever," said George Scarola, with the League of Education Voters.

Scarola and other I-920 opponents argue that if the tax is repealed, the Legislature will have a hard time finding money to replace it.

Don Brunell, president of the Association of Washington Business, contends that education funding shouldn't be tied to the question of repealing the estate tax.

"We have to consider the estate tax separately from what we're funding," he said. "If there is a strong need and a compelling case to make more investment in education, our folks have stepped up in the past and I think they will in the future."

The key question is the effect the tax has on family-owned businesses, Brunell said.

"They feel they pay their B&O tax, they pay their property tax, they pay their sales tax and it's unfair for them to be charged at the time of death of a family member," he said. "More importantly for them, it forces them out of the continuity of their business. They'd end up having to liquidate part or all of it."

Gregoire said she hasn't seen any evidence the tax has put small companies out of business.

Andrew Garber: 360-943-9882