Washington State is forgoing billions in estate tax revenue with family foundation loophole.
Washington State stood out in the 2024 election. Kamala Harris gained over 57% of the vote, keeping Donald Trump under 40%. We also elected Democrats to all statewide offices and increased Democratic majorities in the state legislature. We defeated three initiatives which would have repealed the capital gains tax on the super wealthy, the carbon pricing on corporate polluters, and jeopardized Washington’s innovative long-term care program.
This is not a mandate to congratulate ourselves and rest on our laurels. The electorate expects and demands much more than that. Immediately after the election the policy discussion focused on a projected four-year budget gap of $10 to $12 billion, and Governor Jay Inslee issued an order for state agencies to cut back on spending. Department of Children Youth and Families Secretary Ross Hunter proposed completely defunding the birth to three-year-old Early Childhood Education and Assistance Program, an essential child care program for poor kids.
This is not the way to build on political victories. This only undermines the strength which we gained from the elections.
So what should we do?
First, we have to meet the state’s constitutional paramount duty to educate all children. The state has failed this duty, in K-12 education, in early child education, and in higher education.
Second, we have to protect and expand Apple Health, so that working class people are assured that they will have health care that doesn’t drive them into debt.
Third, we have to build on those programs and laws which benefit all of us – that is, universal programs with universal benefits and universal regulations which lift all of us up.
There is a strong correlation between those states that voted for Harris and those that have put into law paid family and medical leave, minimum wage increases, paid sick days, and the right to abortion, as well as those states in which union membership is the highest.
Indeed, Washington stands out. We have the best minimum wage in the country, paid family and medical leave, paid sick days, and the right to abortion is embedded into law. Let’s build on these policies, so that we provide economic security and educational advancement to all residents in our state.
We will get resistance from Republican (and some Democratic) state legislators. In some cases, we may have to resort to initiatives to move policy forward. But without policy advancements that provide economic security, health coverage, and educational advancement, we will fail in the future.
All this takes money, and this is where the state legislature may balk. Yet, our current tax system embeds the privileges and wealth and inequities of the private market. It ensures the intergenerational transfer of wealth and privilege to the uber-affluent few and a simultaneous transfer of stagnation, poverty, and undermining of middle class opportunity for the vast majority of our residents. To remedy this and realize the revenue which will enable economic and educational opportunity and good health coverage for all of us, the legislature must find the political will to stand up to multimillionaires and billionaires.
The current estate tax showcases the privilege of the very wealthy. When Paul Allen died, his estate exceeded $20 billion. Of that, with our 20% estate tax, $4 billion should have gone to the state of Washington for education and child care. But the state only received one tenth of this amount, thanks to a provision in the estate tax that excuses taxation of any funds that go into family foundations.
Last year Representative Chipalo Street introduced a bill that would narrow this family foundation loophole. For estates with less than $100 million, 75% of estate contributions to family foundations would be exempt from taxation. For estates with more than $100 million, 25% of estate contributions to family foundation would be exempt from taxation. So if you have an estate of $10 billion, over $2.5 billion could still go tax-free to your family foundation.
The public has no control over family foundations. They could invest in more buildings and staff, rocket science research, space exploration, or purchasing modern art.
The Paul Allen Foundation sends millions of dollars out of our state and country to support whatever they want. The excise tax rate for these family foundations’ net investment income is 1.39%. On occasion these foundations give money to public agencies. In so doing, they put their hand on decision-making in these public agencies. There is no connection to the greater good for our commonwealth. Indeed, the connections serve to diminish democratic governance.
The very legal definition of family foundations ensures that they remain autocratic and unaccountable to the public. By law, these foundations must have had the deceased or a family member serving on its governing board in the past and must have a family member or employee currently serving on the governing board.
And yet, some legislators refer to these family foundations as “our friends.” Whether it is Paul Allen, Nick Hanauer, Steve and Connie Ballmer, or Bill Gates, Jr., they are not our friends. They fly around in private jets, completely isolated from the realities of middle class and working class economic stress.
It is time the legislature shrink this loophole for the uber-wealthy. What could have happened to that lost $4 billion? We could have actually paid the 38,000 child care teachers in our state a living wage and guaranteed health benefits. Instead, the European Molecular Biology Laboratory, and several other research institutes in Germany, Belgium, England and Australia received millions from the Allen Foundation. So who are our friends?
John Burbank (Guest Contributor)
John Burbank is the founder and retired executive director of the Economic Opportunity Institute in Seattle.