Washington one of a few states still levying estate or inheritance taxes; tied with Hawaii for top tax rate.

The Tax Foundation map below shows just how few states continue to improve estate or inheritance taxes. Washington is among the few. And its 20% top rate further stands out.

Tax Foundation analyst Janelle Cammenga writes

In addition to the federal estate tax, with a top rate of 40 percent, some states levy an additional estate or inheritance tax. Twelve states and the District of Columbia impose estate taxes and six impose inheritance taxes. Maryland is the only state to impose both now that New Jersey has repealed its inheritance tax.

Hawaii and Washington State have the highest estate tax top rates in the nation at 20 percent. Washington has been at the top for a while, but Hawaii raised its previous top rate of 16 percent on January 1.

There’s some history.

In 1926, the federal government began offering a generous federal credit for state estate taxes, meaning taxpayers were paying the same amount in estate taxes whether or not their state levied the tax. This made estate taxes an attractive option for states. After the federal government fully phased out the state estate tax credit, some states stopped collecting estate taxes by default, as their provisions were directly linked with the federal credit, while others responded by repealing their tax legislatively.

Most states have been moving away from estate or inheritance taxes or have raised their exemption levels, as estate taxes without the federal exemption hurt a state’s competitiveness.

She concludes,

Estate and inheritance taxes are burdensome. They disincentivize business investment and can drive high-net-worth individuals out-of-state. They also yield estate planning and tax avoidance strategies that are inefficient, not only for affected taxpayers, but for the economy at large. The handful of states that still impose them should consider eliminating them or at least conforming to federal exemption levels.