In May 2001, Judge Collins Kilgore issued a historic ruling in the Lake View School District case – the state’s current school-funding formula is unfair to poorer school districts and provides inadequate funding for education. The case is expected to have major implications for education funding, other programs serving children and families, and tax equity and fairness.

This brief from the Arkansas State Fiscal Analysis Initiative (SFAI) is the sixth in a series devoted to Lake View. It examines the impact of recent federal changes on the Arkansas estate tax and the potential impacts on funding for education. Upcoming briefs will examine lotteries, early childhood financing and low-income tax issues. Major findings of this study include:

Because of its link to the federal estate tax, the Arkansas estate tax may be gradually phased out over the next three years and cease to exist by 2005.

The state revenue loss from the elimination of the federal estate tax will be $55 million over the next four years ($4.7 million in 2003 and gradually increasing to $23.4 million in 2006).

Elimination of the Arkansas estate tax would make the state and local tax system even more regressive and unfair to low- and middle-income families.

Arkansas could save its estate tax by “decoupling” or not conforming to changes in the federal estate tax. Sixteen states are currently decoupled from the federal estate tax.