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January 4, 2010 Monday 04:42 PM EST
US Estate Tax on Hiatus; Insurer Groups Crave Consistency, Permanent Solution
Jesse A Hamilton
As of the start of 2010, the estate tax has vanished — for now. Current U.S. tax law has the estate tax temporarily repealed until 2011. Unless Congress enacts a new law, those dying this year will pass tax-free assets to their heirs.
This marks the final year of a ratcheting down of estate taxes begun during the Bush administration. The 2011 codes would return to those before President George W. Bush’s tax cuts, going back to taxing estates worth more than $1 million at a top marginal tax rate of 55%. The 2009 level had been much less aggressive, affecting estates valued above $3.5 million and taxing them at 45%.
Groups such as the National Association of Insurance and Financial Advisors are hoping Congress gets on with establishing a long-term system. “I’m surprised, frankly, that the Congress allowed the estate tax to expire for this year,” said Michael L. Kerley, NAIFA’s senior vice president for federal affairs. “But I also would not be surprised if Congress re-enacts it — or rather, reinstates — the estate tax to apply to at least a portion of 2010.”
As he suggests, this year’s repeal may not last. Congress has been working on changes to the code — even considering the potential of backdating to Jan. 1. The House of Representatives recently passed a bill — the “Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act” — that freezes the tax at 2009 levels into the future (BestWire, Dec. 7, 2009). The bill still awaits Senate action.
“Some of our members are in the camp where they don’t believe there should be any estate tax,” Kerley said. “Others recognize the reality that Congress is loath to give up the revenue.” His group hopes a middle ground can be found. “We just think that the Congress needs to come to grips and develop a policy that can be sustained over a long period of time, because that’s what promotes planning. That’s what real people need.”
The estate tax — bolstered also by restrictions on giving financial gifts during life — has historically drawn about 1% to 2% of federal revenue each year. In the past three decades, according to the Congressional Budget Office, the tax has affected fewer than one in 50 estates, and as the tax eased under the administration of Bush, it shrank to fewer than one in 100. The CBO recently released a new study of the tax, measuring the potential effects of different proposals to change it. Ridding the code of an estate tax altogether, the CBO said, would mean an additional $502 billion hit to the federal deficit in its first decade (BestWire, Dec. 21, 2009).
The American Council of Life Insurers is also looking for consistency in estate-tax policy, said spokesman Whit Cornman. The group favors a system “that would ensure long-term tax-planning certainty for all Americans.”
Tom Korb, vice president for policy at the Association for Advanced Life Underwriting, said his group represents people helping clients devise 20-, 30- and 40-year financial plans. “You really do need a predictable playing field,” he said. “We’d like to see this situation cleared up permanently. … The uncertainty is harmful.”
Korb said the AALU thinks a 45% tax for estates exceeding some minimum level between $2.5 million and $3.5 million — similar to the 2009 system — would be sustainable. But though Congress seems to be considering such a thing, “the exact timing and how that all works is not clear.” The lawmakers have been bogged down in health care reform debate, he pointed out. When they do get back to estate tax law, Korb predicted: “It still seems like the probability is that there will be a retroactive fix.”
(Jesse A. Hamilton, Washington bureau manager: Jesse.Hamilton@ambest.com)
January 5, 2010