‘Repeal’ Of Estate Tax Could Be A One-Year Wonder
Despite all the hoopla, Congress has enacted what some are calling a one-year suspension of the estate tax as part of the $1.35 trillion tax reduction bill.
Under the legislation, the estate tax will be gradually reduced until Jan. 1, 2010, when it is scheduled to terminate. However, it will return exactly as it exists today on Jan. 1, 2011, unless Congress passes another bill extending the suspension or making it permanent.
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The question is whether a future Congress will do so.
Maria Berthoud, vice president of federal affairs for the Independent Insurance Agents of America, which strongly supports estate tax repeal, says the “sunset” provision in the legislation is “obviously a concern.”
However, Berthoud says, she truly believes Congress will ultimately act to make the cut permanent.
“We didnt work this hard to let a technicality completely change the direction of the bill,” she says.
But the life insurance industry questions whether a future Congress will be able to permanently extend the provision.
“If Congress cannot afford to repeal the estate tax today, why will Congress be able to afford it in 2010?” asks David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church,Va.
The projected budget surpluses that are expected to finance repeal, Winston says, may not materialize. The demands of future budgets, he says, could force Congress to push back repeal.
The message, Winston says, is that it would be a tragedy for individuals to depend on the legislation as a reason not to plan their estates.
Doug Bates, assistant vice president with the American Council of Life Insurers, Washington, adds that Congress will have to enact another tax bill, even if it is just to codify the suspension.
Bates notes that during the tax cut debate, some members of Congress wanted to create a “trigger” mechanism. Under this mechanism, he says, the tax cuts would take place so long as the economic conditions allowed them.
However, if the surpluses did not appear, he says, the trigger would stop the cuts.
The sunset provision, Bates says, is like an ad hoc trigger. While this is being called repeal, he says, it looks more like a suspension of the tax rather than repeal.
Indeed, he says, given the budget parameters, the sunset provision was the only way that Congress could afford the estate tax provision.
It will be up to a future Congress to revisit the issue, Bates says, and the question will be who is in control of the Congress and the White House at that time.
Bates adds that he does not think Congress will wait 10 years to revisit the issue.