Close Close

Financial Planning > Tax Planning > Tax Reform

Estate Tax Reform Starting To Gain Momentum

Your article was successfully shared with the contacts you provided.



There appears to be growing support, even among congressional advocates of estate tax repeal, for permanent reform as opposed to repeal in the wake of growing budget deficits, reform advocates say.

Chuck Collins, co-founder of the Boston-based group Responsible Wealth, says many members of Congress are telling the pro-reform group that they are willing to accept reform. The next question, he says, is what kind of reform.

Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va., says AALU, the National Association of Insurance and Financial Advisors, as well as groups like Responsible Wealth, have dedicated considerable efforts in promoting the merits of estate tax reform.

“It appears that estate tax reform is making some headway in connection with large current and future projected federal budget deficits,” he says.

Jack Dolan, a spokesman for the Washington-based American Council of Life Insurers, agrees. “It appears that increasing concern about the budget and federal deficits is driving those who support repeal to start thinking about permanent reform,” he says.

Indeed, Plybon notes that Senate Budget Committee Chairman Don Nickles, R-Okla., a supporter of repeal, has reportedly floated an estate tax reform proposal.

The Nickles proposal reportedly would increase the estate tax exemption to $3.5 million for individuals and $7 million for married couples. In addition, it would gradually reduce the estate tax rate to 15% to 20%, the same as for capital gains.

Similarly, Senate Finance Committee Chairman Charles Grassley, R-Iowa, has reportedly discussed an exemption of $5 million for individuals.

The current exemption is $1.5 million for individuals and $3 million for couples.

Plybon says these proposals are not consistent with the level of reform AALU believes is affordable and sustainable. An individual exemption of $2.5 million, he says, would shield more than 99% of Americans from estate tax liability.

“Still,” he says, “AALU sees recent developments as signs of progress by perhaps beginning to move the debate from estate tax reform vs. estate tax repeal to what level of estate tax reform is affordable.”

In addition, an attempt by Nickles to accelerate the current phase-out of the estate tax appears to have been sidetracked.

Currently, under tax legislation passed in May 2001, the estate tax will be phased out in 2010 for one year. Then, it will return as it existed before the 2001 bill was enacted because of a sunset provision in that legislation.

In the Budget Committees fiscal year 2005 reconciliation legislation, the phase-out would be accelerated to 2009 and thus be in effect for 2 years.

However, the Senate may have sidetracked that effort when it approved a budget rule that requires any tax cuts to be offset by new revenues unless the cut garners 60 votes. The acceleration of the phase-out was scored as costing $3 billion. Thus, supporters of accelerating the phase-out would have to find $3 billion elsewhere to pay for it or find 60 votes.

Former Federal Reserve Board Chairman Paul Volcker criticizes efforts to repeal the estate tax. He spoke at a press briefing sponsored by Responsible Wealth.

The estate tax, he says, must be looked at in the context of all the other taxes, especially considering the current budget situation.

If the estate tax is repealed, he asks, what will replace it as a revenue source? “Do we like other taxes better?”

The question, he says, is which taxes are the least offensive.

The estate tax, Volcker notes, has been in effect for more than 100 years and he does not remember a time it has come under this type of challenge.

Volcker adds that the current uncertainty surrounding the estate tax has made estate planning extremely frustrating. The situation, he said, is “intolerably ridiculous.”

William Gates Sr., co-chairman of the Bill and Melinda Gates Foundation, says that currently, there is a legislative stalemate on the estate tax. While the proponents of repeal do not have sufficient votes to prevail, he says, neither do the proponents of reform.

But the pressure of deficits, he says, may be changing the atmosphere.

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 12, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.