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House Kills Estate Tax

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Vote seen as largely symbolic since Senate remains iffy

By Arthur D. Postal


In a move seen as “largely symbolic,” the House last week voted largely along the political divide to eliminate for all time federal estate taxes by 2010 and beyond.

However, as stated by officials of the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors, the votes appear lacking in the Senate to enact the legislation, making the House vote “symbolic.”

Current law calls for eliminating the estate tax completely in 2010 but reinstating it at its 2001 level a year later.

This year, estates worth up to $1.5 million for an individual or $3 million for a couple owe no tax. The top tax rate stands at 47%. Just before its complete repeal, in 2009, the exemption rises to $3.5 million for an individual or $7 million for a couple. The tax rate falls to 45%.

Republicans hailed the 272-162 vote, but Democrats said it would reward the richest families at the cost of deeper federal deficits.

To understand how the issue divides the political landscape, life insurance agents criticized the legislation, while officials of the Independent Insurance Agents and Brokers of America supported the initiative, calling it “a great step forward.”

The life industry supports a high threshold level that eliminates the tax on small businesses such as insurance agencies and farmers but does not allow the very rich to escape.

That perspective is represented by legislation introduced by Rep. Earl Pomeroy, D-N.D., a former North Dakota insurance commissioner. It was voted down by the House.

“The House of Representatives passed up a golden opportunity to provide real estate tax relief for small business owners and family farmers today,” Pomeroy said. “My amendment would have immediately ended the estate tax for 99.7% of all Americans, providing certainty in estate planning for tens of thousands across the country.”

Pomeroys legislation raises the estate tax exemption to $3 million ($6 million per couple) immediately and to $3.5 million ($7 million per couple) in 2009.

Jack Dolan, a spokesman for the American Council for Life Insurers, said the Pomeroy legislation constitutes a better template than the House action.

“We dont think repeal of the estate tax is the way to go,” Dolan said. “Repeal legislation eliminates the step up in basis, which will cause accounting and bookkeeping headaches for many people who thought they would be free of taxes by congressional action on the topic. Our hope is that Congress ultimately makes a change that will provide families clear and reliable estate tax rules to follow so they can plan ahead with confidence.”

Dolan said that from the perspective of the life industry, “We think an increase in the estate tax exemption could address the estate tax planning concerns of more than 99% of people that could be affected by estate taxes.”

The legislation now moves on to the Senate, where Sens. Jon Kyl, R-Ariz., and Bill Nelson, D-Fla., have introduced a companion bill, S. 420, designed to serve as a working document for negotiations needed to yield the 60 votes in the Senate to secure passage.

In their statement, officials of AALU and NAIFA said that while talks are at their “preliminary stages, we do know that key moderate Republican senators have been in meetings on the subject, and momentum may be gathering behind this effort.

“A significant question,” AALU and NAIFA officials said, “is what level of reform is sustainable over the long term. Families need to able to plan their estates with certainty. AALU and NAIFA members help them create complex, multiple decade plans to make sure that assets are preserved, that they go to intended beneficiaries, and that businesses remain viable and profitable into the next generation. We are strongly supportive of permanent estate tax reform. For example, reform at a $2.5 million level would eliminate any tax burden for 99.6% of Americans and reduce the burden on the remaining few. Reform at this level is still be expensive but would save more than half a trillion dollars over repeal and is far more sustainable over the long term.”

Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 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.


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