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Estate Tax Row Stalls Pension Bill

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Pension bill negotiations ended Thursday night as a result of a dispute about whether the package that includes the pension bill should include a provision that would cut estate taxes.

Members of a House-Senate conference committee had hoped they were close to resolving differences between the House version of the pension bill, H.R. 2830, and the Senate version, S. 1783.

Many Democrats and some Republicans have argued that cutting estate taxes would hurt federal tax revenue and that the controversy ought to be kept out of the pension bill package.

House Republican leaders and Senate Majority Leader William Frist, R-Tenn., responded earlier this week by agreeing to keep the estate tax issue out of the pension bill package. But pension bill talks foundered after several Republicans on the conference committee continued to insist on including an estate tax provision.

Sen. Edward Kennedy, D-Mass., a conferee, issued a statement blaming disagreements between Republicans for the delays in completing work on the pension bill.

“Republican tax politics got in the way of progress for the retirement security of tens of millions Americans,” Kennedy says in the statement.

“The failure of negotiators to reach a deal means that work on the pension measure, as well as the tax provisions, is likely on hold until after the August recess,” Tim Vandenberg, an analyst at Washington Analysis, writes in a note commenting on the state of pension bill negotiations.

The core provisions of the pension bill are supposed to shore up the finances of defined benefit pension plans and their guarantor, the Pension Benefit Guaranty Corp.

Other provisions of interest to life insurers could set sales standards for corporate-owned life insurance, encourage employers to enroll employees in 401(k) plans automatically and make it easier for investment advisors to offer financial advice to 401(k) plan members.

Another provision might encourage insurers to sell annuities with long term care riders.

Groups such as the American Council of Life Insurers, Washington, and the National Association of Insurance and Financial Advisors, Falls Church, Va., have been supporting work on the pension bill but expressing concern about efforts to add estate tax cut provisions that might hurt federal tax revenue.

Industry executives also have pointed out that a broad cut in estate taxes could hurt life insurers’ sales of estate planning products and services.

Insurance groups have been supporting efforts to pass a relatively modest cut in estate taxes.

Expanding the pension bill package by adding “an unsustainable estate tax reform package would, in our view, be a big mistake,” says Michael Kerley, a senior vice president at NAIFA.

“We will continue to press for the positive aspects of the pension package, as well as a reasonable and sustainable estate tax reform plan,” Kerley says.

In addition to debating whether to add an estate tax cut to the pension bill package, lawmakers have been debating whether to keep a provision that would extend a package of popular business tax incentives, such as research and development tax credits, that are often referred to as “tax extenders.”

Senate Finance Chairman Charles Grassley, R-Iowa, and Sen. Max Baucus, D-Mont., the most senior Democrat on the Senate Finance Committee, have pushed to keep the tax extenders in the conference committee pension bill package.

Some Republican leaders, including House Ways and Means Chairman William Thomas, R-Calif., now want to take the tax extenders out of the pension bill and put them in a separate bill that would include a provision calling for a big cut in the estate tax.

The move would keep the estate tax issue out of the pension bill, but it could force lawmakers with concerns about the proposed estate tax cuts to choose between blocking the cuts and passing the popular business tax incentives.

Grassley told Iowa reporters Wednesday that he was insisting on keeping the tax extenders in the pension bill because of a promise he had made. “I’ll still continue to keep my word, even if I am knifed in the back,” he said.


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