Close Close

Financial Planning > Tax Planning > Tax Reform

Senate Confirms Support For Estate Tax Cuts

Your article was successfully shared with the contacts you provided.

The Senate reiterated on May 9 its approval for a degree of estate tax reform going forward that the insurance industry can support.

The Senate voted 51-44 to retain language in the budget resolution it passed March 23 that established the current-law 2009 estate tax rules: a $3.5 million-per-person exemption and a top tax rate of 45%, extending through 2012.

The vote dealt with the 5-year budget resolution that guides appropriating committees. While not binding, it allows appropriations bills that follow the guidelines to pass the Senate later under majority votes rather than the 60 votes needed under regular order.

The May 9 action was triggered by the House’s decision the day before to name conferees to negotiate a final budget resolution with conferees from the Senate.

The legislation then goes back to each house of Congress for another vote.

The May 9 vote was the result of an effort by Republicans to “instruct” conferees who will negotiate the budget blueprint for the next 5 years with the House to revise the language agreed upon in March.

The voting, done at the request of Sen. John Kyl, R-Ariz., chairman of the Senate Republican Conference, was designed to signal to core supporters that it continued to support the Bush administration program of low taxes, especially low estate tax rates.

The Kyl “instruction” on estate tax would have provided permanent estate tax relief with a top marginal rate of no higher than 35%, a lower rate for smaller estates, and a $5 million exemption. That “instruction” passed the Senate 59-41.

But then, in a vote immediately following a motion by Sen. Kent Conrad, D-N.D., a member of the Senate Finance Committee, conferees were instructed to support the March language in the budget language dealing with the estate tax, effectively negating the vote on the Kyl amendment.

Jana Barresi, director of policy and public affairs for the Association for Advanced Life Underwriting, said the trade group has consistently supported reasonable reform that will allow those subject to the estate tax to plan with certainty.

She said the outcome of the Kyl vote on the “motion to instruct” budget conferees “isn’t really anything new; we know there are some moderate Democrats who support a lower rate, but the reality is that the motion to instruct conferees doesn’t obligate the conferees to follow that suggestion, and the Baucus amendment passed in March stands as the Senate position in conference.”

In a subsequent motion to instruct conferees, the Senate reaffirmed by a vote of 51-44 its support for the existing Senate position on extension of tax cuts. The budget resolution doesn’t have the force of la–it sets fiscal guidelines for Congress to follow throughout the year–so any changes to tax law would have to be made through legislation, and any tax cuts that aren’t paid with offsets will be subject to 60 votes.

Barresi said AALU estimates that it costs $10 billion over 10 years for every 1% drop in the estate tax rate.

“In essence, the difference between a 35% rate and a 45% rate is $100 billion of lost revenue over 10 years,” she said. “In the pay-go environment, this is a significant amount of revenue.”

The House version of the budget resolution does not discuss the estate tax.

The original language in the budget resolution was passed March 21 on an amendment to the budget resolution offered by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee.

That amendment would set aside $180 billion for tax cuts, enough money to extend a number of other popular tax breaks set to expire after 2010. It would also permanently extend the 2009 estate tax rates.

Currently, under a law passed in 2001, the estate tax gradually declines until it is phased out in 2010, then reverts to the $1 million level with a 55% tax rate in 2011.

Michael, Kerley, senior vice president, federal government relations, for the National Association of Insurance and Financial Advisors, cautioned that none of the “instructions” to conferees are binding, and said it would be best that the industry “remain on its toes” about the issue.

He said the votes on the instructions are “just one more skirmish in a legislative battle that seemingly has no end.”

Kerley added that NAIFA has been supportive of making permanent an exemption amount of between $2.5 million to $3.5 million and a top tax rate of 40% to 45%.

“If pegged at that level, approximately 99.6% of all estates would be exempt from tax, and the estate tax would raise about half of the tax revenue currently being raised,” Kerley said.

The Kyl amendment, he noted, would have raised significantly less than 50% of current tax revenue from estate levies. “And that fact has grave implications for other budget priorities,” he said.

“NAIFA believes the levels it supports would be sustainable politically into the future,” Kerley added. “What everyone needs is tax certainty going forward, not the roller coaster ride the public has been on since 2001.”

David Stertzer, CEO of the AALU, said the group has also been working to ensure that estate tax reform will also address the broader planning issues as well.

“Another key component of reform AALU is seeking is a reunification of the estate and gift tax exemptions,” he said, “which would simplify the planning process and provide greater incentive for families to pass assets, particularly business assets, during life instead of at death.”

The AALU will continue to press for meaningful estate tax reform, he said, adding that doing so would exempt the vast majority of Americans and allow those who will have estate tax liabilities to plan for them with a degree of certainty.

“The bottom line is families need to able to plan their estates with certainty, and AALU members help families 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,” he said.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.