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AALU Speaker: 2009-10 Will Be 'Mother Of All Tax Writing Periods'

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Congress could decide next year to extend the estate tax provision levels now scheduled for 2009 into 2010 while it continues to fashion a permanent estate tax structure, a top tax lobbyist suggests.

In comments last week at the annual meeting of the Association for Advanced Life Underwriting, Ken Kies, an AALU tax counsel, also cautioned that a post-election deal could impose greater limits on non-qualified deferred compensation plans in order to pay for extending tax cuts scheduled to expire at the end of this year.

“That is a real possibility,” he said.

Moreover, Kies said, he sees the 2009-2010 congressional cycle “as the most active tax legislative exercise that the country has ever witnessed.”

“Any industry is well advised to see everything as on the table,” he said, “because it will be.”

Asked if he could describe the coming Congress as potentially the “mother of all tax writing periods in our history,” Kies said he could not disagree, especially since he has calculated that $4 trillion of tax provisions will be expiring by the end of 2010. “That is more expiring tax provisions than ever before,” he said.

Limits on NQDC could occur in the context of the need for Congress to extend certain tax benefits for business that expire at the end of the year, he said, adding that Congress also wants to limit the impact of the alternative minimum tax on the middle class.

Extending those provisions is an annual ritual made more difficult because of the policy of Democrats since they took control of Congress to demand that any tax cuts be paid for.

The cost of extending the business tax cuts for a year is $50 billion to $70 billion, while the cost of minimizing the impact of the AMT on the middle is another $60 billion to $70 billion, Kies said.

A cap on NQDC of $1 million annually could occur within that context, and it could occur as late as a post-election session extending into December, he said.

Kies noted that curbs on the NQDC were included in a minimum wage tax bill passed by the Senate last year but rejected by the House at the urging of the insurance industry, among others.

But, if it occurs, it will not be a more restrictive bill passed by the Senate last year. He noted that the Senate bill was effectively stricter than the “real” $1 million cap that is a possibility for a year-end tax bill.

Last year’s Senate bill was stricter because it contained language saying it went into effect for the lesser of $1 million or the average of the prior 3 years of taxable income, which “could be a lot less than $1 million,” he said.

It also included other earnings against the cap, as well as non-elected deferred compensation.

“We worked to urge Congress to do nothing to hurt non-qualified deferred compensation plans,” he said.

The level of estate taxes is a critical one for the insurance industry, especially for advanced life underwriters, who design tax strategies that help the wealthy reduce their tax burdens, especially estate taxes.

AALU and an affiliated organization, the National Association of Insurance and Financial Advisors, “support permanent, sustainable reform that eliminates the tax for the majority of taxpayers while enabling those remaining few to plan with certainty,” according to policy statements of the two groups.

And, they added, “Currently freezing 2009 law appears to be the best publicly considered proposal.”

Currently, estate taxes are governed by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

Under current law, the estate tax exemption for 2009 is $3.5 million per person, with a 45% maximum tax rate for all estates above that. But, under EGGTRA, the estate tax is phased out for 2010, returning with a $1 million per person exemption in 2011.

“Something will have to happen in 2009,” Kies said. “There is an implied consensus that they cannot let 2010 possibly happen with a zero estate tax.”

He said merely extending the 2009 rates into 2010 “buys Congress an extra year to debate a permanent solution to the estate tax issue.”

He noted that “based on past history, 3 of the past 4 past new presidents have gotten a major tax bill in the first six months in office.

“It is certainly plausible that that could happen again, but it is equally plausible that they could delay everything a year to buy more time,” Kies said.

What AALU lobbyists will be working for that is not in the current 2009 provision is language “reunifying” the estate and gift tax.

AALU officials contend this creates a permanent incentive for an individual to hold onto his business until death. “Specifically, the retired individual is incentivized by the larger estate tax exemption to hold onto the business instead of gifting it to the younger generation actually running the business,” AALU officials contend. Under EGTRRA, the gift tax drops to 35% in 2010.

“We wouldn’t change anything else from the 2009 provisions,” Kies said. And, “we will have to address reunification as part of the effort [to shape] what a permanent estate tax will look like.”


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