Confirmation by the incoming Obama administration last week that it will support maintaining the estate tax going forward at the same level it is scheduled to be for this year, is good news for the life insurance industry.
At the same time, while that news is welcome, confirmation that President-elect Obama and the Congress are on the same page on estate taxes does not mean it is time for the life insurance business to break out the champagne.
That’s because a huge slew of issues in which the life insurance industry is either directly or indirectly caught up will have to be taken up by the current Congress, and there is no clear sign now as to how they will ultimately be dealt with.
The two greatest concerns are taxes and regulation.
Regarding estate taxes, The Wall Street Journal on Jan. 12, confirmed a story first reported by National Underwriter on Dec. 10 in an article that disclosed the agenda of Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, for the coming year.
In answering a question from National Underwriter that day, Baucus said work on a tax bill that would include making the 2009 estate tax schedule permanent, indexed for inflation, would be the second order of business for the Congress this year.
Specifically, he said Congress would move to make permanent a $3.5 million per person exemption from the estate tax, indexed for inflation, and a 45% maximum tax rate.
He also said work would start on tax legislation that would include a middle class tax cut and language making the 2009 estate tax level permanent, immediately after Congress completes work on the stimulus package legislation which it is working on now.
And that is where the problems begin.
First, the devil on the estate tax issue is in the details. The industry wants the gift and estate tax provisions unified. Specifically, according to the Association for Advanced Life Underwriting, under current law, the estate tax exemption increases to $3.5 million this year, while the gift tax exemption is locked in at $1 million.
Of even greater concern to the industry is the future of non-qualified deferred compensation plans.
Executive compensation has become a whipping boy for legislators under intense pressure to relieve the foreclosure mess and other debt crises facing many of their constituents.