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Financial Planning > Tax Planning > Tax Reform

Senate OKs Clashing Estate Tax Items

By Arthur D. Postal

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Washington

The Senate has approved a 2010 budget blueprint amendment that would increase the permanent estate tax exemption to $5 million and cut the top tax rate to 35%.

But David Stertzer, chief executive officer of the Association for Advanced Life Underwriting, Falls Church, Va., is calling the provision “largely symbolic,” saying it was offset by another amendment added later, before the entire blueprint – or “concurrent resolution” — was passed by the Senate on a party-line vote.

The other amendment creates a point of order that would disallow any additional estate tax relief – beyond that which was contained in President Obama’s budget – unless an equal monetary amount of tax relief is first provided to individuals earning less than $100,000.

That amendment was introduced by Sen. Richard Durbin, D-Ill., and passed by a vote of 56-43.

The final version of the concurrent resolution will help set the rules for how Congress will discuss appropriations, but it does not lead directly to actual appropriations.

In a bulletin to AALU members, Stertzer says it is important to note that “yesterday’s votes are nonbinding and it is very possible, if not likely, that they will be stripped from the final budget resolution.”

Lawmakers expect both houses of Congress to approve a concurrent resolution by the end of April.

The vote on the amendment to increase the per-person exemption and lower the maximum tax rate beyond that proposed in Obama’s budget was introduced by Sen. Jon Kyl, R-Ariz., and Blanche Lincoln, D-Ark. It passed 51-48.

The amendment does contain three provisions sought by the insurance industry: Indexing for inflation; reunification of the estate and gift taxes; and “portability” — the ability for the beneficiaries of the estate of the second spouse in a couple to die to deduct the spouse’s exemption without the need for the couple to create a trust.

In his note to members, Stertzer says the AALU continues to believe that, “There is an appetite in the Senate” to go beyond the Obama budget, which calls for a $3.5 million per-person exemption and a maximum tax rate of 45%.

But this is “mitigated by the majority in the House, who have shown a strong preference not to allocate additional revenues, particularly in this environment, on couples who have wealth starting in excess of $7 million,” he says

Stertzer says it is “also notable” that the Senate votes, coupled with S. 722, a bill introduced last month by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, mean that “an overwhelming majority of the Senate Finance Committee has expressed support for reunifying the lifetime gift and estate tax exemptions.”

“We continue to believe Sen. Baucus’ proposal strikes the right balance” on estate tax reform, Stertzer says.

Links to the concurrent resolution and other information about the resolution, including the text of the amendments, are available here.

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