At press time, the House was expected to pass legislation on Dec. 3 that would make permanent the 2009 estate tax level of a 45% tax rate and a $3.5 million per-person exemption.
But the House action is likely to be just the opening note in a debate that is not expected to be ultimately resolved until sometime next year.
According to officials of the Association for Advanced Life Underwriting, the Senate, preoccupied with the debate on health care reform, is likely to pass a simple one-year extension of the 2009 level, and deal with a permanent solution as part of comprehensive tax reform next year.
The legislation in the House, H.R. 4154, was introduced by Rep. Earl Pomeroy, D-N.D.
The issue is critical because under existing law, the estate tax goes away for 2010, but returns in 2011 with a 55% tax rate and a $1 million per-person exemption. That is because the 2001 tax cut law expires Jan. 1, 2011, ending tax cuts valued at an estimated $3 trillion.
The Pomeroy bill is bare-bones legislation that does not contain provisions such as indexing the exemption level for inflation.
Other provisions sought by the industry that aren’t included are the reunification of the estate and gift taxes and providing so-called “portability,” which would permit a surviving spouse to carry over any credit left over by the first spouse to die.
AALU officials said they don’t believe the House will support provisions beyond the bare-bones bill proposed by Pomeroy, but believe the Senate will be more amenable to adding the other provisions.
AALU officials cite S. 722, introduced in the Senate by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, and S. 2784, introduced by Sen. Tom Carper, D-Del. Both bills would add reunification and portability, as well as index the rate for inflation.
An AALU official also noted that an amendment added to the 2010 budget resolution that was passed by the Senate included the indexing, portability and reunification provisions.
That amendment, added by Sen. Blanche Lincoln, D-Ark., and Sen. Jon Kyl, R-Ariz, would have raised the exemption level to $5 million person.
It passed the Senate, 51-48, but did not survive conference, according to an AALU official.
In an action alert to members to send a letter to their Congressman, AALU officials said, “We urge you to support H.R. 4154, and we also urge your support for reunifying the estate and gift tax credits, providing portability of the unused credit of the first to die, and indexing the exemption level for inflation as this legislation moves forward in Congress.”
The National Association of Insurance and Financial Advisors said the Pomeroy bill “falls within NAIFA’s supportable criteria.”
Tom Currey, NAIFA president, said agents support federal tax law that permits certainty in planning for the orderly transfer of estates.
He added that the key “to NAIFA’s support is that the rules are permanent, specific, and predictable. Congressional rules should also be sustainable, politically, over time.”
At the same time, he said, NAIFA supports the unification of rules applicable to the gift and estate taxes.
Currey also noted that, “Any tax rule, whether driven by revenue needs or by policy, that would impact the process of inheritance must comport with the principles of certainty, avoid being burdensome, avoid multiple incidents of tax, and recognize the impact of inflation.”