Estate taxes paid by families and businesses and the planning that goes along with them will face a jarring impact if Congress is unable to bridge the ideological divide on taxes and tax cuts first enacted in 2001 and potentially expiring at the end of year.
Andrew Katzenstein, a partner in the Personal Planning Department with Proskauer in Los Angeles, said that if the so-called “Bush tax cuts” expire at the end of the year, income tax rates for the highest-earning individuals and families will rise from 36 to 39 percent, an eight percent increase.
But, by comparison to the tax rates, if the estate tax provisions are allowed to expire, there will be a 20 percent gross increase, and, from a percentage point of view, a 60 percent increase.
“When compared to the changes in rates that will occur, both the percentage of change and the gross percentage increase are dramatically more than virtually every other change,” Katzenstein said.
The inability of Congress to break an impasse on future tax policy deeply concerns the National Association of Insurance and Financial Advisors (NAIFA).
Approximately $600 billion in tax increases and government spending cuts are scheduled to automatically take effect at the beginning of 2013.
Many analysts have said this could yield serious consequences for the American public and could push the U.S. economy over the edge of what they have labeled a “fiscal cliff.”
“NAIFA is very concerned that congressional inaction will create a lot of uncertainty and make it difficult for advisors to do their jobs and serve their clients,” according to a spokesman.
And, NAIFA president Robert Miller urged Congress to “resolve the tax issues before the end of the year.”
He said, “Retroactive changes to tax laws put American families and businesses in a costly and paralyzing situation.”
He added that, “The uncertainties over rates, capital gains and dividends, the alternative minimum tax, estate tax rules, and other issues make effective financial planning difficult for everyone from individual families to large corporations.”
Still, he maintained that NAIFA members were prepared for the worst and advising their clients about how to deal with tax hikes.
Specifically, as amended in late 2010 for 2011 and 2012, the Bush tax cuts establish a $5 million exemption and a maximum 35 percent tax rate.