House Republicans Plan Vote to Extend Bush-Era Tax Cuts Following Vote by Senate Dems

Under S. 3412, income tax rates for individuals making up to $200,000 and families making up to $250,000 would remain the same in 2013. Rates on upper income Americans would expire on Dec. 31st.

The bill would also reinstate the personal exemption phase out and limitation on itemized deductions that apply to high-income households. The Democratic bill would also establish the top rates for dividends and capital gains at 20% for 2013, up from the current 15 percent rate.

The bill would additionally extend the American Opportunity tax credit, the child tax credit, and the earned income tax credit for another year, as well as the Section 179 expensing provisions for businesses. The bill would additionally provide another one-year “patch” covering 2012 from the alternative minimum tax.

A Republican plan, S. 3413, was defeated, 54-45, on a prior vote. It would have extended the Bush-era tax cuts, at least for one year.

The Bush-era tax cuts—enacted  under the  Economic Growth and Tax Relief Act of 2001 (EGTRRA) and amended in 2010 by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)–establish a $5 million exemption and a maximum 35 percent tax rate. JGTRRA also indexed the estate tax exemption, starting this year, raising it to $5,120,000 for 2012. The 2010 amendments also made estate tax policies more generous by unifying the estate and gift taxes.

House Speaker John Boehner, R-Ohio, is poised to push legislation through the House next week that closely mirrors the Senate GOP measure.

Industry tax lawyers predict the estate tax going forward will be either the current policy or mark a return to the 2009 levels, a policy supported by Democrats. That would establish a $3.5 million per person exemption, indexed for inflation, and a 45% top rate.

The competing bills cut both ways for the insurance industry. For life insurers, higher tax rates, especially higher estate tax rates, act as an incentive for families to purchase more of the tax-advantaged products sold by the industry.

But most agencies and brokerages are small businesses, organized as pass-through entities such as S-corporations, partnerships and sole proprietorships. Thus, less-generous estate tax policies would raise the cost for families to structure their business to ensure that the families could retain the business when the current owner dies.