Senate Democrats signaled that they will hold hostage extension of the current, relatively generous, estate tax provisions to higher taxes on the wealthy.
They did so by removing language from a tax bill slated to hit the Senate floor that would restore estate tax policies to the same level as those in 2009.
That would mean that, absent affirmative action, the estate tax will spring back to 2001 levels, with a $1 million personal exemption and a 55 percent top tax rate effective Jan. 1, 2013.
The bill is not expected to reach the 60-vote threshold necessary to clear the legislation for further action.
Instead, the purpose for bringing it to the floor is to allow both parties to showcase their position on tax issues.
Raising taxes on the wealthy and making estate tax policies less generous cuts two ways for the insurance industry.
First, it would provide greater incentive for more people to buy the tax-advantaged products that are the core of life insurance industry offerings and it would encourage the wealthy to buy more tax-advantaged products than they currently do.
For example, sales of variable annuities dropped precipitously after the Bush tax cuts went into effect in 2002. Ultimately, that forced insurers to provide return guarantees in order to compete in the marketplace. This hurt the industry’s balance sheets when the markets plunged in 2007 and especially 2008, severely impacting earnings and forcing some companies to buy above-market rates to raise more capital in a tight market.
At the same time, 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 and ensure that the families could retain the business when the current owner dies.
Charles Symington, senior vice president of government affairs for the Independent Insurance Agents and Brokers of America (IIAB), said allowing estate tax rates to revert to the Clinton-era levels would be “punitive” to agents and brokers, with “a staggeringly negative effect on our membership.”
The language removed from the bill, S. 3393, would establish a $3.5 million per person exemption, indexed for inflation, and a 45 percent top rate.