Estate Tax Measure Faces Delay, Reports AALU

NU Online News Service, Dec.15, 2:41 p.m. EST

WASHINGTON–The inheritance tax, an issue for the heirs to small insurance agencies, will likely be allowed expire and then be reinstated retroactively an insurance trade group said.

A representative of the Association for Advanced Life Underwriting explained that because of congressional inaction the tax will probably expire at year's end only to be reinstated retroactively at 2009 levels for an interim period early next year.

Sarah Spear, AALU director of policy and public affairs, said the potential for the estate tax being in limbo for a short period is based on the fact that the House was scheduled to leave Friday, and the Senate is focused on passing health care reform legislation before it leaves for the Christmas recess.

The only potential vehicle for dealing with the situation is the defense appropriations bill, which may include either a one year or two year "patch" at 2009 levels, Ms. Spear said yesterday.

But, this will not include the insurance industry's priorities, which are, adding reunification, portability and indexing for inflation to any permanent estate tax legislation, Ms. Spear said.

Estate tax limbo is likely to occur even though the House has already approved bare-bones legislation that permanently extends the 2009 estate tax rate at a 45 percent tax rate and a $3.5 million per-person exemption.

The lack of action drew concern from officials of the Independent Insurance Agents and Brokers of America.

Charles Symington, IIABA senior vice president for government affairs, said,

The IIABA "believes Congress must significantly reform the estate tax to encourage investment and growth in small business."

Mr. Symington said that, "This reform should come in the form of a decrease in the estate tax rate and/or increase in the exemption amount and should be indexed for inflation for the future.

"Without real permanent relief, family-owned small businesses will be unable to plan ahead and make important business decisions," he added.

IIABA has said in the past that many small agencies and brokerages are asset-rich, yet lack liquidity to pay estate taxes when an owner passes away. According to the organization there is evidence the estate tax hinders the continuation of family-owned businesses because survivors are often forced to sell the business to pay their tax.

The House was scheduled to take up the appropriations bill before adjourning Dec. 18, and send it to the Senate, which will have to act before the House leaves to fund this portion of the government, she said. But, there is no certainty as to whether this will happen, said Ms. Spear.

She noted that there are active discussions underway to reach an agreement on a whole host of challenging year-end items, and the legislation involved is far from a done deal, because it is likely to include raising the debt level, a jobs bill, and other extenders including the estate tax.

Furthermore, the House's defense bill is likely to include a so-called "pay-go" provision. There is strong opposition to this provision in the Senate because the House's version of pay-go exempts four big ticket items.

Also muddying the issue is the move by Democratic leaders to raise the $12.1 trillion debt ceiling this month as a necessary action due to rising deficit costs. The debt ceiling is the limit — established in law — for the government's overall borrowing authority.

The estate tax issue is critical because under existing law, it goes away for 2010, but returns in 2011 with a 55 percent 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.