Insurance agents and brokers will be among those most impacted by an increase in estate-tax liability if Congress is unable to bridge the ideological divide on extending the Bush-era tax cuts.
Charles Symington, senior vice president of government affairs for the Independent Insurance Agents and Brokers of America (IIABA), says allowing estate-tax rates to revert to the Clinton-era levels would be “punitive” to producers and would have “a staggeringly negative effect on our membership.”
If the tax cuts expire at the end of the year, income-tax rates for the highest-earning individuals and families will rise from 36 percent to 39 percent, says Andrew Katzenstein, a partner in the personal-planning department of global law firm Proskauer’s Los Angeles office. But if the estate-tax provisions are allowed to expire, there will be an 80 percent drop in the exemption and a 20 point increase in the tax rate.
The estate-tax provisions of the Bush tax cuts, as amended in late 2010 for 2011 and 2012, establish a $5 million exemption and a maximum 35 percent tax rate.
If the tax cuts are allowed to expire, the estate tax will spring back to 2001 levels, with a $1 million personal exemption and a 55 percent top tax rate.
“When compared to all the changes in rates that will occur, both the percentage of change and the gross-percentage increase are dramatically more [for estate taxes] than virtually every other change” that would occur if the tax cuts expire, Katzenstein says.
Symington explains that most agencies and brokerages are small businesses, organized as pass-through entities such as S-corporations, partnerships and sole proprietorships.
That means they pay taxes at individual rates, he says. “In addition, many of our small business members are family-owned,” he adds.
He says allowing current estate-tax law to expire would mean that in many cases a family business would have to be liquidated in order to pay the government.
“This translates to lost jobs in a time when our economy can least afford it,” Symington adds.
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