Insurance Agents Urge Reform of Estate Tax

December 20, 2009

The U.S. House of Representatives recently passed a measure (H.R. 4154) that would permanently extend the estate tax rate and exemption amount at this year’s levels. As present, the estate tax has a rate of 45 percent with a $3.5 million exemption.

The extension passed 225 to 200, with mostly Democrats supporting it. Getting the Senate to follow suit could be much harder because of the cost. The estate tax is scheduled to be repealed in 2010 and return in 2011 with an exemption of the first $1 million of an estate and a tax of 55 percent on the amount over that. A Congressional committee reported that extending the current rate rather than allowing the higher tax in 2011 would cost the government $234 billion over 10 years..

According to the Brookings Institute, the estates of about a quarter of one percent of Americans would be subject to the tax under the House bill. The Congressional Budget Office found that fewer than 2 percent of all estates have had to pay estate taxes in recent years.

The House bill also contains capital gains tax relief for those inheriting estates by repealing so-called carry-over basis rules.

Insurance agents are pleased that the House is paying attention to the estate tax but they want lawmakers to seize the opportunity to reform the tax rather than simply extend current provisions.

Robert Rusbuldt, Independent Insurance Agents and Brokers of America (the Big “I”) president and CEO, called H.R. 4154 “a good step in the right direction” but said “more is needed.” Rusbuldt said agents support reform of the estate tax to encourage investment and growth in small business. 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, according to the agents group.

The Big “I” is supporting an amendment sponsored by Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) that was passed by the Senate during consideration of the congressional budget. This amendment would reduce the top rate to 35 percent and increased the exemption to $5 million. That amendment, however, was non-binding. The Big “I” said it hopes the Senate will eventually adopt it.

“The estate tax disproportionately impacts small and family-owned businesses that serve local communities and fuel our economy,” said Charles Symington, Big “I” senior vice president of government affairs. “Without real permanent relief, family-owned small businesses are unable to plan ahead and make important business decisions. Many of these businesses are asset-rich, yet lack liquidity to pay estate taxes when an owner passes away. There is evidence that the estate tax hinders the perpetuation of family-owned businesses because survivors are often forced to sell the business to pay their tax.”

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