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Federal Estate Tax Subject of Senate Finance Committee Hearing | Advocacy Updates | NAIFA
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Advocacy Update: November 14, 2007

Federal Estate Tax Subject of Senate Finance Committee Hearing

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Michael Kerley
703-770-8155

The Senate Finance Committee just wrapped up a hearing entitled “Federal Estate Tax: Uncertainty in Planning Under the Current Law.” Witnesses who testified were:

Misters Rhoads and Sukup represented small business and farm interests and testified on the cost and complexity of estate planning under current law. Mr. Teitel testified as an estate planning lawyer but did not take a position on whether the estate tax should be retained or repealed. Mr. Buffett, on the other hand, supported retaining the estate tax at approximately the same revenue raising level as today, although indicated he would not oppose reconfiguring it.

The genesis for the hearing grew out of Senate debate on an appropriations bill covering programs for the agricultural industry. Proponents of repealing the federal estate tax entirely were persuaded from offering amendments to the farm bill (now on the Senate floor) in exchange for the Finance Committee examining the issues involved in estate planning under current law. There has also been speculation that the Finance Committee will hold a “mark-up” session next spring when it will consider various options for repealing or modifying the federal estate tax.

Insurance agents and financial advisors are often at the core of professional advisors helping clients plan for transferring businesses and general assets to the next generation on the most cost effective basis. Therefore, NAIFA and NAIFA members have been involved in the highly contentious estate tax debate for many years. NAIFA’s view is that given that wealth transfer taxes have been part of the federal tax code since 1797, repeal of current law is highly unlikely, and even if it were repealed now, history shows it would likely resurface. All of the Finance Committee Senators present at the hearing agreed that there was almost no opportunity to repeal the estate tax. All, however, predicted that there would be a compromise—most likely 2009.

Also complicating the picture are the “pay as you go” budget rules Congress adopted last January designed to reign in the federal budget deficit. If the estate tax were completely repealed or substantially modified, Congress would have to find new revenue sources to make up the difference. (It could cut spending of course, but that is highly unlikely.) In 2006, estate and gift taxes generated $27.8 billion in federal tax revenue.

Therefore, NAIFA has consistently supported establishing an exempt amount which would be high enough to exempt 99.6 percent of all taxpayers from any possibility of paying estate taxes, and applying a top rate of 40 to 45 percent of the remainder of estates. An exempt amount that would fit the 99.6 percent standard would be roughly $3 to $3.5 million in 2010.

NAIFA is very sympathetic to the charge that current law inhibits planning. When Congress enacted the current estate tax law in 2001, NAIFA members in the estate planning field feared that many individuals would put off planning because it was widely proclaimed that Congress had repealed the “death tax.” Proponents failed to publicize that Congress did no such thing, and that after the scheduled “repeal” year of 2010, the tax is scheduled to revert to year 2001 levels. The exempt amount in 2011 would then be $1 million and carry a top rate or 55 percent. Unfortunately, the publicity surrounding “repeal” persuaded many potentially impacted individuals to put off planning, to the point where many have run out of good options.

The Joint Tax Committee prepared a concise overview of federal wealth transfer tax system in connection with the hearing. For a copy please go to www.naifa.org/advocacy/documents/wealth_transfer11142007.pdf