Budget Resolution Would Freeze Estate Tax At 2009 Level

House-Senate conferees last week approved a budget resolution that calls for freezing estate taxes at the 2009 level and increasing funding for the State Children's Health Insurance Plan by up to $50 billion over 5 years.

In comments to reporters on May 16, Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee and of the committee that worked to reconcile differences in the House and Senate blueprints, said he expected both the House and Senate to approve the budget resolution.

Specifically, the document, which is a guideline for congressional action on appropriations and tax issues–not a mandate–suggests an estate tax level going forward at the level called for under current law for 2009. That would establish a per-person exemption of $3.5 million and a top rate of 45%.

The resolution calls for "elimination of estate taxes on all but a minute fraction of estates by refining and substantially increasing the unified tax credit."

On healthcare, the budget guideline proposes an increase in funding for the State Children's Health Insurance Plan by up to $50 billion over 5 years. It also signals government support–and money–for mental health parity, as well as "more affordable and accessible" healthcare and better "health information technology."

The Bush administration and Republicans in Congress have called for a total elimination of the estate tax, though as a compromise, they have proposed a $5 million per-person exemption and a lowering of the rate on large estates to a maximum of 35%.

The life insurance industry in general opposes this level because it would likely impact the sale of life insurance products that are used in estate planning. The industry supports "affordable" estate tax relief of a per-person exemption of $2.5 million to $3.5 million and a top rate in the range of 45%.

Jana Barresi, director of policy and public affairs at the Association for Advanced Life Underwriting, Falls Church, Va., said that while the budget conference agreement language doesn't specifically state a suggested exemption and rate, it appears the budget could potentially accommodate an extension of the fiscal year 2009 estate tax level–$3.5 million exemption and 45% rate–through 2012.

She cautioned that the budget "doesn't have the force of law, so any changes to the estate tax regime would have to be made through subsequent legislation."

Ultimately, she noted, if Congress chooses to address estate tax legislation this year, the bill would also be subject to PAYGO rules in both chambers.

"While the intention expressed through the budget conference report to address estate tax is a step in the right direction toward a reasonable resolution on this issue, there are clearly more steps in the process until we get certainty through fair, fiscally responsible and permanent estate tax reform," she said.

She reiterated the AALU position of an estate tax reform proposal with a $2.5 million to $3.5 million exemption and a 45% rate.

She said estimates show that reform at this level would exempt 99.7% of decedents from estate tax liability and allow the remaining few subject to the tax to plan with certainty.

"Another key component of reform AALU is seeking is a reunification of the estate and gift tax exemptions, which would simplify the planning process and provide greater incentive for families to pass assets, particularly business assets, during life instead of at death," Barresi said.

Mike Kerley, senior vice president, federal government relations at the National Association of Insurance and Financial Advisers, was equally cautious. He said Congress is unlikely to act on estate tax reform until after the 2008 elections.

The document is merely a blueprint–a guideline for congressional action on budgets over the next 5 years–but if followed by chairmen of appropriations committees in both houses, it will be given expedited handling in floor action.

Regarding increased funding for SCHIP, which the health insurance industry has established as a priority, a statement issued by the conferees disclosing their agreement said: "The Conference Agreement rejects the inadequate funding level proposed by the President for children's health care and instead provides up to $50 billion for expanding coverage and improving children's health through SCHIP.

"There are an estimated 6 million children eligible but not enrolled in either SCHIP or Medicaid," it adds. "These additional SCHIP funds will expand coverage to uninsured children and ensure states can maintain current caseloads."

Budget Resolution Would Freeze Estate Tax At 2009 Level

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