President Obama's proposed budget for 2013 would impose sweeping tax hikes on the insurance industry, including a restoration of 2009 estate tax rules, and sustaining the portability between the estate and gift taxes as contained in current law, but at a maximum lower level. Obama's proposed budget would also call for an increase in the SEC’s budget level in 2013 to $1.566 billion, which is a 18.5% increase over the SEC’s 2012 appropriation.
The proposal calls for reduced tax benefits from dividend-received deductions and Corporate Owned Life Insurance designed to raise about $15 billion in additional taxes over 10 years on life insurance companies.
The one nugget is another proposal from the past, this one aimed at providing an incentive for small employers to establish retirement plans for their employers.
Under current law, small employers (those that have no more than 100 employees) that adopt a new qualified retirement plan (or SIMPLE plan) are entitled to a temporary business tax credit equal to 50% of the employer’s expenses of establishing or administering the plan, including expenses of retirement-related employee education with respect to the plan. The credit is limited to a maximum of $500 per year for three years.
The administration said in conjunction with the automatic IRA proposal, to encourage small employers not currently sponsoring a qualified retirement or SIMPLE plan to do so, it wants to double this tax credit to a maximum of $1,000 per year for three years (effective for taxable years beginning after December 31, 2013) and to extend it to four years (rather than three).
Other provisions of the proposed budget include:
- Estate tax would be turned back to the level that existed in 2009 of a $3.5 million exemption and a maximum tax of 45%. Currently, the exemption is $5 million and the maximum tax rate 35%.
- Similarly, generation-skipping transfers (or GSTs) made after Dec. 31, 2012, would be taxed at a maximum tax rate of 45% with a life-time exclusion of $3.5 million. Gifts made after Dec. 31, 2012, would be taxed at a maximum tax rate of 45 percent with a life-time exclusion of $1 million.
- As reflected in the adjusted baseline, the portability of unused estate and gift exclusion amounts between spouses would be made permanent and would apply to anyone dying after December 31, 2012.
- Establishing a minimum term of 10 years for grantor retained annuity trusts.
- A special tax on financial institutions with assets of more than $50 billion. It is designed to raise approximately $60 billion over 10 years. The tax was proposed earlier in order to pay for losses associated with the Troubled Asset Relief Program, but opponents point out that the program is nearing solvency, and that for that reason is unlikely to be supported by Congress.
Despite such sweeping ambitions, however, analysts point out that the budget, as proposed, has virtually no chance of being enacted in law.
Ryan Schoen and Sam Leaman of Washington Analysis said most of the proposals are already contained in the budget for the current year, which did not gain traction in Congress.
“Such policies will not pass muster in the Republican-controlled House,” Schoen and Leaman said.
In fact, they added, “the President has made these proposals the last two years, and they have not gained traction on either side of the Hill, even in the Democratically controlled Congress in 2010.”