The Senate voted early today to make the current estate tax policy permanent, with one minor change, bringing closer to the end more than a decade of uncertainty for government policy dealing with a key insurance industry product.
The interim deal to avoid a so-called “fiscal cliff” was passed by the Senate 89-8 at 2 a.m. Tuesday.
The House will convene at 1 p.m. to consider the bill. Republican leader Eric Cantor of Virginia told Reuters that it remained to be decided whether the House would vote on the plan.
See our follow-up coverage: House passes fiscal cliff deal
The plan would raise income taxes on single earners with annual incomes above $400,000 and married couples with incomes above $450,000.
It would also block spending cuts for two months, extend unemployment benefits for the long-term jobless, prevent a 27 percent cut in fees for doctors who treat Medicare patients and prevent a spike in milk prices.
"The Association for Advanced Life Underwriting is very pleased that the agreement brings permanence and certainty to the estate tax regime — which we have been advocating for over the last decade,” said David Stertzer, AALU president and CEO.
Under the agreement, U.S. estate tax law will provide a $5.12 million per-person exemption. The deal raises the highest tax rate from 35 to 40 percent but continues the current policy of reunifying the estate and gift taxes. All other current policies related to the estate tax will also remain in place.
“This provides a key tool for business succession planning, and helping preserve jobs and economic investment in the process,” Sterzer said.
“This is the culmination of a great deal of work by the AALU and industry partners, our members and volunteer leaders to educate Congress on the importance of effectively resolving this issue."
Estate tax policy has been in flux since 2001, when the Bush tax cuts, known as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) were enacted. It called for higher levels of exemptions and lower tax rates to be phased in over 10 years, with the estate tax totally eliminated in 2010.
However, it decoupled the estate and gift taxes, and made other changes in tax law that made the work of the insurance industry in helping people reduce their estate tax liability more difficult.
It also expired for the 2011 tax year, which would made estate tax policy revert to 2001 levels of a $1 million exemption and a 55 percent maximum tax rate.
This was revised on an interim basis to raise the per-person exemption to $5 million, indexed for inflation, and recouple the estate and gift tax.
The new agreement, if approved by the House, restores certainty to current policy.
President Obama issued a statement at 11 a.m., urging the House to support the deal.
He said, “Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike.
“While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay,” Obama said.
He added that, “This agreement will also grow the economy and shrink our deficits in a balanced way — by investing in our middle class, and by asking the wealthy to pay a little more,” Obama said.