While senators debate health care, House Democrats have quietly moved to save the federal estate tax, scheduled to disappear next month. In this push to preserve the so-called "death tax," Democrats have an important K Street ally: The life insurance companies that peddle estate-planning products.
The federal estate tax takes a chunk out of large inheritances. In 2001, Congress passed a "repeal" of the estate tax, progressively raising the exemption and lowering the rate.
For 2009, the first $3.5 million of an estate is untaxed, and everything above that is taxed at progressive rates that climb up to 45 percent. In 2010, though, the estate tax is scheduled to disappear, and Americans will be free to die and pass on their money, property, and businesses to their children.
There are two caveats. First, the tax is scheduled to come back to life on Jan. 1, 2011, at higher rates and lower exemptions than currently. This is the result of Republican budget gimmicks back in 2001 -- "sunsetting" the tax cuts lowered the on-paper "cost" of the bill. Second, Congress and the president can, of course, prevent the death tax from disappearing in 2010 by passing a tax increase -- and that's exactly the process Democrats set in motion last week.
Last Thursday, the House voted 225 to 220 to preserve the estate tax at the current rate and exemption. This means the tax won't go away in 2010, but it also means in won't revert to the pre-2001 exemption of only $650,000 and top rate of 50 percent.
Proponents of the estate tax point out that very few people actually pay it. But that doesn't mean many people aren't burdened by it.
Many small-business owners avoid the estate tax only by engaging in estate planning, which saps resources and time. Repealing the estate tax altogether would eliminate this burden, but one man's burden is another man's profit. Enter the life insurance industry.
Lobbying reports show that this year the American Council of Life Insurers has lobbied on estate and gift taxes this year, as have Northwestern Mutual Life Insurance Company, and the Association for Advanced Life Underwriting.
The Seattle Post-Intelligencer reported in 2005 that the life insurance industry makes $12 billion a year off of estate planning. The American Family Business Foundation figures the current number to about $15 billion. That's money small businesses and wealthy individuals could be investing or spending on productive activities, but instead they're pouring it into tax avoidance -- and into the insurers' coffers.
The insurer lobby is a powerful one. ACLI President Frank Keating was the Republican governor of Oklahoma and a favored vice presidential choice among conservatives in 2000.
Back in 2002 he applauded Bush for signing the bill to phase out the estate tax. "I believe death taxes are un-American," Keating said. "They are rooted in the failed collectivist schemes of the past and have no place in a society that values entrepreneurship, work, savings, and families."
But then Keating became the top lobbyist for estate planners, and his tune changed. "I am institutionally and intestinally against huge blocs of inherited wealth," he said in 2004, explaining his support for preserving the "death tax."
Keating's left-hand woman at ACLI is Kimberly Dorgan, whose husband, Sen. Byron Dorgan, of North Dakota, is chairman of the Democratic Policy Committee. Other ACLI lobbyists include Alane Dent, former legislative counsel to Rep. Earl Pomeroy, D-N.D., who sits on the tax-writing Ways and Means Committee, and Gregory Jenner, who was a top tax official in George H.W. Bush's Treasury Department.
A lobbyist's job is to look out for the interests of his or her clients. But this lobbying crew is in the business of imposing costs on small businesses and family farms -- sometimes forcing them to sell -- in order to boost their clients' profits.
The insurers are nakedly engaging in regulatory robbery, but House Republicans last week never called out this special interest pleading. It's the same with cap-and-trade global warming regulations and Democrats' health care proposals: The Democrats attack Republican opponents as shills for the wealthy, but Republicans give Dems a free pass regarding the special interests profiting from the proposed "reforms."
The upper chamber will soon take up the estate tax. Hopefully, Republican senators will highlight the life insurers' stake in this debate and expose to daylight this industry that is using big government to bleed family businesses.
Timothy P. Carney is The Washington Examiner's lobbying editor, His K Street column appears on Wednesdays.