Estate Tax Lobbying

Pundits of every political persuasion decry corporate lobbying in Washington, and a major tax bill is a great opportunity for businesses to gain benefits if they convince members of Congress to help them out. However, battles over tax provisions are sometimes not what they appear on the surface.

For years, liberal pundits have characterized efforts to repeal the estate, or death, tax as the plutocrats pulling the levers of power on the Republican side of the aisle. But a new investigative piece at Daily Caller by Richard Pollock exposes the lobbying that is undermining good policy on estate taxation.

I favor estate tax repeal, for numerous reasons, as I laid out here. One reason is the large waste of resources spent on paperwork and avoidance. I noted:

The estate tax is probably the most inefficient tax in America. It has a high marginal rate and is very difficult for the government to administer and enforce. It has also created a large and wasteful estate planning and avoidance industry. The industry overflows with high-paid lawyers and accountants doing paperwork, litigation, asset appraisals, and creating financial structures to minimize the tax burden using trusts, life insurance, and private foundations.

Pollock explored lobbying by the life insurance industry to retain the estate tax, and the large revenues the industry earns on estate planning and avoidance services:

The life insurance industry has handsomely profited from the estate tax for years through the sale of “survivorship,” or second-to-die life insurance policies that generate billions of dollars in sales. The insurance industry provides these products to cover the estimated estate tax the policyholders’ children or heirs would have to pay upon their death. The policies are a more affordable way to pay the tax to the federal government.

For example, if a husband or wife estimates their heirs could face $1 million in estate taxes, they could buy a life insurance policy that pays out $1 million upon their death. That sum is free of income tax. The costs for the $1 million whole or universal survivorship policy could cost them pennies on the dollar, making the protection affordable.

“If properly arranged, a survivorship life policy will be tax free to the beneficiary, no estate tax and no income tax,” one organization boasts on its website, adding, “If, for example, you only pay over time $200,000 of premiums into a $1,000,000 policy, you’ve effectively paid $1,000,000 of estate tax for $200,000! Twenty cents on the dollar!”

The life insurance industry has been tight-lipped about how much money they make from these policies. Survivorship policy “represents approximately four percent of the life insurance market and 10 percent of premium for companies who offer it annually,” according to a June 13, 2017 report by the Insurance News Network. That amount would deliver as much as $24 to $30 billion in annual profits to the industry based on premium data from the Insurance Information Institute.

… As talk of full repeal of the death tax echoed through the walls of Congress, “panic” gripped the life insurance industry, its estate planners and insurance agents, according to industry insiders. “All estate planning has almost come to a halt over the last six months due to the possibility of significant changes to the estate tax laws, and in particular, the possibility there could be repeal,” said retired estate planning lawyer Steve Hornig, in an interview with TheDCNF. Hornig opposes the estate tax.

“I would classify it as a panic in the industry,” added Ted Bernstein, who is a retirement-planning and life-insurance specialist in Florida and who supports the estate tax. “Survivorship insurance will go away completely if the legislation passes as expected.” “Permanent insurance policies,” he added, “are a very significant percentage of the life insurance sales of the leading life insurance companies in the U.S.”

… Between 2015 and 2016, lobbying expenditures by [the] American Council of Life Insurers were estimated at $9.4 million, according to the nonpartisan Center for Responsive Politics. The insurance council has 30 full-time paid lobbyists …

In Congress, the House tax bill included estate tax repeal, while the Senate expanded the exemption. We will see in the coming week or two whether lawmakers will buck the life insurance lobbyists and repeal this inefficient tax.