Estate Tax Repeal Falls, Compromise Legislation to Reduce the Tax Still Possible

Today, the Senate rejected by a vote of 57-41 a motion to proceed to H.R. 8, a House-passed bill that would permanently repeal the estate tax. Repeal advocate were three votes short of the 60 required to allow the Senate to proceed to a final vote on the legislation. Although full repeal of the estate tax is now off the table, Sen. Bill Frist, Senate Majority Leader, has indicated he will likely bring up a compromise measure as early as next week, which would keep the estate tax in place on the wealthiest estates while reducing, to some degree, the tax rate.

Several different compromise proposals are in the mix, and agreement is still elusive. Sen. Jon Kyl (Republican from Arizona), has long supported a $5 million per-spouse exemption and 15 percent tax rate. This week he amended his proposal to include a 30 percent tax on inherited wealth that exceeds a $30 million per person threshold. Sen. Max Baucus (Democrat from Montana) supports a $3.5 million exemption paired with a progressive rate structure of 15, 25 and 35 percent. Meanwhile, Sen. Olympia Snowe (Republican from Maine) has a proposal which aims to reconcile the differences between the Kyl plan and the Baucus plan. Accordingly, the Snowe plan would exempt more estates than either of the two, reportedly setting the threshold for which the estate tax kicks in at $7 million. However, the Snowe plan would tax estates between $7 million and $10 million at 15 percent, estates between $10 to $15 million at 25 percent and estates above $15 million at 28 percent.