WASHINGTON, D.C. — Will the House of Representatives' vote this past June to eliminate the federal estate tax be sustained when the Senate begins its deliberations?

The measure (HR 8, the Death Tax Repeal Permanency Act of 2003) was passed June 18 by a 264-163 vote, with 41 Democrats voting in favor. Following the House vote, supporters estimated that they would be four or five votes short of gaining Senate approval. The bill would permanently eliminate the tax in 2010 if passed by the Senate. A date for Senate action has yet to be announced.

The tax takes 49 percent of estates of at least $1 million per individual and $2 million for couples. As currently written, the tax would decline to 45 percent on estates of more than $3.5 million per individual in 2009. The tax is scheduled to be suspended for a year in 2010. However, the following year (2011) it will revert to its previous rate of 60 percent. The reason for this "sunset provision" is a Senate rule intended to place a ceiling on budget deficits and which, in this case, compels lawmakers to force the repeal to run out in 2111.

Proponents have long-pointed to the elimination of the estate tax as essential to keeping many family businesses operating. Distributorships, for example, often are family-run operations, and many have been watching the debate and vote with interest.

Rep. Jennifer Dunn (R-Wash.) sponsored the legislation. Following the vote, she focused on its impact on farmers as well as on small, family-owned businesses.

"Small business owners and farmers across the nation have been faced with this 'kiss of death' tax for much too long," she said in a statement. "It's about time we kiss this tax goodbye once and for all."

Echoing these points, the National Small Business Association (NSBA) declared that a permanent repeal of the tax "will create jobs and grow economy. The Estate Tax forces small business owners to engage in expensive estate planning techniques … rather than hiring employees and growing their businesses," said Todd McCracken, NSBA's president.

That same day, the NAW weighed in on the issue with a statement of support. "Without permanent repeal, there is no certainty around which rational business decisions can be made, " said Jade West, senior vice-president/government relations for the NAW, in the statement. "Businesses are forced to expend scarce resources on insurance and estate planning. When this tax is finally permanently repealed, those scarce dollars can be much reinvested in business where they will contribute to economic growth and job creation."

With an eye ahead to the Senate deliberations, machinations were starting even as the measure was being passed in the House. That same day, the Republican staff of the Joint Economic Committee released a study ("The Economics of the Estate Tax: An Update") that stated that the tax was among the leading factors in the sale or dissolving of family businesses.

NAW has been watching the legislative progress of the measure for some time. Following the June 18 vote, NAW's West admitted that, "a real challenge lies ahead in the Senate." Nonetheless, she pointed to the margin of victory and bi-partisan support in the House, hoping that these factors might "build positive momentum" when the Senate takes up the bill.

Bart Basi is president of the Center for Financial, Legal & Tax Planning, based in Marion, Ill. As an estate-planning specialist, he keeps close tabs on the issue.

"I get called by business people every day who are very frustrated, and complain that they can't plan on something that is very definite (death)," he said.

Basi admits to sometimes wearing two hats on the estate tax issue.

"From a personal standpoint," he said, "I'd like to see it eliminated; I can pass my 'wealth' on to my kids and not get taxed again - because it is a double tax. I pay (income) taxes when I earn it and pay again when I give it away. So from an individual perspective, the elimination is something we should encourage the senators to do."

But, pointing to the federal budget deficit, he conceded that, "Having said that, from a national perspective, a patriotic perspective, if you will, eliminating it would do nothing but hurt us (the U.S.) more. The government collects a tremendous amount of money from the estate tax. And right now they need that money."

Opponents of eliminating the estate tax point out that such a move would cost an estimated $162 billion over the next 10 years.

To date, advocates for repeal have taken a sort of "all or nothing" approach to the estate tax. At the same time, other Capitol observers have felt that a reasonable compromise on the estate tax could potentially be reached. The increasing budget deficit – coupled with an awareness that business owners are aging – has made some realize that a permanent repeal is not likely.

Basi warms to the idea of a compromise because he does not believe it will be repealed permanently. And, looking ahead to the '04 presidential election, he points to domestic issues such as the overall economy and health care before adding, "I don't know whether the push to repeal the Estate Tax will be a priority item. A complete elimination doesn't look like it's on the horizon."

Senator Blanche Lincoln, who has advocated estate tax repeal in the past, suggested to the Washington Post that a compromise might be worth exploring.

"I think some (repeal supporters) are coming around to thinking 'Let's get a common-sense solution that can work now instead of just talking about this for eons'," said the Arkansas Democrat following the House vote.

However, one proposal with compromise potential was defeated in the House on June 18. North Dakota Congressman Earl Pomeroy sponsored a compromise alternative that would have raised the individual estate tax exemption to $3 million, and for married couples to $6 million. The proposal, supporters claimed, would cost less than $30 billion over the next 10 years. That amount could be recovered with increases in various fees as well as eliminating various tax shelters for corporations. The Pomeroy proposal was defeated 239-188.