Despite rumors earlier this week that the estate tax might see floor action, the Senate had far too many issues on its plate this week for Majority Leader Bill Frist (R-TN) to schedule a vote. He did, however, file for cloture and we can plan on probably seeing an estate tax vote after Senators return from their August recess.

In other estate tax news, this week Sen. Jon Kyl (R-AZ) has floated some new specific numbers regarding reform options. He specifically mentioned a $3.5 million exemption rate and a 15 percent tax rate. While the $3.5 million exemption is much lower than what we have been hearing from him over the past month, the low tax rate still guts the tax. CBPP has estimated, based on Joint Committee on Taxation numbers, that in 2015 the cost of this proposal would be roughly 74 percent of what the total cost of repeal would be.

Americans for a Fair Estate Tax and OMB Watch released a sign-on letter to the Senate today urging opposition to both estate tax repeal and irresponsible reform. The letter showcases the wide-ranging and strong support for the estate tax from over 160 state and national organizations who signed the letter.

The press release and sign-on letter can be viewed here:

Representative Henry Waxman (D-CA) released a fact sheet today highlighting the estate tax. The fact sheet shows that estate tax repeal would save the heirs of President Bush, Vice President Cheney, and the Cabinet somewhere between $91 - $344 million, aggregate.

These numbers are based on the estimated wealth of Bush, Cheney, and 11 members of the cabinet. Estate tax repeal, which may see a floor vote this week, would benefit less than the top 2% of the wealthiest families in America, at the expense of social programs, the charitable sector, and the nation's fiscal health.

While Congress will spend much of this week focusing on CAFTA, there are a number of issues competing for time on the floor or in committee. This includes a procedural vote in the Senate on estate tax repeal, which may happen this week. The Wall Street Journal reported on the possibility of a vote last friday. It is still possible that the estate tax will see floor action later this week. See the Wall Street Journal website for more information.

Sen. Jon Kyl (R-AZ) said yesterday that he continues to hold conversations with Finance Committee ranking member Max Baucus (D-MT) regarding specific parameters of possible estate tax reform. According to reports, it is likely the Senate will vote on a compromise before the end of August.

While many senate Democrats feel pressured to negotiate on the estate tax before the mid-term elections, the specifics that Kyl is discussing could severely gut the tax. Kyl has made it known that he is in favor of an $8 million exemption level, and has also expressed support for instating a ten-year pay period.

Concerning the tax rate, Kyl has said it would be best if it were tied to the capital gains rate (currently 15 percent although it is slated to revert to 20 percent in 2008). The Urban-Brookings Tax Policy Center estimates that this exemption, coupled with the low tax rate, would reduce estate tax revenue by 93 percent overall. In that sense, the reform would be little better than outright repeal.

Not only would a lower the tax rate significantly reduce the amount of revenue brought in by the estate tax, but it should also be viewed as a possible back-door attempt to do away with the estate tax altogether. If the capital gains tax rate were ever brought down to zero, the estate tax would effectively be eliminated. To read more on this, see the Watcher article, "Rhetoric Heats Up On Estate Tax as Political Reality Pushes Compromise," as well as the CBPP report, "Kyl Estate Tax 'Compromise' Proposal Extremely Costly; True Cost Likely to be Masked."

Sunday's New York Times included an article discussing the findings of the estate tax report released by the CBO last friday. The article notes that the number of farms owing the estate tax when the owners die has fallen by 82 percent since 2000. The number has fallen to 300 farms.

The estate tax raised an estimated $23.4 billion last year from the richest 1 percent of Americans. Responsible reform, as opposed to repeal, is necessary in order to ensure this continued source of much-needed revenue. For more information, also see this new Center on Budget and Policy Priorities analysis of the CBO report.

The Congressional Budget Office (CBO) released a report today called "Effects of the Federal Estate Tax on Farms and Small Businesses." The report, which was prepared at the request of Senate Finance Committee Ranking member Max Baucus (D-MT), looks at how family farms and small businesses are truly affected by the existence of an estate tax.

Proponents of estate tax repeal often make the argument that the tax unfairly hurts family farms and small businesses. In reality, a number of exemptions for family farms and small businesses exist, which can serve to significantly lower the number of estate tax filers. This analysis, which uses data from 1999 and 2000, looked at the effects of freezing the estate tax exemption level at $1.5 million, $2 million, and $3.5 million. The report found that any of those expemtion levels, along with a 48 percent tax rate and a large Qualified Family-Owned Business Interest (QFOBI) would substantially reduce the number of small businesses and farmers affected by the tax.

The estate tax needs to be reformed so that in 2011 (when it is scheduled to revert to it's pre-2001 form), family farms and small businesses are not unfairly burdened with the tax. However, as this report alludes to, repeal is not necessary in order to reduce the burden on family farms and small businesses. Deductions like QFOBI as well as raising the exemption level to one of the above-mentioned levels can work to do the accomplish the same end.