The U.S. House of Representatives vote April 13 to permanently repeal the estate tax is a win for President Bush’s economic program. But the battle to end federal taxation of estates is far from over. The measure faces its biggest hurdle in the Senate, where lawmakers are divided over repeal.

Sen. Charles Schumer (D-N.Y.) and Sen. Jon Kyl (R-Ariz.) will lead negotiations on senate bill to repeal estate tax. (Photos courtesy Office of Sen. Charles Schumer and the Office of Sen. Jon Kyl)

The 272-to-162 vote was not surprising. This is the fourth time that the House has voted for permanent repeal since approving legislation in 2001 that allowed estate taxes to be gradually phased out by 2010. But if that law is not made permanent, in 2011 the estate tax will return to its pre-2001 level when estates worth more than $675,000 were taxed at a 55% rate.

"Now the trick is in the Senate," says Bill Spencer, vice president of government affairs for the Associated Builders and Contractors. Repeal supporters say they are optimistic, particularly because of the Republican gains in the Senate in the 2004 election. And, fiscally conservative senators who are up for re-election in 2006 realize this is a measure that the business community supports, adds Brian Crawford, ABC’s senior director of legislative affairs.

But Senate opponents, primarily Democrats, generally believe the repeal will worsen the federal deficit and that only the very rich will benefit. Under the phase-out, the top tax rate decreases while the size of the estate that is exempted increases. This year the top rate is 47% and estates worth less than $1.5 million are exempt. In 2009 the top rate drops to 45% and the exemption increases to $3.5 million.

The Associated General Contractors claims that the average construction company has between $3 million and $7 million in equipment, property and plant assets that would be taxed at a higher rate if Congress does not pass repeal. "Family-owned construction companies are hit hard by the death tax because of their investment in heavy equipment and other assets," asserts Stephen E. Sandherr, AGC’s chief executive officer. "It take heavy equipment to build roads, bridges and buildings. Therefore, the more successful a family-owned company, the more likely it will be burdened by the tax," Sandherr adds.

Repeal legislation was introduced in the Senate in February by Arizona’s Jon Kyl (R) and Nebraska’s Bill Nelson (D). "Even though most Americans are unlikely to be subjected to [a tax on inheritances], most agree that it is fundamentally unfair to allow the federal government to seize more than half of a person’s assets when he or she dies," Kyl states.

Senate GOP leaders are hoping that Kyl can craft a compromise with Democrats for a bill that grants relief, even if it is only partial repeal. The Democrats have designated New York’s Charles E. Schumer to lead their negotiations.

In a statement supporting repeal of the estate tax, the White House declared, "The time to fix this problem is now, so American families, small businesses, and farmers can organize their estates without worrying about whether their plans will be jeopardized by a reemergence of the death tax."