After Senate backers of permanent repeal failed to win cloture vote, House Ways and Means Chairman Thomas crafted an alternative that exempts more estates from the tax, but doesn’t end it. “The House had a choice,” he said. “Make another political statement or approve a bill that can become law.”

Will the Senate approve something like the House measure? It won’t act right away. Senate Majority Leader Bill Frist (R-Tenn.) said June 27 that there won’t be an estate tax vote until after the July 4 recess. “We’re not disappointed with the delay,” says Macey Davis, tax counsel for the National Federation of Independent Business. “We think that actually helps our efforts tremendously in getting the senators on board who might be on the fence.”

Danielle Ringwood, Associated Builders & Contractors’ senior director for legislative affairs, says, “We remain optimistic that an agreement will be reached by the end of this session.” ABC, NFIB and other industry groups favor permanently repealing what they call the “death tax.” But the Senate votes don’t seem to be there. Ringwood believes that the Senate will eventually agree on a compromise position.

The House has passed repeal bills before, most recently in April 2005. But the legislation bogged down in the Senate. The latest Senate setback for repeal advocates came June 8, when they came up three votes short of the 60 needed to block a filibuster on permanent repeal.

Less than two weeks later, House Ways and Means Committee Chairman Bill Thomas (R-Calif.) introduced a compromise, which the full chamber approved quickly. Said Thomas: “The House had a choice. Make another political statement or approve a bill that can become law.”

The Associated General Contractors backs permanent repeal. But after the House passed the Thomas bill, AGC CEO Stephen E. Sandherr said, “The House has created an excellent opportunity for the Senate to vote on this compromise legislation to end the harmful impact of the death tax.”

The House bill would exempt estates of $5 million or less from inheritance levies, as of Jan. 1, 2010. For 2006, the effective exemption is $2 million. Under current law, it will rise to $3.5 million in 2009. For estates between $5 million and $25 million, the bill would cut the rate, which tops out at 46% this year, to the capital gains tax rate, currently 15%. The bill would tax estates of $25 million or more at double the capital gains rate.

Under a 2001 statute, the estate tax gradually decreases until 2010, when it is set to be repealed. But if Congress does not act, the levy would return in 2011 and hit estates valued at more than $1 million. The maximum rate would jump to 55%.

he fate of major changes in the federal inheritancetax now rests with the Senate after the House passed a bill June 22 that exempts more estates from the levy but doesn’t do away with it for all taxpayers.