Kyl: Senate deal off on estate tax

An agreement has fallen apart on an estate tax proposal that had appeared resolved between Senate Democrats and Republicans, a lead negotiator said Tuesday. 

Senate Minority Whip Jon Kyl (R-Ariz.) said the accord, which was all but forged a week ago, began to dissolve Monday night and broke down Tuesday after talks between leaders in both parties.

After talks with Senate Finance Chairman Max Baucus (D-Mont.) and Senate Minority Leader Mitch McConnell (R-Ky.), they scrapped a plan to move forward with the tax that expired at the end of 2009. 

The reasoning, Kyl said, is that Senate Democrats aren't allowing any legislation to reach the floor that doesn't have support from the majority of its members. 

"We no longer have an agreement because the Democratic side has decided that unless a matter has a guaranteed majority of Democratic votes going in, they're not going to allow it on the floor, at least not voluntarily," he said. "So we have to find a way to get a reasonable permanent estate tax reform to the floor where members can vote on it."

The agreement was being worked out among Sens. Chuck Grassley (R-Iowa), Blanche Lincoln (D-Ark.) and Baucus, among others, on specific terms and details on offsets, Kyl said. 

Kyl hasn't disclosed the proposal's details, but sources have told The Hill that lawmakers were looking to give taxpayers the option of prepaying their estate tax. The levy would be set at 35 percent for those worth more than $3.5 million. However, the exemption would ultimately increase over time to $5 million and wouldn't be indexed for inflation. Prepayment trusts would pay a lower rate. 

The proposal was expected to be fully compliant with pay-as-you-go rules. 

It was unclear how the gift tax would be addressed but Kyl has said he would like the rate to mirror the estate tax. 

The House recently passed legislation creating a 45 percent tax on estates worth more than $3.5 million.