Senate works on estate tax deal to grease the skids for a jobs bill

Senate leaders are working on an estate tax deal to make it easier to move a bipartisan jobs bill.

The deal discussed by Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) involves moving an estate tax bill through the Senate that would prevent a huge hike in the tax from taking effect in 2011, staffers and lobbyists say.

For Reid, it could provide crucial Republican votes for the jobs bill in a Senate where Democrats now have only 59 votes. Republicans would get a vote on legislation to stop the estate tax from returning to a historically high level.

The exact nature of the deal is still subject to negotiations, and the final details of a jobs bill are unclear. But the basic deal would involve Republicans providing enough votes on the jobs bill to give it the 60 votes necessary to clear procedural hurdles in exchange for a vote on the estate tax.

The tax is currently repealed, but barring congressional action it returns next year to pre-2001 levels by socking estates worth more than $1 million with a tax that tops out at 55 percent. Republicans and more than a few Democrats oppose this level and prefer rates set in 2009, when estates worth over $3.5 million were taxed at a top rate of 45 percent.

Lobbyists say the Reid-McConnell talks have been fruitful, but historic snows in Washington have delayed a final decision on when an estate tax fix might move.

A Senate vote on the House-passed bill is one alternative for getting Republicans to support a jobs package.

In December, the House passed legislation (H.R. 4154) making permanent 2009 estate tax rules, which costs a whopping $233.6 billion over 10 years.

While Republicans favor a consistent tax over one that is temporary, they also prefer a lower rate than 2009 levels as well as higher exemption levels than 2009 law that would be indexed for inflation.

What many Republicans would really like is a vote on a proposal by Senate Minority Whip Jon Kyl (R-Ariz) and Sen. Blanche Lincoln (D-Ark.) that was offered during last year’s budget debate. Their legislation would cap the estate tax at 35 percent on estates worth more than $5 million.

Sen. Maria Cantwell (D-Wash.) has also forwarded a proposal to the Joint Committee on Taxation that allows wealthier taxpayers to pre-pay their estate tax at a discounted rate. However, several Republicans don’t support this measure since it is unpopular with the estate-planning community.

All of these options would reinstate an estate tax retroactive to Jan. 1, though there are constitutional questions over whether Congress can do this.

Such a move could create endless litigation as taxpayers cry foul over being taxed subsequent to receiving their inheritance. To circumvent the issue, Republican Finance staffers floated the idea of raising the levy’s exemption limit exceedingly high so only the wealthiest of estates would owe the tax. It is unclear if Democratic Finance staffers have embraced the idea.

Senate aides on Monday said leadership is still aiming to complete a jobs bill by the end of the week, despite more snow expected in a city that is still digging out of a weekend storm. Congress will be on a one-week recess next week.

The Senate bill will likely offer employers a payroll tax credit for hiring workers who have been unemployed for at least 60 days and resuscitate tax breaks that expired last year, like the business-friendly research and development tax credit.

It is also expected to include bonds for state infrastructure projects as well as a one-year extension of highway funding. But Finance staffers say Republicans oppose using revenue for road projects and want the measure struck from the bill. Other staffers say the highway portion of the jobs bill could be paid for by interest that is owed to the trust fund by the general fund.

Once the Senate bill is introduced, the House plans to unveil a jobs package independent of the $174 billion measure it passed last December that did not garner any Republican support. The new House jobs bill will likely mirror measures in the Senate plan.