Today, March 12, the Senate Finance Committee is holding a hearing on alternatives to the current federal estate tax with a panel consisting of three law professors. This is the second hearing planned by the committee on this topic—the first was held in Nov. 2007.

The estate tax, a tax on the transfer of property at the time of death, has undergone a number of changes over the years. Most recently the estate tax was modified by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). EGTRRA reduced the estate tax rate gradually to 45 percent in 2007-2009 and repeals it in 2010. In 2011, however, the estate tax will revert to its pre-EGTRRA form, with rates ranging from 41 percent to 60 percent.

Today's witnesses will examine various alternatives with one likely suggestion to be replacing the estate tax with an inheritance tax. The inheritance tax is distinct from the estate tax in that the individual who receives the gift is taxed rather than the estate of the deceased.

Witness Lily Batchedler, NYU School of Law, proposes the first $2.3 million inherited over a lifetime would be exempt from the inheritance tax. Amounts above that would be included as an individual's income, spread over a number of years to avoid income spikes, and taxed at the individual's income tax level with a 15 percent surtax added. In her plan, family-owned businesses and farms would receive special treatment for illiquid assets and the payment of the tax would be deferred until the illiquid asset was sold.

Regardless of the alternatives proposed at the hearing on this issue, the key players--Finance Chairman Max Baucus (D-Mont.) and Minority Whip Jon Kyl (R-Ariz.)--don’t sound optimistic about moving estate tax reform legislation forward this year.

In a statement, Baucus seemed skeptical about a 2008 estate tax deal, saying "We’ll have to see. All tax bills are difficult, and that one will be no less difficult than most."

Unfortunately, at this time lawmakers aren’t pressured to act on the estate tax, so it is expected they will wait until 2009 to actually move on a proposal.

Beyond Congressional action, or lack thereof, the administration’s FY 2009 budget request includes EGGTRA permanency, which would repeal the estate tax beginning in 2011. The cost of permanent repeal is $149.6 billion for the five-year period 2009-2013 and $521.9 billion for the ten year period 2009-2018. Although this provision is highly unlikely to come to fruition, the continued attention to, and advocacy for, estate tax reform is a positive step.