Sen. Bernard Sanders (I-Vermont) along with Sens. Tom Harkin (D-Iowa) and Sheldon Whitehouse (D-R.I.) put forward a new proposal—the Responsible Estate Tax Act—that will permanently fix the estate tax by combining the 2009 exemption levels with progressive rates for larger estates, including a new billionaires surtax.

The bill would institute a tiered rate structure and reinstate the $3.5 million estate tax exemption level ($7 million for couples) that was in place in 2009 before it expired at the beginning of this year. Preliminary estimates indicate the proposed tax would generate $264 billion over the next decade.

The bill would divide an estate's value into brackets subject to rising marginal tax rates. The first bracket, from the $3.5 million/$7 million exemption threshold up to $10 million in value, would be taxed at a 45 percent rate; the next bracket, from $10 million to less than $50 million, would be taxed at a 50 percent rate; and estate values greater than $50 million would be taxed at a rate of 55 percent. That portion of an estate's value that exceeds $500 million ($1 billion for couples) would be subject to 10 percent surtax.

The new Sanders-Harkin-Whitehouse bill also would close several estate tax "loopholes" – as advocated in President Obama’s FY 2011 budget proposal, by requiring consistent valuation for transfer and income tax purposes, requiring a 10-year minimum term for grantor-retained annuity trusts, and modifying the rules for valuation discounts. The provisions would raise $23.7 billion over 10 years.

In an effort to bring Democratic senators from the west back on to the majority's estate tax push, the bill includes carve-outs for farmers and large land-owning ranchers by upping the monetary limit of farmland reevaluation from $1 million to $3 million and indexes it to inflation. The bill provides tax relief to farmers and other landowners by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60 percent.

Important to note, all of these provisions would be retroactive. This means the federal government would be able to recover the $14.8 billion the Joint Committee on Taxation has projected it will lose this year because of the absence of an estate tax.

On the other side, a bipartisan group led by Senate Agriculture Chairwoman Blanche Lincoln (D-Ark.) and Minority Whip Jon Kyl (R-Ariz.) are pushing for a 35 percent rate on the value of all estates worth more than $3.5 million per spouse. Lincoln and Kyl are opposed by a majority of Senate Democrats; however, their measure has been seen as the most likely contender for estate tax reform.

Under statutory "pay as you go" budgeting rules, the 2009 estate tax levels can be extended for two years without revenue offsets, but additional revenue loss must be offset—lawmakers need at least $60 billion in offsets for the Kyl-Lincoln proposal. Kyl has been working on fine-tuning the revenue raising provisions—one option would allow for the prepayment of estate tax liabilities at a lower rate. Under a prepayment trust fund arrangement, a taxpayer could transfer assets into the trust and pay a reduced estate tax on the assets over a short period of time. The assets could then be transferred tax free at the time of the taxpayer's death.

The other issue Lincoln-Kyl are dealing with is a vehicle for moving their proposal. Kyl is currently considering a small-business capital gains tax relief bill as a possible vehicle for his estate tax proposal. On June 15, the House passed H.R. 5486, the Small Business Jobs Tax Relief Act of 2010, but it has yet to be taken up in the Senate.

A number of other liberal Democrats may come out in support of the Sanders-Harkin-Whitehouse bill, which would prevent Democratic leadership from allowing a clean vote on the Lincoln-Kyl bipartisan compromise.

Still, the question remains whether there is enough support in Congress for any estate tax compromise. On the Senate side, especially, there doesn’t seem to be 60 votes for anything to pass at this point.