WASHINGTON - Republican and Democrat Senators are nearing the end of negotiations to finalize an agreement on the estate tax, Congress Daily reports. Senate Minority Whip Jon Kyl (R-AZ) indicated that an agreement with Senate Finance Chairman Max Baucus (D-MT), Sen. Charles Grassley (D-IA) and Senate Agriculture Chairwoman Blanche Lincoln (D-AR) would put a 35 percent estate tax rate over a $5 million per spouse exemption level, indexed for inflation.

Some questions still need to be hammered out, including when the new rate and exemption level would take effect and how the difference between the new law and the 2009 regulation would be reconciled. Phasing in the new rates and exemption level would be the least costly, but any phase-in might require expenditures between $60 billion and $80 billion beyond the approximately $250 billion necessary to bring back the 2009 permanently.

Kyl has talked with Senate Majority Leader Harry Reid (D-NV) on how to move forward an estate tax measure but nothing has been decided. Such an estate tax bill could impact the small-business tax incentives measure Baucus is marking up this week, as Kyl might halt work on that to gain leverage on an estate tax bill. While previously Baucus approved a 35 percent estate tax rate with a $5 million exemption, in 2009 he sponsored a measure that would have made that year??s rates permanent.

"It??s our hope that in the relatively near future we??ll be able to get estate tax reform considered by the Senate and get it passed," said Kyl.

However, a companion bill in the House has not been introduced, partly because of issues relating to the budget. In December, the House approved a measure to keep the 2009 estate tax permanently but that was prior to Congress passing a statutory pay/go law earlier this year that limits the length of time to two years a lower estate tax could receive extensions without offsets.

Kyl doesn??t see that as a hindrance to his bill. "If we use the House bill as the base bill, then the entire thing doesn't have to be offset," said Kyl. "It passed the House, and if 60 senators are willing to pass [a permanent fix], it??s passed."