The U.S. House has passed legislation to keep the gift and esate tax law status quo for the 2009 tax year (with some trivial tweaks) on the books indefinitely. This is a $3.5 million per person exemption of assets from estate tax at death, a $1 million of assets per lifetime exemption for large intervivos non-charitable gifts (which counts against the $3.5 million limit if used), a 45% of non-exempt taxable assets tax rate, and the long standing "step up in basis at death" rules (actually adjust basis to fair market value at death to be more technically correct) that have been in place for decades.
Similiar legislation has stalled in the U.S. Senate, because many Senators (all 40 Republicans and a small number of Senators who caucus with the Democrats) would prefer a $5 million exemption and 35% tax rate. A change in exemption amount has a quite modest impact on revenues collected, a reduction in tax rate has a big impact on revenues collected.
If no compromise is reached, the estate tax (but not the gift tax) will be abolished in 2010, but inherited assets will have the same carryover basis used for gifts during life (for capital gains tax purposes, and subject to certain exceptions). This is a huge boon for those who die rich in 2010, but has little impact on everyone else. This would be followed by a much stiffer than current law estate tax in 2011 (with a $1,000,000 exemption, a 55% tax rate and a 60% bubble rate).
Basically, the House and the Senate are playing chicken. If the Senate blinks, then there is a stable status quo that is reasonably generous compared to prior years, and a House majority will have to approve any change that upsets that status quo. If the House blinks, then the estate tax will collect much less revenue and that will be the status quo that Senate approval will be necessary to upset. If neither the House nor the Senate blinks, estate taxation will be very weird until they reach a deal. If no deal is reached this month or in 2010, the status quo advantage shifts to the House, assuming that there isn't an electoral tidal wave in 2010 that returns the Republican party to power in the U.S. House.
As a lawyer who does considerable trust and estate works with a tax component, this is all rather surreal to watch. The deadline has been looming for many years. Conventional wisdom had assumed that a deal would be struck by now, but we are less than three weeks from the deadline for a reasonable resolution of the estate tax issue.
The U.S. House has also passed the annual "extenders bill" which is mostly uncontroverisal apart from the fact that it includes a controversial provision to pay for the continuation of the tax break. The biggest revenue raiser would tax the "carried interest" performance based compensation part of private equity fund managers as ordinary income rather than the current law treatment which taxes this as a capital gain (with a much lower tax rate).