Overhaul of Estate Tax Is Sought by Senators

WASHINGTON — A bipartisan group of senators are eyeing ways to overhaul the estate tax, including proposals that would target a levy on Americans who receive inheritance, and not on the estate itself.

The Senate Finance Committee heard testimony from scholars who detailed options for reforming or scrapping the much-maligned tax, which Republicans and some Democrats deride as the "death tax."

The hearing was dominated by lawmakers representing rural states who said many of their constituents fear having to sell their family farms or ranches because of the estate taxes.

"Death should not be a taxable event, and government should not be profiting from death," the committee's ranking Republican, Senator Grassley of Iowa, said.

The rates and exemptions of the tax are set to change every year through 2011, when the top rate jumps to 55%. The tax will be repealed for one year in 2010.

The panel's Democratic chairman, Senator Baucus of Montana, said the country "seriously needs estate tax reform."

Lawmakers examined wealth transfer systems in Canada, Australia, and New Zealand, which unlike America place the tax burden on the inheritor and not the estate. Critics of the current system say it effectively taxes income twice, first when it is earned and again when the earner dies and leaves it to an heir.

A law professor at New York University, Lily Batchelder, described a proposal that would tax inheritances at a 15% flat rate over $2 million. She also urged lawmakers to consider a system that allowed heirs to defer taxes on a non-liquid asset, such as a family business, until it is sold, which she said would prevent people from having to sell the business right after their transferring relative dies.

But a Democrat of Arkansas, Senator Lincoln, wasn't sold. "I don't see where you're doing anything but putting off the pain," she said.

The lone committee member from New York, Senator Schumer, did not attend the hearing.