"Key Democrats predicted the federal estate tax will expire after Dec. 31 because an impasse among lawmakers will prevent an agreement on extending the current levy before Congress takes its holiday break.

The lawmakers said Congress would likely seek to restore it retroactively next year. [...] A temporary expiration would hand a victory to congressional Republicans who enacted legislation in 2001 to phase out what they call the “death tax.” It also would subject tens of thousands of heirs who otherwise wouldn’t owe taxes to capital gains rates if they liquidate inheritances. [...]

Unless Congress acts, the estate tax would be replaced next year by a capital-gains tax on all but the first $1.3 million in inherited assets, including homes, stock certificates, stamp collections and livestock.

Heirs who sell those assets would pay from 15 percent to 28 percent in taxes on any appreciation in value since the assets were acquired. Current law imposes capital-gains taxes only on any increase in value after the assets are bequeathed.

[Rep. Earl] Pomeroy [D-ND] said some 61,000 Americans would face taxes under the capital gains regime, versus about 6,000 estates that would face a tax under an extension of the current law. [...]

A prominent proponent of taxing large estates, Bill Gates Sr., father of Microsoft Corp. founder Bill Gates and co- chairman of the Bill and Melinda Gates Foundation, urged Congress to retain the tax.

“Society has a just claim on these fortunes,” Gates told reporters yesterday on a conference call organized by United for a Fair Economy, a Boston-based advocacy group in favor of keeping the estate tax."

Read the full article by Ryan J. Donmoyer on Bloomberg.com