I have previously blogged about a plan Harry Reid (D-NV) that would prevent the 2001 estate tax rates from becoming law on January 1, 2013.  On Tuesday, Senate Democrats dropped this proposal (including President Obama’s proposal).  The Republicans in the Senate are proposing keeping the rates for the estate and gift tax at current levels.

The re-imposition of 2001 tax rates was avoided in 2009 by an agreement with new Republican majority in the House of Representatives, a bi-partisan group in the Senate, and President Obama.  It is possible that Senator Reid dropped the estate tax provisions to show a unified front.  Keeping the estate tax at current levels is un-popular in the Democratic Party as was President Obama’s compromise.  This could be part of “grand bargain” that may be struck before the New Year.  However, eight Senate Democrats voted for the compromise in 2009.  It is unclear how popular the 2001 rates will be in Congress, especially as an election approaches.

Under 2001 law, there would be a 55% tax rate with an exemption amount of $1,000,000.