A House Republican has introduced a major estate tax reform bill that stops short of calling for full repeal.

The new compromise bill, H.R. 5638, the Permanent Estate Tax Relief Act of 2006, could reduce federal tax revenue by about $280 billion over the first 10 years, according to the Congressional Budget Office.

Rep. Bill Thomas, R-Calif., the primary author of H.R. 5638 appears to be trying to get the full House to vote on the bill at noon Thursday.

The American Council of Life Insurers, Washington, responded to the introduction of the Thomas bill by stating that it “supports meaningful, equitable, affordable and sustainable estate tax relief that would ensure long-term tax-planning certainty for all Americans.”

David Stertzer, chief executive of the Association for Advanced Life Underwriting, Falls Church, Va., has expressed concerns about the new proposal.

“While I applaud Chairman Thomas’ effort to find a permanent solution to the estate tax issue, we continue to encourage members in both parties in the Congress to focus on the long-term costs of any estate tax proposal,” Stertzer says.

“We continue to stress to key senators that they support only sustainable solutions to the estate tax issue, such as those floated by Sens. Thomas Carper, D-Del., [and] Sen. Ken Salazar, D-Colo.,” says AALU President Dermot Healey.

The new Thomas bill would increase the exemption amount to $5 million per person effective Jan. 1, 2010, and it would reduce the tax rate on estates up to $25 million to the capital gains tax rate. That rate is 15% today, but it will increase to 20% in 2011 unless Congress intervenes.

The bill also would reduce the rate of tax on estates of $25 million or more to twice the capital gains rate. That rate would be 30% today, but it would increase to 40% in 2011 unless Congress intervenes.

Senate Democrats appear to be supporting a proposal that would use the current-law rules for 2009 to create a permanent fix. Under current law, the per-spouse exemption will be $3.5 million in 2009, and the maximum tax rate will be 45% rate.

The exemption for 2006 is $2 million per person and the maximum tax rate is 46%.

Under present law, the exemption gradually rises to full repeal in 2010. But, unless the law is renewed, the tax would revert to 2001 levels, which allowed only a $1 million exemption per spouse and imposed a maximum tax rate of 55%.

The insurance industry is coalescing around legislation that would establish a $2.5 million-per-person exemption and a 45% maximum tax rate.

One significant feature of the latest House bill is the retention of a stepped-up basis for assets once the assets are bequeathed by an estate

Another significant feature would eliminate a carry-over basis provision included in some proposals. The carry-over basis provision could have saddled some beneficiaries with big capital gains tax bills, experts say.