Congress will begin determining this week whether it will deal with the politically volatile issue of the future of the estate tax in 2008 or punt it to the next Congress.

A hearing in the Senate Finance Committee on “Federal Estate Tax: Uncertainty in Planning under the Current Law,” will take place on Nov. 13.

According to the Association for Advanced Life Underwriting, the focus of the hearing will be on problems related to current estate tax law.

AALU said there will be another hearing on the issue in December or January, which will address the current and potential future options for reform, followed by a markup of legislation proposed by Sen. Jon Kyl, R-Ariz., probably sometime in the spring.

Under current law, the estate tax gradually declines until it is phased out in 2010, but then reverts to the $1 million level with a 55% tax rate in 2011.

Congress passed a non-binding budget document last year that established the 2009 level of estate tax under current law of a $3.5 million per person exemption and a top tax rate of 45% as the rate through 2012.

But because it is non-binding, it is not law. A number of Democratic senators on the Finance Committee have previously supported varying forms of repeal, “but there is now a significant consideration to the cost and competing priorities,” an AALU official said.

Additionally, according to AALU, “Up to this point, House Ways & Means Chairman Charles Rangel, D-N.Y., has shown little interest in supporting a costly reform package in the House.”

Witnesses expected to testify at the hearing are: Warren Buffett, chairman and CEO of Berkshire Hathaway; Conrad Teitell, an estate planning attorney with Cummings & Lockwood, LLC; Dean Rhoads, a state senator and rancher from Nevada; and Eugene G. Sukup, chairman of Sukup Manufacturing Company, an Iowa firm.

“These hearings are proof that there continues to be a strong desire in the Senate to reform the estate tax prior to President Bush’s sun-setting tax provisions in 2010, said AALU CEO David Stertzer.

But “the lack of interest among the House leadership may act as a deterrent to legislation that could emerge from the Senate,” he said.

AALU is lobbying the issue hard because while the revenue costs associated with any level of reform are significant and the current PAYGO environment presents clear obstacles to reaching a reform deal before the end of 2008, Stertzer said he “believes we will see a major effort made, similar to the one in 2006, to bring this issue to a conclusion before the next presidential term begins.”

He explained that if an estate tax proposal emerges from the Finance Committee or the Senate more broadly, “we want to make sure it is sustainable and that it represents the best tax policy in this area.”

These hearings resulted from a compromise between Sen. Max Baucus, D-Mont., chairman of the Finance panel, and Sen. Jon Kyl, R-Ariz., earlier this year.

According to the AALU, during the debate on an agriculture bill in October, Kyl filed an amendment that would have raised the individual exemption level to $5 million and pegged the tax rate to the capital gains rate with an exemption ceiling of $25 million–over which estates would have been subject to a 30% rate.

To help ensure passage of the agriculture bill, Baucus assured Kyl that the committee would address the estate tax issue first in hearings and then in a committee mark-up in this Congress, the AALU said.

AALU President Larry Raymond said “the hearings provide an excellent opportunity for us to redouble our efforts to ensure that lawmakers know the importance of reunifying the lifetime gift and estate tax exemptions.”

A key issue is so-called “reunification,” which will restore the same system as existed before 2001. Under the law passed in 2001, the gift tax exemption is capped at $1 million, while the estate tax exemption is capped at $3.5 million.

“Reunification should be a key part of any sustainable, permanent estate tax because it will enable clients to do more planning during their lifetime,” Raymond said.

“This has broad benefits not only for our clients, but for society as well,” he said. “As the one year of repeal draws closer, we will continue to stress the need for permanent reform enacted before 2010.”