A consensus appears to be emerging in the Senate to reform rather than repeal the estate tax going forward–and to act before 2010, when the estate tax goes to zero before returning to 2001 levels in 2011.

In a hearing where the views of academics on the issue were aired and through votes on provisions to be included in a non-binding budget resolution, members of the Senate appeared to be voicing particular concern about the effect the estate tax will have on small businesses and family farms which do not have the liquidity to pay such a tax.

The key vote was on an amendment by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, seeking broad “middle-class” relief. The amendment passed by a 99-1 vote on March 13, with Sen. Russell Feingold, D-Wis., the only senator to vote against it.

Provisions included in the amendment are an extension of the refundable child tax credit, providing relief from the marriage tax and estate tax reform.

The amendment would meet “paygo” requirements imposed by Democrats by using an expected $300 billion budget surplus in the 2012-13. The estate tax provision, if enacted, would freeze the estate tax at the 2009 level–a $3.5 million individual exemption and a 45% tax rate–indexed for inflation.

Under the 2001 law that governs the estate tax, the tax goes away in 2010, but re-emerges in 2011 with a $1 million individual exemption and a 55% tax rate.

The second amendment due to be taken up during floor debate on the budget resolution sets aside a reserve fund that would allow the estate tax law to increase to a $5 million exemption with a 35% rate.

This amendment was filed by Sen. Ken Salazar, D-Colo., and is favored by several senators, including Sen. Blanche Lincoln, D-Ark., who do not think that freezing the tax at the 2009 level sufficiently addresses the estate tax concerns of illiquid family farms and small businesses.

At an earlier hearing, Sen. Charles Grassley, R-Iowa, ranking minority member of the Senate Finance Committee, voiced similar views. He said he believes the estate tax must be dealt with soon. In his opinion, “it is an inequitable tax which imposes too high a burden on small businesses and family farms,” Grassley said, adding that he would like to see a “fiscally responsible compromise passed.”

The third amendment, filed by Senator Jon Kyl, R-Ariz., does not meet paygo requirements and raises the estate tax exemption to $5 million with a 35% maximum rate, indexed for inflation.

The votes on the Salazar and Kyl amendments came after press time.

David Stertzer, CEO of the Association for Advanced Life Underwriting, said before the votes on the estate tax on March 13 that “the developments in the Senate are the first significant action on the estate tax this year.”

The votes, as well as the series of hearings being held in the Senate Finance Committee, “are indicative of the Senate’s desire to resolve this issue before 2010,” Stertzer said. He explained that while the budget resolution process is significant, it merely provides the fiscal guidelines for Congress to follow throughout the year.

“It does not have the force of law and any policies recommended during the resolution debate must be enacted through tax legislation,” Stertzer said.

The AALU, as well as lobbyists for the National Association of Insurance and Financial Advisors, support “fair, and fiscally responsible estate tax reform, and that is best represented in the Baucus amendment,” said AALU President Larry Raymond.

“While reunification of the lifetime gift and estate tax exemptions is not being considered in these amendments,” Raymond said, “we must continue to emphasize the evident planning benefits that reunification provides.”

He added that AALU will “continue to play a vital role (in lobbying) as this issue evolves in the coming months.”