Sen. Max Baucus has introduced a bill in the Senate that would make the 2009 estate tax level permanent and reunify the estate and gift taxes.

Under current law, the top rate for all three taxes is 45%, and the exemption is $3.5 million for individuals and $7 million for couples.

In 2010, the current law would eliminate the estate tax and the generation-skipping transfer and cut the gift tax rate to 35%.

But, in 2011, the estate, generation-skipping transfer, and gift taxes are scheduled to revert back to pre-2001 levels, with an exemption of $1 million, a 55% top rate, and a 5% surtax on large estates.

In addition to making the 2009 estate tax level permanent, the new bill, the Taxpayer Certainty and Relief Act of 2009, would allow portability of the exemption for spouses, according to Baucus, D-Mont., chairman of the Senate Finance Committee.

Another provision would increase the amount available under the special use valuation revaluation to equal the estate tax exemption, Baucus says.

Sen. Charles Grassley, R-Iowa, the highest-ranking minority member of the Senate Finance Committee, said Tuesday at a seminar that while Republicans might seek additional estate tax relief, an estate tax bill is likely to pass by August.

Other provisions in the Baucus bill deal with ordinary income taxes.

Under current law, ordinary income tax rates are imposed at 10%, 15%, 25%, 28%, 33% and 35%. These tax rates expire at the end of 2010.

The Baucus bill would make permanent the 10%, 25% and 28% tax rates, according to a summary provided by Baucus. The 15% tax rate is already permanent law.

The Baucus bill would make permanent the reduced tax rate on capital gains and dividends for taxpayers in the 10%, 15%, 25% and 28% brackets.

A 2003 tax bill created a new tax rate of 15% (5% for low-and middle-income taxpayers, going to 0% in 2008) for dividends.

Before the passage of the 2003 bill, dividends were taxed at ordinary income rates. The 2003 bill also reduced the capital gains tax rate from 20% (10% for low- and middle-income taxpayers) to 15% (5% for low- and middle-income taxpayers, going to 0% in 2008).

These reduced tax rates originally were set to expire at the end of 2008, but they were extended until the end of 2010 in the Tax Increase Prevention and Reconciliation Act of 2005.