Extenders blocked--what does it mean for estate tax reform?

Tax Notes reports ($) that the Senate is having trouble swallowing the extension of  expired tax provisions, which have been coupled with the extension of unemployment benefits and other spending.  Reportedly, certain centrist Senators have objected that the provisions aren't fully "paid for," suddenly they've become deficit hawks. I wonder if the real story isn't that the hedge fund managers are successfully heading off a change in the taxation of carried interests, currently treated as capital gains. That's the new provision intended to offset the lost revenue from the extenders.  (Please ignore the fact that the extenders, such as the R&D credit, create economic growth that likely make them revenue generators, not losers; those effects are beyond the capacity of our scorekeepers to measure.)

Let's take the deficit reduction argument at face value.

Like nearly all observers of transfer tax policy, I never expected to have a year without federal estate taxes. I thought it was a clever ploy for manipulating the scoring system.  If, in 2009, Congress had lifted the estate tax exemption to $5 million, the lost revenue in 2011 and later years would have been offset by the gain over having no estate tax in 2010.  That would have made the change more palatable.

Now it looks increasingly as if there will be no estate tax for 2010, no retroactive changes.  Any increase in the exemption amount above $1 million, even a restoration to 2009's $3.5 million, will be scored as a serious addition to the deficit.  One that benefits only "the rich."  I don't think it will happen.

We are preparing marketing materials based on a $1 million exemption in 2011 and later years.

BTW, once it becomes crystal clear that there will be no retroactive changes to gift tax rates, I expect a flood of taxable gifts this year to take advantage of the temporary 35% tax rate.  Good revenue news short term, but long term it's the largest family fortunes that will take advantage of the opportunity, and so estate tax collections will be reduced for decades.