Liberals appear to be deeply unhappy with the compromise President Obama reached with the Republicans. It's possible, but not likely, that they will scuttle it. It's more probable that they will try to change the details. However, usually Congress takes months, not days, to hammer out the nitty gritty of major tax legislation.
Key elements of the Republican estate tax legislation as accepted by Obama:
• Estate tax exemption of $5 million, retroactive to January 1, 2010. Estate tax rate set at 35%. Exemption indexed for inflation after 2010.
• 2010 decedents have the option to be taxed under carryover basis instead. So, no constitutional problems.
• Gift tax exemption goes to $5 million, as estate and gift taxes are reunified.
• Portability of estate and gift tax exemptions between spouses, but serial marriage can't lift the exemption above the maximum. Inherited unused exemption amounts not inflation indexed.
One item from the Baucus proposal that may yet be included, that the Republicans overlooked, was to effectively exempt family farms from the estate tax. It would help the optics for the death tax considerably, eliminating one of the most potent arguments for those who want death taxes killed. On the one hand, there would never be an estate tax so long as the farm stayed a farm. On the other hand, there would be a recapture tax if the farm was ever sold or developed, and there would be no time limit for the recapture (unlike special use valuation). Not clear if the recapture spans multiple generations and transfers.
The Republican plan feels to me like a permanent change to the estate tax, not a temporary patch on the way to outright repeal. I would say that the money invested by the life insurance industry to keep the estate tax has paid off.