On December 3 2009, the U.S. House of Representatives, by a vote of 225 to 200, passed long-awaited legislation concerning proposed changes to the federal estate tax. The new bill, H.R. 4154, officially titled the Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act of 2009, would, if eventually signed into law, permanently extend the 2009 top federal estate tax rate of 45% and provide for an estate tax exemption of $3.5 million ($7 million for married couples with properly drafted estate planning documents fully utilizing each spouse's exemption). The bill would also continue the 2009 rules permitting estates to pass on property with a stepped-up cost basis for income tax purposes.

As for the U.S. Senate, its schedule in December has been so dominated by the debate on health care reform that little time has been left for action on estate & gift taxes.  As a result, the estate tax is repealed for 1 year, effective January 1, 2010, returning in 2011 with a 55% top rate, while the gift tax is retained witha a 35% rate. Further, there is a step-up in basis for estates valued at up to $1.3 million. Because there is no basis step-up for estates values in excess of $1.3 million, children and other heirs of larger estates who later sell the inherited property may have to pay large capital gains taxes on the proceeds.

House Republicans were joined by 26 Democrats in voting against the bill. The Ranking Minority Member of the House Ways and Means Committee, Rep. Dave Camp (R-MI), stated: "Death should not be a taxable event. Death should not force the sale of family farms or the dissolution of small businesses."  Mr. Camp believes that the extension of the 45% rate is confiscatory and that no American should have the federal government take away nearly half of his or her net worth upon death. In addition, Rep. Camp stated his serious concerns with respect to the fact that the $3.5 million exemption would not be indexed for inflation. He noted that as property values increase in the future more family farms and small businesses will fall subject to the estate tax.

Rep. Earl Pomeroy (D-ND), supported the House bill to permanently extend the $3.5 million exemption and 45% estate tax rate. He noted that the repeal of the estate tax will result in larger capital gains taxes for many children and other heirs.

The congressional Joint Committee on Taxation estimates the cost of the bill to be $233.6 billion over 10 years.  Nevertheless, under an exception to the House of Representatives' typical pay-as-you-go ("PAY-GO") rules, this particular bill is not being offset by any tax increases.

A permanent extension of estate tax rates and exemptions was proposed by House Majority Leader Steny Hoyer (D-MD), who suggested that eliminating the estate tax would add billions to the federal deficit and cause even further economic inequality among Americans.