Most Republicans believe you shouldn’t have to pay a tax just for dying.

We know most Democrats, however, believe there isn’t a single tax on any good or service that’s yet high enough in this country, so when they think of a tax that’s scheduled to fall to zero, it causes them sleepless nights.

Upon returning from D.C. a couple of weeks ago, I said it was a certainty that Democrats would be hiking the estate tax by year end. Now, details of their plans are starting to emerge.

First, remember that throughout the decade, the estate tax rate has inched down (to a current 45%) while the size of the estates exempted from the tax outright has been marching steadily higher (currently $3.5MM or $7million for couples).

Well, on Friday afternoon, Congress Daily reported that the House could be acting to raise the death tax by early November. Their biggest challenge, however, is the nettlesome little “95%” tax cut promise repeated endlessly throughout the campaign by Obama the Tax Cutter.

How can they dump Bush’s 2010 repeal of this tax without it being called a tax hike? And if they do raise, which they will, is there a way they can craft it in such a way that it falls on less than 5% of Americans in order to preserve the President’s promise?

From the Congress Daily article:

Democratic leaders are wary that if members vote to reinstate the tax for 2010 without the corresponding tax cut the following year, Republicans and anti-tax groups could frame the vote as a tax hike.

House Democratic leaders have been gauging support in the Caucus for a permanent extension of the current estate tax, which is set at 45 percent with an exemption for up to $3.5 million in assets, or $7 million per couple. Moderates and Blue Dogs seeking some certainty and predictability in estate planning are largely comfortable with it.

The vote-counting gets tricky with progressives, who argue a higher estate tax would make the wealthiest Americans pay a bigger share. But Democratic leaders argue the 2009 rate may be the best deal they can get, because the alternative is zero estate tax next year if lawmakers fail to act, or a lower rate backed by bipartisan coalitions in both chambers.

“Democratic leaders are wary that… Republicans and anti-tax groups could frame the vote as a tax hike.” How dastardly—calling a tax hike a tax hike!

But it’s not just House Republicans who are causing trouble for Democrat Leadership; while they want a permanent estate tax rate of 45% or even higher, a group of more moderate members of their own caucus supports a lower permanent level of 35%, and permanent exemption of $5 million indexed for inflation. Cleverly, by raising the exemption these moderates point out that 99.8% of all estates would be exempt from the death tax, which would seemingly still keep the President's promise intact.

There’s enough bi-partisan support for such a rate that Democrat leaders, who feel that a 35% level is too low, may have to settle for a one-year extension of this year’s 45% rate, buying themselves time to figure out how to exact a heavier toll in perpetuity.

When we lost the majority, it became certain that an outright repeal of the death tax was out of the question, which was the goal of the Bush plan (even if silly pay/go rules in Congress provisions did leave even that outcome an open question).

So, we know we’re getting a tax hike here, it’s just question of how big—something we won’t have to wait long for in order to find out.

In the current environment, Republicans should be railing in public against any hike in this tax, while quietly working behind the scenes to help that more moderate plan move forward if that’s the best we can get.

Unfortunately, it probably is.