By Grant Williams

Washington

The House and Senate have passed budget outlines that differ significantly in how they would apply the estate tax.

The House version follows what President Obama has proposed and umbrella groups of nonprofit organizations have embraced: keeping the estate tax at levels that are already in effect this year. But the Senate version would cut the estate tax, a move that alarms many charitable organizations.

The two houses will work out differences in a conference committee.

In 2001, Congress passed the current law that gradually phases out the estate tax through 2009 and repeals it for 2010. In 2011, however, the current law is set to expire and estate-tax levels that applied years earlier go back into effect unless Congress takes action.

The budget outline just passed by the House would keep the estate tax at 2009 levels (and do away with the 2010 repeal). Heirs could exempt $3.5-million from taxes ($7-million for couples), with amounts above that taxed at 45 percent.

The Senate’s budget outline would raise the exemption for individuals to $5-million ($10-million for couples) and lower the tax rate to 35 percent.

Independent Sector, a coalition of charities and foundations, earlier this week said it supported efforts to permanently keep the estate tax at 2009 levels. Independent Sector urged Senators not to raise the exemption and lower the tax rate from 2009 levels. Doing so would make charitable bequests more expensive and significantly reducing charitable giving, the organization said.

Studies have shown that the estate tax prompts wealthy people to give more money to charity since that shields some assets from taxation.