June 27 (Bloomberg) -- Senate Majority Leader Bill Frist postponed a vote on a measure to exempt most multimillionaires from federal estate taxes after conceding Republicans lack the votes to pass legislation adopted by the House last week.

The delay is the third since Frist began his quest to repeal or reduce the tax last year and the second time this month his ambitions were thwarted by Democrats who say the government needs the revenue generated by the tax. The House passed the legislation 269-156 on June 22 after Frist urged it to act before the Independence Day recess next week.

``The Senate will vote on a permanent reduction to this tax,'' Frist said in a statement. ``The vast majority of my Democratic colleagues have so far refused to address this issue; it's my hope that their constituents will use the upcoming recess to explain the importance of supporting a reasonable and permanent solution to this unfair tax.''

The delay allows Frist to avoid a repeat of a Senate vote on a procedural motion on June 8, when Republicans fell three votes shy of allowing a vote on outright repeal of the tax on estates valued at more than $2 million.

``Obviously, we're trying to make sure we got 60 votes,'' said Senator Jon Kyl, an Arizona Republican who has sought a compromise with Democrats such as Senator Max Baucus of Montana to reduce the tax instead of repealing it.

Kyl said Senate Republicans are determined to pass the legislation this year, though they want to ensure they have the 60 votes needed to withstand a challenge by Democrats. Republicans control 55 seats in the chamber; 60 votes are required to overcome filibusters, the legislative maneuvers that can kill legislation.

House Measure

The House legislation would spare all but about 2,800 multimillion-dollar estates from federal tax by exempting the first $10 million of a couple's estate from any tax. Estates valued between $10 million and $25 million would be taxed at the capital-gains rate, while estates of more than $25 million would be taxed at top rates of 30 percent to 40 percent.

The measure, which would take effect in 2010, also includes a tax break for timber companies intended to lure Senate Democrats from timber-producing states such as Washington, Arkansas, and Louisiana.

The measure, characterized as a take-it-or-leave-it offer by House Ways and Means Committee Chairman Bill Thomas, a California Republican, has had a lukewarm reception in the Senate.

Timber-State Lawmakers

Some Senate Republicans who favor full repeal of the estate tax said the new version doesn't go far enough to help small- business owners and farmers. Timber-state Democrats such as Maria Cantwell and Patty Murray of Washington, Mark Pryor of Arkansas, and Mary Landrieu of Louisiana haven't said they would back the House legislation after voting against full repeal June 8.

Thomas said today that any modification by the Senate would kill the legislation. ``If they decide to amend it in some small way and send it back to the House, it's over,'' Thomas said in an interview.

For Frist, it would mark the third significant delay for Senate action on the estate tax. His original plan to hold a vote in July 2005 was scuttled by the aftermath of Hurricane Katrina, when Republicans said they were wary of voting on a measure cast by critics as only helping millionaire families after thousands of poor people lost their homes to the storm.

A second vote promised for May was delayed until June as Frist searched for support for full repeal.

The federal estate tax currently assesses rates of up to 46 percent on estates valued at more than $2 million per individual The exemption amount is scheduled to increase under current law to $3.5 million per individual or $7 million per couple by 2009. A top rate of 45 percent would apply to estates exceeding that value at that time.

2,800 Estates

Under current law, 12,600 estates -- or less than 1 percent of all people who die -- will be subject to the tax this year, according to estimates by the Tax Policy Center, a non-partisan research institution in Washington. The center estimated that a plan similar to Thomas's would reduce the number of taxable estates to 2,800 and would cut their tax rate to as low as 15 percent from about 45 percent.

The legislation also repeals a federal deduction for tax payments to the 23 states that retain their own estate or inheritance taxes, including Washington, Tennessee, Ohio, New York, New Jersey and Connecticut. That would subject residents of those states with large estates to double taxation, said Harley Duncan, executive director of the Federation of Tax Administrators, a Washington-based association of state tax officials.

To contact the reporter on this story: Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: June 27, 2006 16:50 EDT