Sept. 29 (Bloomberg) -- Forty-six business groups, including the National Federation of Independent Businesses and the U.S. Chamber of Commerce, want Congress to impose a permanent 35 percent tax on estates worth more than $10 million.

The groups’ appeal marks the end of their longstanding call to scrap estate taxes. On Jan. 12, Chamber Executive Vice President Bruce Josten called for sending “the death tax to the grave once and for all.” In March, the groups restated that goal, while leaving the door open to a compromise.

With the estate tax currently set to expire for a year in 2010, the groups, which also include trade organizations such as the American Farm Bureau Federation and the National Association of Manufacturers, are seeking to avoid different sets of rules for this year, next year and 2011.

“Family businesses cannot afford mixed messages from Congress on this critical issue,” the groups said in a Sept. 24 letter to lawmakers. “A mere one-year extension of existing law will only add to the planning burdens on businesses that are already facing difficult economic times.”

While the levy is scheduled to vanish next year under a phase-out Congress approved in 2001, it is due to return in 2011 with a top rate of 55 percent on estates worth more than $1 million. For this year, couples’ estates valued at more than $7 million are taxed at a top rate of 45 percent.

The business groups’ call for a permanent estate tax marks a break from anti-tax groups such as Americans for Tax Reform that continue to push for repeal and argue that small businesses will be hurt by the levy.

‘Job-Killing’

Americans for Tax Reform, run by Republican activist Grover Norquist, on Aug. 31 declared its support for legislation sponsored by Representative Kevin Brady, a Texas Republican, that would permanently scrap the levy. Allowing the estate tax to return, the group said, would amount to “a job- killing tax hike.”

Norquist said in an interview today that the groups sending the recent letter to Congress were trying to get the best deal possible because “this Congress is not going to abolish the death tax.” He said their position won’t hurt Americans for Tax Reform’s larger goal of repealing the levy.

“This is an issue that violates people’s sense of justice,” he said, adding that less than 5 percent of people ever pay the tax. “We win the death-tax debate on the justice argument, not on the self-interest one.”

Full Repeal

Dick Patten, president of the American Family Business Institute, said his group was asked and refused to sign the letter because it is still holding out for full repeal of the tax.

“Thirty-five percent instead of zero is not a good answer for family businesses,” Patten said. “We’re going to do everything we can to prevent the law from changing,” which would allow the levy to be repealed as scheduled in 2010.

In 2010, the estate tax will be replaced by a capital gains tax on all but the first $1.3 million in inherited assets including homes, stock certificates, stamp collections and livestock.

Heirs who sell those assets face rates between 15 and 28 percent on any appreciation in value in the assets, because they were purchased by the original owner. Current law imposes capital gains taxes only on any increase in value after the assets are bequeathed.

A 2005 study by John Buckley, chief tax counsel for the House Ways and Means Committee, found that 7,500 households would face estate taxes this year. Roughly 75,000 people would face capital gains taxes in 2010 under the new rules.

Democratic Proposal

The 35 percent rate and $10 million exemption endorsed by the Chamber, NFIB and other business groups would amount to a tax cut relative to 2009 law. It also would be more generous than legislation introduced in the House by Representative Earl Pomeroy, a North Dakota Democrat, that would extend the 2009 law.

Pomeroy spokeswoman Sandra Salstrom said the congressman was pleased with the group’s “commitment to finding a permanent solution to the estate tax issue.” Still, she said budget rules make it unlikely the House will consider more generous tax relief than making the 2009 law permanent.

The Chamber of Commerce and its allies patterned their proposal after a Senate plan by Senators Jon Kyl, an Arizona Republican, and Blanche Lincoln, an Arkansas Democrat. That plan passed the Democrat-controlled Senate April 2 on a 51-48 vote during a budget debate. The measure would likely need 60 votes to win final Senate approval.

Bill Rys, tax counsel for the NFIB, said the coalition of business groups decided it was better to push for adoption of a permanent estate tax rather than buck the opposition of Democrats, including President Barack Obama, to repealing the levy.

“It’s the best possible relief we can provide for small business,” Rys said in an interview. “We think that’s a good solution right now.”

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

Last Updated: September 29, 2009 19:00 EDT