Under the new bill, 99.5% of all estates would be exempt from what critics call the 'death tax.'
In a move hailed by many small-business groups, the House voted on Thursday to drastically scale back the estate tax, after a push for full repeal fell short in the Senate earlier this month.
Under the new bill, which passed by 269 to 156, less than half a percent of the nation's wealthiest estates would be taxed on multimillion dollar assets at the time of inheritance, lawmakers said.
The new bill would see inherited assets valued at less than $5 million, or $10 million for couples, permanently exempt after 2010. It would also reduce the tax rate to just 15% -- the current capital gains rate -- for estates valued up to $25 million, while doubling for larger estates.
Under President Bush's 2001 tax reform bill, the estate tax is currently being phased out by 2010, but is slated to return to its initial 55% tax rate in 2011.
The Senate is expected to take up the new bill sometime next week. GOP lawmakers said they are hoping the new bill, which stops short of full repeal, will attract the roughly half-dozen Democrat votes needed to get the bill past the Senate. The previous Senate bill was only three votes shy of the super majority needed to proceed.
The House bill also includes a tax cut for the timber industry, possibly aimed at luring Democrats from states in heavily forested regions.
Republicans, small-business groups, and other critics claim the estate tax overburdens the nation's business owners, who are typically asset rich yet cash poor.
"Hard-working Americans should be able to pass on their homes and businesses to their loved ones without the government taking an additional cut," Rep. Dennis Hastert (R-Ill.), the House speaker, said in a statement praising the new bill.
"This bill will encourage investment that generates tax revenue, reward people who save, and help Americans in their estate planning," Hastert said.
Rep. Don Manzullo (R-Ill.), chairman of the House Small Business Committee, called the estate tax immoral, saying in a statement that it has "already devastated too many family farms and mom-and-pop businesses."
House Minority Leader Nancy Pelosi (D-Calif.), however, called the estate tax an important source of revenue.
"We are talking about giving $800 billion to a few families in America," Pelosi said in remarks on the floor ahead of the vote.
Congress' Joint Committee on Taxation has estimated the tax cuts under the new bill will cost about $283 billion between 2006 and 2016.