WASHINGTON — You have the 99 percent, the vast American majority embraced by Wall Street protesters against the wealthiest 1 percent.

Then there is the 0.13 percent.

That's the estimated share of American estates large enough to trigger the federal tax on heirs, after President Obama and Congress agreed to a two-year reduction last December.

Individuals can pass on $5 million tax free in 2011 and 2012. That's up from an exemption of $3.5 million in 2009 and just $675,000 a decade ago.

Rep. Jim McDermott says that's too generous.

As Democrats and Republicans wrangle over the fate of expiring tax breaks — including the payroll-tax holiday and the Bush-era income-tax cuts — the Seattle congressman is opening another front in the tax wars.

A week before Thanksgiving, McDermott introduced the Sensible Estate Tax Act of 2011. The measure would raise the estate tax back to pre-2001 levels, reversing a decade of sharp drops. It's McDermott's third crack since 2008 at rewriting what some people call a tax on wealthy dead people.

As it now stands, estate taxes will rise automatically in 2013 unless Congress intervenes. The current deal for a $5 million exemption ($10 million for couples) and a top marginal tax rate of 35 percent is slated to revert to a $1 million exemption for individuals with a top rate of 55 percent.

McDermott, a senior Democrat on the tax-writing House Ways and Means Committee, would restore the top rate of 55 percent.

But he would ease up on the exemption by pegging it to inflation starting in 2000. So the actual exemption next year would be $1.31 million for an individual and $2.61 million for a couple.

McDermott argues his bill is more equitable than shielding so much wealth from taxes. The legislation would bring in tens of billions of dollars a year in extra federal taxes.

McDermott said it also would bring much needed certainty to estate planning. In the past 11 years, the amount of estate-tax exemption has changed six times and the tax repealed altogether in 2010.

"It's good policy that raises revenue, and is fiscally sustainable," McDermott said.

Even if the individual exemption were to fall to $1.3 million, 99 percent of Americans still would escape any estate taxes, according to calculations by the Tax Policy Center in Washington, D.C., a joint project of the Urban Institute and Brookings Institution. Just 0.25 percent of American estates are worth more than $3.5 million, and 0.13 percent exceed $5 million.

In Washington state, which taxes estates above $2 million, 638 residents who died between April 2009 and March 2010 left estates large enough to incur the tax, according to the Department of Revenue. Of those, 124 people left more than $5 million. In all, the state collected $80 million during that period.

McDermott's bill is backed by Bill Gates Sr. and other advocates for taxing the rich. Still, it faces almost no chance of passing the Republican-controlled House.

Support is scant even among many Democrats. President Obama, for instance, campaigned on a pledge to freeze estate taxes at 2009 levels, which would exempt the first $3.5 million in assets with tax rates for amounts above that topping out at 45 percent.

"There is not much political appetite to go back to anything much less than $5 million," said Ronald Aucutt, an attorney in Tysons Corner, Va., who specializes in estate planning.

Aucutt, who has tracked the shifting estate-tax rules, considers McDermott's proposal unrealistic and thinks $3.5 million is a fair compromise. Nonetheless, Aucutt praised McDermott's legislation as well thought out and said it would resolve key ambiguities that have bedeviled estate planners.

Among other things, McDermott's bill eliminates any clawback if a person were to give a tax-free gift of up to $5 million while alive but dies after the exemption falls below that amount. It also would allow residents in Washington and elsewhere to apply state taxes paid to offset federal estate taxes dollar for dollar, instead of merely reducing the size of federal taxable estate.

Some foes of the estate tax favor a more dramatic overhaul. They regard it as a potential death knell for family owned companies.

Don Root, owner and chief executive of GM Nameplate, a Seattle manufacturer, has long crusaded against taxing businesses when the owner dies.

Many heirs, Root says, don't have the cash nor can borrow money and still keep the firm competitive.

Root, whose four sons work for the $120 million company in the Interbay area, says inherited wealth absolutely should be taxed. But he believes that should occur when, and if, the heirs sell the family firm.

"Death shouldn't be a taxable event," said Root, 76.

Root said if his sons had to suddenly cough up the cash to settle estate taxes, "this company absolutely would not survive."

Rep. Dave Reichert, R-Auburn, who serves with McDermott on the Ways and Means panel, cites the potential loss of jobs from farms and other family owned businesses as a key reason why he supports eliminating estate taxes entirely.

Calculating lost revenue from doing away with estate taxes completely is tricky because rates and exemptions have fluctuated four times in the last four years. But compared to keeping the exemption at $1 million and with a top marginal rate of 55 percent, repeal could cost the U.S. Treasury roughly $40 billion to $50 billion a year, according to the Congressional Budget Office.

Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a liberal think tank in Washington, D.C., points out that the very rich make a significant share of their money from growth in value from stocks and other assets. Those capital gains aren't taxed until the buyer sells — and might never be taxed if heirs were to inherit them after estate taxes are repealed.

Marr believes that in an era of worsening income disparity, it's particularly crucial that families with millions of dollars to pass on to the next generation share some of that.

"This is very much a debate about values," said Marr, who served under both President Clinton and former Senate Majority Leader Tom Daschle.

Aucutt, the estate-planning attorney, said portions of estate taxes can amount to a double tax on income and a lifetime of savings. But he regards that as inadequate justification for doing away with the tax for good.

"When we buy something, we pay sales tax," Aucutt said by way of comparison. "So what? That's just the way it is."

Kyung Song: 202-662-7455 or ksong@seattletimes.com