To amend the Internal Revenue Code of 1986 to reduce estate tax rates by 20 percent, to increase the unified credit against estate and gift taxes to the equivalent of a $2,500,000 exclusion and to provide an inflation adjustment of such amount, and for other purposes.

Summary: Estate Tax Reduction Act of 2001 - Amends the Internal Revenue Code to: (1) reduce estate tax rates; (2) repeal the phaseout of graduated rates; and (3) increase the unified credit to $2.5 million, with an inflation adjustment.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Estate Tax Reduction Act of 2001''.

SEC. 2. 20 PERCENT REDUCTION IN ESTATE TAX RATES; REPEAL OF PHASEOUT OF 
              GRADUATED RATES.

    (a) In General.--Subsection (c) of section 2001 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(c) Rate Schedule.--

``If the amount with respect to     The tentative tax is:
        which the tentative tax is 
        to be computed is:
    Not over $10,000...............
                                        14.4% of such amount.
    Over $10,000 but not over 
        $20,000.
                                        $1,440, plus 16% of the excess 
                                                of such amount over 
                                                $10,000
    Over $20,000 but not over 
        $40,000.
                                        $3,040, plus 17.6% of the 
                                                excess of such amount 
                                                over $20,000
    Over $40,000 but not over 
        $60,000.
                                        $6,560, plus 19.2% of the 
                                                excess of such amount 
                                                over $40,000
    Over $60,000 but not over 
        $80,000.
                                        $10,400, plus 20.8% of the 
                                                excess of such amount 
                                                over $60,000
    Over $80,000 but not over 
        $100,000.
                                        $14,560, plus 22.4% of the 
                                                excess of such amount 
                                                over $80,000
    Over $100,000 but not over 
        $150,000.
                                        $19,040, plus 24% of the excess 
                                                of such amount over 
                                                $100,000
    Over $150,000 but not over 
        $250,000.
                                        $31,040, plus 25.6% of the 
                                                excess of such amount 
                                                over $150,000
    Over $250,000 but not over 
        $500,000.
                                        $56,640, plus 27.2% of the 
                                                excess of such amount 
                                                over $250,000
    Over $500,000 but not over 
        $750,000.
                                        $124,640, plus 29.6% of the 
                                                excess of such amount 
                                                over $500,000
    Over $750,000 but not over 
        $1,000,000.
                                        $198,640, plus 31.2% of the 
                                                excess of such amount 
                                                over $750,000
    Over $1,000,000 but not over 
        $1,250,000.
                                        $276,640, plus 32.8% of the 
                                                excess of such amount 
                                                over $1,000,000
    Over $1,250,000 but not over 
        $1,500,000.
                                        $358,640, plus 34.4% of the 
                                                excess of such amount 
                                                over $1,250,000
    Over $1,500,000 but not over 
        $2,000,000.
                                        $444,640, plus 36% of the 
                                                excess of such amount 
                                                over $1,500,000
    Over $2,000,000 but not over 
        $2,500,000.
                                        $624,640, plus 39.2% of the 
                                                excess of such amount 
                                                over $2,000,000
    Over $2,500,000 but not over 
        $3,000,000.
                                        $820,640, plus 42.4% of the 
                                                excess of such amount 
                                                over $2,500,000
    Over $3,000,000................
                                        $1,032,640, plus 44% of the 
                                                excess of such amount 
                                                over $3,000,000''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying, and gifts made, after the date of the 
enactment of this Act.

SEC. 3. UNIFIED CREDIT INCREASED TO EQUIVALENT OF $2,500,000 EXCLUSION; 
              INFLATION ADJUSTMENT OF UNIFIED CREDIT.

    (a) Increase in Unified Credit.--
            (1) In general.--Subsection (c) of section 2010 of the 
        Internal Revenue Code of 1986 (relating to applicable credit 
        amount) is amended by striking all that follows ``were the 
        applicable exclusion amount'' and inserting ``. For purposes of 
        the preceding sentence, the applicable exclusion amount is 
        $2,500,000.''
            (2) Conforming amendment.--Subparagraph (A) of section 
        2057(a)(3) of such Code is amended by striking ``$625,000'' and 
        inserting ``the excess of the applicable exclusion amount 
        (determined without regard to this paragraph) over $675,000''.
    (b) Inflation Adjustment.--Section 2010 of such Code is amended by 
redesignating subsection (d) as subsection (e) and by inserting after 
subsection (c) the following new subsection:
    ``(d) Cost-of-Living Adjustment.--In the case of any decedent 
dying, and gift made, in a calendar year after 2001, the $2,500,000 
amount set forth in subsection (c) shall be increased by an amount 
equal to--
            ``(1) $2,500,000, multiplied by
            ``(2) the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting 
        `calendar year 2000' for `calendar year 1992' in subparagraph 
        (B) thereof.
If any amount as adjusted under the preceding sentence is not a 
multiple of $10,000, such amount shall be rounded to the nearest 
multiple of $10,000.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and gifts made, after the date of 
the enactment of this Act.