To amend the Internal Revenue Code of 1986 to reform the estate and gift tax.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Sensible Estate Tax Act of 2008''.

SEC. 2. RESTORATION OF ESTATE TAX; REPEAL OF CARRYOVER BASIS.

    (a) In General.--The following provisions of the Economic Growth 
and Tax Relief Reconciliation Act of 2001, and the amendments made by 
such provisions, are hereby repealed:
            (1) Subtitles A and E of title V.
            (2) Subsection (d), and so much of subsection (f)(3) as 
        relates to subsection (d), of section 511.
            (3) Paragraph (2) of subsection (b), and paragraph (2) of 
        subsection (e), of section 521.
The Internal Revenue Code of 1986 shall be applied as if such 
provisions and amendments had never been enacted.
    (b) Sunset Not To Apply.--
            (1) Subsection (a) of section 901 of the Economic Growth 
        and Tax Relief Reconciliation Act of 2001 is amended by 
        striking ``this Act'' and all that follows and inserting ``this 
        Act (other than title V) shall not apply to taxable, plan, or 
        limitation years beginning after December 31, 2010.''.
            (2) Subsection (b) of such section 901 is amended by 
        striking ``, estates, gifts, and transfers''.

SEC. 3. UNIFIED CREDIT AGAINST THE ESTATE TAX.

    (a) 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 ``the applicable exclusion amount'' and 
inserting ``. For purposes of the preceding sentence, the applicable 
exclusion amount is $2,000,000.''.
    (b) Inflation Adjustment.--Subsection (c) of section 2010 of such 
Code, as amended by subsection (a), is amended--
            (1) by striking ``For purposes of this section,'' and 
        inserting the following:
            ``(1) In general.--For purposes of this section,'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Inflation adjustment.--In the case of any decedent 
        dying in a calendar year after 2008, the $2,000,000 amount in 
        paragraph (1) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year, 
                determined by substituting `2007' for `1992' in 
                subparagraph (B) thereof.
        If any increase determined under the preceding sentence is not 
        a multiple of $10,000, such increase 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 December 31, 
2008.

SEC. 4. RATES OF TAX.

    (a) In General.--The table in paragraph (1) of section 2001(c) of 
the Internal Revenue Code of 1986 (relating to rate schedule) is 
amended by striking the last 3 rows and inserting the following:

    Over $1,500,000 but not over 
        $5,000,000.
                                        $555,800, plus 45 percent of 
                                                the excess of such 
                                                amount over $1,500,000.
    Over $5,000,000 but not over 
        $10,000,000.
                                        $2,130,800, plus 50 percent of 
                                                the excess of such 
                                                amount over $5,000,000.
    Over $10,000,000...............
                                        $4,630,800, plus 55 percent of 
                                                the excess of such 
                                                amount over 
                                                $10,000,000.
    (b) Adjustment for Inflation.--Paragraph (2) of section 2001(c) of 
such Code is amended to read as follows:
            ``(2) Inflation adjustment.--In the case of any decedent 
        dying in a calendar year after 2008--
                    ``(A) each minimum and maximum dollar amount for 
                each rate bracket in the table in paragraph (1) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year, determined by substituting 
                        `2007' for `1992' in subparagraph (B) thereof, 
                        and
                    ``(B) each of the amounts setting forth the tax 
                under such table shall be adjusted to the extent 
                necessary to reflect the adjustments in the rate 
                brackets made by subparagraph (A).
                If any increase determined under subparagraph (A) is 
                not a multiple of $10,000, such increase shall be 
                rounded to the nearest multiple of $10,000.''.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2008.

SEC. 5. RESTORATION OF CREDIT FOR STATE DEATH TAX.

    (a) In General.--Section 2011 of the Internal Revenue Code of 1986 
(relating to credit for State death taxes) is amended by striking 
subsection (f).
    (b) Repeal of Deduction for State Death Taxes.--
            (1) In general.--Section 2058 of such Code (relating to 
        State death taxes) is amended by adding at the end the 
        following:
    ``(c) Termination.--This section shall not apply to the estates of 
decedents dying after December 31, 2008.''.
            (2) Conforming amendment.--Section 2106(a)(4) of such Code 
        is amended by adding at the end the following new sentence: 
        ``This paragraph shall not apply to the estates of decedents 
        dying after December 31, 2008.''.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2008.

SEC. 6. RESTORATION OF UNIFIED CREDIT AGAINST GIFT TAX.

    (a) In General.--Paragraph (1) of section 2505(a) of the Internal 
Revenue Code of 1986 (relating to general rule for unified credit 
against gift tax) is amended by striking ``(determined as if the 
applicable exclusion amount were $1,000,000)''.
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2008.

SEC. 7. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED CREDIT OF DECEASED 
              SPOUSE.

    (a) In General.--Section 2010 of the Internal Revenue Code of 1986, 
as amended by section 2, is amended--
            (1) by striking the last sentence of paragraph (1),
            (2) by striking paragraph (2), and
            (3) by inserting after paragraph (1) the following new 
        paragraph:
            ``(2) Applicable exclusion amount.--For purposes of 
        paragraph (1)--
                    ``(A) In general.--The applicable exclusion amount 
                is the sum of--
                            ``(i) the basic exclusion amount, and
                            ``(ii) in the case of a surviving spouse, 
                        the aggregate deceased spousal unused exclusion 
                        amount.
                    ``(B) Basic exclusion amount.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the basic exclusion amount is 
                        $2,000,000.
                            ``(ii) Inflation adjustment.--In the case 
                        of any decedent dying in a calendar year after 
                        2008, the $2,000,000 amount in clause (i) shall 
                        be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year by 
                                substituting `calendar year 2007' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                        If any amount as adjusted under the preceding 
                        sentence is not a multiple of $100,000, such 
                        amount shall be rounded to the nearest multiple 
                        of $100,000.
                    ``(C) Aggregate deceased spousal unused exclusion 
                amount.--For purposes of this subsection--
                            ``(i) Aggregate deceased spousal unused 
                        exclusion amount.--The term `aggregate deceased 
                        spousal unused exclusion amount' means the 
                        lesser of--
                                    ``(I) the basic exclusion amount, 
                                or
                                    ``(II) the sum of the deceased 
                                spousal unused exclusion amounts of the 
                                surviving spouse.
                            ``(ii) Deceased spousal unused exclusion 
                        amount.--For purposes of subsection (A), the 
                        term `deceased spousal unused exclusion amount' 
                        means, with respect to the surviving spouse of 
                        any deceased spouse dying after December 31, 
                        2008, the excess (if any) of--
                                    ``(I) the applicable exclusion 
                                amount of the deceased spouse, over
                                    ``(II) the amount with respect to 
                                which the tentative tax is determined 
                                under section 2001(b)(1) on the estate 
                                of such deceased spouse.
                            ``(iii) Special rules.--
                                    ``(I) Election required.--A 
                                deceased spousal unused exclusion 
                                amount may not be taken into account by 
                                a surviving spouse under this paragraph 
                                unless the executor of the estate of 
                                the deceased spouse files an estate tax 
                                return on which such amount is computed 
                                and makes an election on such return 
                                that such amount may be so taken into 
                                account. Such election, once made, 
                                shall be irrevocable. No election may 
                                be made under this clause if such 
                                return is filed after the time 
                                prescribed by law (including 
                                extensions) for filing such return.
                                    ``(II) Examination of prior returns 
                                after expiration of period of 
                                limitations with respect to deceased 
                                spousal unused exclusion amount.--
                                Notwithstanding any period of 
                                limitation in section 6501, after the 
                                time has expired under section 6501 
                                within which a tax may be assessed 
                                under chapter 11 or 12 with respect to 
                                a deceased spousal unused exclusion 
                                amount, the Secretary may examine a 
                                return of the deceased spouse to make 
                                determinations with respect to such 
                                amount for purposes of carrying out 
                                this subsection.
                    ``(D) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary or appropriate to 
                carry out this subsection.''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 2505(a) of such Code, as 
        amended by section 5, is amended to read as follows:
            ``(1) the applicable credit amount under section 2010(c) 
        which would apply if the donor died as of the end of the 
        calendar year, reduced by''.
            (2) Section 2631(c) of such Code is amended by striking 
        ``the applicable exclusion amount'' and inserting ``the basic 
        exclusion amount''.
            (3) Section 6018(a)(1) of such Code is amended by striking 
        ``applicable exclusion amount'' and inserting ``basic exclusion 
        amount''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2008.

Summary: Sensible Estate Tax Act of 2008 - Repeals provisions of the Economic Growth and Tax Reconciliation Act of 2001 relating to the estate and gift tax. Amends the Internal Revenue Code to: (1) allow an estate tax exclusion of $2 million adjusted for inflation in calendar years after 2008, (2) revise the estate tax rates for larger estates. (3) restore the estate tax credit for state estate, inheritance, legacy, or succession taxes, (4) restore the unified credit against the gift tax. And (5) allow a surviving spouse an increase in the unified estate tax credit by the amount of any unused credit of a deceased spouse.