Earlier today, I pointed out that Big Business — deciding that its chances of repealing the estate tax aren’t looking good — has thrown its support behind Sens. Blanche Lincoln (D-AR) and Jon Kyl’s (R-AZ) estate tax “compromise.” (Remember, due to a Bush budget gimmick, the estate tax vanishes in 2010, only to come back in 2011 at a 55 percent rate for estates over $1 million.)

Instead of embracing the Obama administration’s proposal to make the 2009 estate tax permanent (45 percent for estates over $3.5 million, or $7 million for a couple), Lincoln and Kyl want to cut the tax to 35 percent and increase the exemption to $5 million (or $10 million for a couple), which amounts to a $250 billion giveaway to the heirs of multi-millionaires.

But even the colossal, unwarranted tax cut that is Lincoln-Kyl is not enough for far-right, anti-tax crusaders like Grover Norquist’s Americans for Tax Reform or the American Family Business Institute, who are standing firm in their commitment to see a full repeal of the estate tax. And these organizations are getting an assist from Americans for Prosperity (AFP), founded by libertarian oil-tycoon David Koch.

As David Weigel reported, Koch appeared at AFP’s annual Defending the American Dream summit over the weekend, where AFP activists were told that they are on the verge of saving mega-millionaires mega-bucks, if only they can cause Congress to slow down more than it already has:

Activists learned that they were on the cusp of saving the long-planned, one-year elimination of the estate tax. If Democrats fail to pass a bill extending the estate tax in 2010, one of the key Republican victories of George W. Bush’s presidency would be realized. And the more the Tea Party movement could slow down the works in Congress, the better the chance of Democrats forgoing that bill. “If we run out the clock,” said Phil Kerpen, AFP’s policy director, “the estate tax is gone in 2010, and it would be tricky for Democrats to try and bring it back.”

This is exactly what the Bush administration was banking on in setting the estate tax the way that it did. By having the tax come back in full-force for 2011, the long-term cost of abolishing it was hidden. However, the Bush administration figured that Congress wouldn’t have the stomach to reinstate the tax after a tax-free year, and thus would simply reauthorize the 2010 law every year, for an effective repeal.

And AFP is encouraging its membership to play right into that strategy — with the double-whammy of bogging down the rest of the Democratic domestic agenda — despite the fact that 99.8 percent of estates will owe no estate tax at all. Fortunately, Democrats in Congress seems pretty determined not to let the 2010 lapse occur at all.

At the summit, Koch said that in creating AFP “we envisioned a mass movement, a state-based one, but national in scope, of hundreds of thousands of American citizens from all walks of life standing up and fighting for the economic freedoms that made our nation the most prosperous society in history.” And evidently one of those economic freedoms involves needlessly giving millionaire families (like the Koch family) billions in tax breaks, despite the country’s budget situation.

Thanks to a Bush-era accounting gimmick, the estate tax is set to vanish entirely in 2010, and come back in 2011 with a 55 percent rate on estates over $1 million. 2009 law stipulates a 45 percent rate on estates over $3.5 million ($7 million for a couple). The Bush administration, in crafting the tax this way, was banking on Congress getting squeamish about reinstating the tax after a tax-free year, thus leading to an effective repeal.

Fortunately, the gimmick has not taken hold, and there is a concerted effort in Congress to ensure that some sort of estate tax stays in place for 2010 and beyond. Thus, the question becomes the rate at which the tax will be set.

The Obama administration has proposed making the current rate permanent, while Sens. Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) are stirring up interest in bringing the rate down to 35 percent and raising the exemption to $5 million ($10 million for a couple). And here’s the wildcard in the debate: Big Business, not seeing a full repeal in the tea-leaves, has thrown its support behind the Lincoln-Kyl plan:

A letter to members of Congress from forty-six business associations shows that industry lobbyists are putting their muscle behind a compromise, even if it means putting aside the long-held industry goal of repealing the tax on inherited wealth…Groups signing the letter include the American Farm Bureau Federation, Food Marketing Institute, National Association of Manufacturers and U.S. Chamber of Commerce.

On the one hand, Big Business’ decision to forego pushing for a full repeal is a good sign. As Chuck Collins, co-founder of Wealth for the Common Good, pointed out, “sometimes you can’t declare victory until the other side concedes defeat.” However, the Lincoln-Kyl alternative is a not a compromise worth making. The plan would cost $250 billion, 99 percent of which would go to the heirs of multi-millionaires.

It’s worth remembering that as recently as March, the Chamber of Commerce called for sending the estate tax “to the grave once and for all.” The business community has made the calculation that a repeal is not happening now, and thus it should put its weight behind watering the law down as much as possible. Bill Rys, tax counsel for the NFIB, admitted as much, saying that business groups “think [Lincoln-Kyl is] a good solution right now.”

As Warren Buffett put it, “dynastic wealth, the enemy of meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward plutocracy.” Even if it can’t get a full repeal now, the business lobby is angling to gut the estate tax, costing the country valuable revenue — raised from those most able to pay — in a time of economic distress.