After the Senate is finally done working on its tax extenders package (a vote on which has been pushed to next week at the earliest), it may turn to legislation aimed at boosting small business lending. The bill in question has been clogged up in the Senate Finance Committee thanks to Sen. Jon Kyl (R-AZ), who has been knotting up negotiations over his insistence that the legislation include an $80 billion tax cut for the heirs of multimillionaires.

Democratic leaders have decided to forego a markup in the Finance Committee, in favor of bringing the bill straight to the Senate floor, thus avoiding Kyl and what may well be a receptive gang of Democrats (who on the Finance Committee are more conservative). But that, of course, will not quell Kyl’s zeal for cutting taxes for the richest of the rich:

A small-business bill coming soon to the Senate floor could provide the catalyst for a big issue: the long-awaited debate over the future of the estate tax. Asked Thursday whether he planned to push for an estate tax amendment on that bill, Minority Whip Jon Kyl said: “Count on it.”

This particular small business lending bill has rightly been described by National Journal as “on-again, off-again,” in large part due to Kyl’s continued insistence that doing something for small business lending be coupled with cutting taxes for the richest 0.2 percent of households in the country. Currently, 62.5 percent of estate tax revenue comes from estates worth more than $20 million. Another 35 percent of the revenue comes from estates worth between $5 million and $20 million.

Kyl, remember, wants to institute an estate tax of 35 percent with a $5 million exemption. The estate tax has currently expired, but is scheduled to come back next year at a 55 percent rate with a $1 million exemption, and the House has already approved permanently reinstating the tax at the 2009 level of 45 percent with a $3.5 million exemption. Adopting Kyl’s plan would cost up to $80 billion, and he’s searching the budget for offsets, raising the prospect that Congress will find that much in revenue only to turn it right back over to the very wealthiest Americans.

Considering that deficit hysteria has gripped Capitol Hill, scuttling everything from extended unemployment benefits to jobs programs to health insurance subsidies for laid-off workers, raising money to cut the estate tax would be particularly unconscionable. At this point, any revenue gained from tweaking the tax code should be going towards job-creation and reinforcing the frayed (and, in places, entirely broken) social safety net.

There is, of course, a benefit to clearing up the ambiguous state of the estate tax and setting a permanent rate. But setting it at the 2009 level, as the House did, is already a compromise compared to current law. Cutting it further would be an unjustifiable gift enriching the already rich.

Yesterday, the conference committee that will reconcile the House and Senate versions of financial regulatory reform held its first meeting, with the many members involved giving their opening statements. One of the most important questions that needs to be resolved is over the Volcker rule, the restriction on proprietary trading (banks trading for their own benefit) named after former Federal Reserve Chairman Paul Volcker.

The House bill was passed before the Volcker rule was introduced by the administration, so it only includes a provision allowing Federal Reserve regulators to ban proprietary trading that they feel is too risky. The Senate bill includes a version of the Volcker rule that directs regulators to first study the issue and then design and (maybe) implement it as they see fit.

During the Senate debate though, an even stronger version of the rule sponsored by Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR) never came to a vote, due to some shenanigans from Republicans and Democrats alike (which led Levin and Merkley to attach their plan to an amendment that ultimately got pulled from the floor). But yesterday, Rep. Barney Frank (D-MA), who is chairing the conference committee, said that a strong Volcker rule in the direction of Levin-Merkley is what will ultimately wind up in the bill:

“I think there’s conceptual agreement. You have several things: You have tough regulation of derivatives, which I prefer much of what the Senate did. You’re going to have a tougher version of the Volcker Rule…I would say the general direction that Senators Merkley and Levin were moving in is a direction a lot of people are supportive of, but the final version, we’ll see. It will be tougher than the House. The House simply empowers the regulators. There will be some direction” given to regulators.

Of course, a “conceptual agreement” in the “general direction” of Levin-Merkley does not automatically a good rule make, but this is encouraging. And bank lobbyists are scared enough about a strong Volcker rule to be freaking out about it. “How can they start with something that was never voted on?” one “incredulous” Wall Street executive asked Politico last night.

The banks are angling for not only giving regulators more discretion in implementing the rule, but are searching for carve-outs (which can then be exploited later and turned into full-fledged loopholes). But Volcker himself penned a letter to lawmakers this week warning against creating these sorts of openings, saying “I absolutely oppose any such modification.”

Hard and fast rules, as opposed to guidelines that regulators will feel pressure to remove or moderate, are preferable in the final legislation. It’s good to see Frank moving that way, but I’ll feel better when more conferees come around to that position.