Yesterday’s Senate Finance Committee hearing on the estate tax resulted in some good theatrics, but little in the way of comfort to those family businesses attempting to plan their way past the tax.

Berkshire Hathaway’s Warren Buffett, the world’s third wealthiest man, was on hand to lend his support to the tax. Mr. Buffett argued that “dynastic wealth” is on the rise, putting lower income Americans at a great disadvantage. The estate tax is necessary, he observed, to help break up these large concentrations of wealth.

Mr. Buffett failed to recognize the impact the tax has on family-owned businesses. Nor did he reflect on his own contribution to wealth concentration by buying closely-held family businesses and making them part of publicly-held Berkshire-Hathaway. Finally, he failed to explain why he gives lip service to a tax he is taking such pains to avoid.

The other panelists were more coherent in their remarks, observing that many of the estates impacted by the tax will be worth less than $5 millionb – hardly the “dynastic wealth” cited by Mr. Buffett. Under a revived death tax, many of these farms and businesses will find it more difficult to transition to the next generation.

Members of the Committee, including those who support full repeal, were quick to point out that a repeal of the estate tax is unlikely at this juncture, but they did acknowledge that Congress needs to act before the tax rises from the dead in 2011.

What might these changes be? Several options were discussed, including raising the exclusion to $5 million while lowering the top rate. While there’s considerable disagreement over what that top rate should be, most committee members agreed that the new rate structure should increase more gradually and that it should be fully-indexed. Others, including Sen. Lincoln, expressed interest in creating a long-term payment plan for the tax that may go a long way in reducing the heavy burden families experience after the death of the company’s owner.

Where do we go from here? Chairman Baucus has indicated that he will hold at least one more hearing and then mark up on a compromise early next year.

What will the compromise look like? The small business groups want at least a $5 million exclusion, while the larger estates are seeking to lower the top rate. Given that even Senator Clinton has endorsed a $3.5 million exclusion / 45 percent top rate as part of her presidential proposals, whatever is worked out should be an improvement over the pre-2001 rules.

In any case, we will be sure to keep you informed of the latest proposals.

For more on the estate tax, please click here for yesterday’s National Review article from S-Corp’s Executive Director, Brian Reardon.