Republican Rep. Kristi Noem of South Dakota is one of the negotiators trying to reconcile the House and Senate tax bills. No doubt House Speaker Paul Ryan views her as a strong voice for estate tax repeal, because of her personal story of how her farming family struggled to pay the tax.
The House bill would abolish the estate tax, a levy on the intergenerational transfer of immense wealth. The Senate version retains the tax but doubles the wealth exempted from the tax, to $22 million for a family.
Congressional Republicans and their backers have painted the estate tax as a major burden on the nation’s ranchers and farmers. Yet it's the heirs of multimillionaires and billionaires who actually pay it.
Noem perpetuates the “estate tax hurts farmers” argument using her life experience. The story she tells, however, does not line up with some very basic tenets of the tax code. Now, 23 years later, it is high time to get the facts. It’s also an important time to understand just who is subject to the estate tax and what its repeal really means.
On April 16, 2015, Noem stepped onto the floor of the House and described how her father was killed on March 10, 1994 in a tragic accident on their family farm. Noem, who was a 21-year old student at the time, recounted:
It wasn’t very long after he was killed that we got a bill in the mail from the IRS that said we owed them money because we had a tragedy that happened to our family … We could either sell land that had been in our family for generations or we could take out a loan. So I choose to take out a loan but it took us 10 years to pay off that loan to pay the federal government those death taxes. It is one of the main reasons I got involved in government and politics was because I didn’t understand how bureaucrats and politicians in Washington DC could make a law that says when a tragedy hits a family they somehow are owed something from that family business.
There are several important questions raised by Noem’s account. First, the estate tax has had a 100% marital deduction since 1982. In other words, upon the death of Noem’s father, all the family assets could have flowed to her mother without being subject to the estate tax. Noem’s parents were married and her mother, Corinne Arnold, is still alive today.
“It’s hard to believe the estate of a farmer who died in 1994 and was survived by his spouse was subject to tax,” said Robert Lord, a Phoenix tax attorney with an expertise in estate tax law. “It easily could have been deferred. That would have been a no-brainer.”
Another oddity in Noem’s story is that the IRS doesn’t send a bill for an estate tax without a tax filing. In 1994, families had nine months to file a return with the option of filing a six-month extension. The conservative canard that the taxman shows up at the funeral is emotionally gripping, but simply false. The law at the time allowed farms to defer estate taxes for up to five years.
In the event that the Arnold family did owe taxes, the IRS had flexible installment plan at an interest rate lower than any lender. There would have been no need to get a loan from a third-party. But this doesn’t answer the fundamental question: Why did they pay any tax?
“It’s very unclear they would have been subject to the estate tax given the law at the time,” said Lord. “But if she did pay a big estate tax bill. she should elaborate on the unusual circumstances.”
Noem is now at the center of the national debate over estate tax repeal and her personal story is regularly repeated as an example of how the estate tax hurts family farmers and ranchers. But things have changed a lot since 1994, when the amount of wealth exempted by the tax was $600,000 for an individual. The wealth exemption is now $5.49 million per person and $11 million per couple. Closely held businesses and farms have 14 years to pay the tax at low interest.
The number of farmers subject to the estate tax has been dramatically reduced as have the total number of estates. South Dakota is the state with the fewest taxable estates in the entire country, roughly 15 a year.
In her speeches attacking government overreach, Noem leaves out another important fact. Between 1995 and 2016, her family-owned Racota Valley Ranch in Hazel, S.D. cashed $3,704,415 million in government farm subsidies. In 2012 alone, they accepted $232,707 in subsidies.
Given that Kristi Noem is now the national face for estate tax repeal, it would be reasonable to ask these simple questions:
Why did your family not use the spousal exemption to pass along assets to your mother and avoid any estate taxes?
Did you actually get a bill from the IRS? Please show evidence of this bill and the date (redacting out any personal financial information).
Did you actually get a loan from a third party to pay the taxes and from where?
If the government is so tyrannical, why has your family cashed over $3.7 million in taxpayer funded farm subsidy checks since 1995?
Losing one’s father and family breadwinner is a traumatic event. But 23 years later, this story is still being used to justify the elimination of a tax that is now exclusively paid by multimillionaires and billionaires. It applies to about 5,000 estates out of some 2.6 million deaths a year. That's two out of 1,000.
Before she leads the GOP crusade to abolish the estate tax, Kristi Noem has some accounting of her own to do.