Last updated on 2015-09-21
Rep. Kristi Noem has been peddling the estate tax repeal with her favorite tale of woe, about how her wealthy farm family failed to do the basic financial planning that would have prevented the Arnold-Noem clan from having to pay higher estate taxes on their father’s land when he died. Ah, but planning requires thinking, and thinking comes hard to Kristi Noem.
Rick Knobe also doubts our Congresswoman has sufficiently thought through repealing the estate tax:
In one of her “repeal statements” she said the tax only brings in about twenty BILLION (my emphasis) or so. Making it sound unimportant. In my mind, at the federal level a million dollars is important and twenty BILLION is very, very important.
It may be morally right to eliminate a tax if it hurts the ability of family businesses to continue. Even if the tax only affects a few people, if it is morally wrong, it should go.
My problem is the lack of discussion about cutting expenses or increasing revenue someplace else to make up the loss.
I asked our senior Senator John Thune on Viewpoint University about that issue. He said, eliminating the tax comes first, revenue replacement or expense cutting will come later.
From my vantage point living in a state and a city with balanced budgets and adequate surpluses, Senator Thune’s and Congresswoman Noem’s statements reveal our money problem in Washington.
Have Thune and Noem consumed too much “Washington Kool-aid?” Are they now part of the huge budget deficit and debt problem?
I hope not, but I am concerned about the lack deeper thought on this subject [link added; Rick Knobe, “The Death of the Death Tax: Smart Or Shallow Thinking?” KSOO Radio, 2015.04.22].
Mr. Kurtz has noted that Rep. Noem appears to be thinking only about a tiny group of really rich South Dakotans. The Center on Budget and Policy Priorities estimates that only 20 South Dakota estates would face any estate tax in 2016. Nationally, says CBPP, 0.2% of all Americans face any estate tax when they die. Rep. Noem would give them a tax cut averaging three million dollars (even though she thinks $125 a month to help a poor family eat is a waste of money).
Senator Thune seems similarly thoughtless on the estate tax issue. He hollers that a third of South Dakota’s farms are “vulnerable” to the estate tax, but his staff couldn’t give the Washington Post a single example of any South Dakotan having to sell the farm to pay the estate tax. WaPo declined to issue a “Pinocchio” ruling because “the issue of the estate tax has become so unmoored from the facts that it has moved into the realm of opinion,” but their columnist Dana Milbank doesn’t balk at deeming Noem, Thune, et al.’s fervid estate-tax-repeal pitch an effort to entrench an American aristocracy:
…And this at a time when the gap between rich and poor is already worse than it has been since the Great Depression? Never in the history of plutocracy has so much been given away to so few who need it so little.
…The estate tax was a meaningful check on a permanent aristocracy as recently as 2001, when there were taxes on the portion of estates above $675,000; even then there were plenty of ways for the rich to shelter money for their heirs. As the son of a schoolteacher and a cabinetmaker, I’d like to see the estate tax exemptions lowered — so that taxes encourage enterprise and entrepreneurship while keeping to a minimum the number of Americans born who will never have to work a day in their lives. The current exemption of $5.4 million (the current estate tax has an effective rate averaging under 17 percent, according to the Urban-Brookings Tax Policy Center) does little to prevent a permanent aristocracy from growing — and abolishing it entirely turns democracy into kleptocracy [Dana Milbank, “Republicans Push for a Permanent Aristocracy,” Washington Post, 2015.04.14].
Once again, South Dakota’s Congressional delegation is ignoring fiscal facts in favor of a fake issue that benefits only their richest friends.
If Kristi and John are worried that South Dakota’s farmers and ranchers aren’t covered by the $5.4 million exemption per individual then simply raise the exemption, don’t throw out the tax completely.
Or you know, Paul, they could craft an ag-only exemption: create a separate classification for wealth tied up on agricultural land, just as South Dakota classifies agricultural land differently to impose a lower property tax levy. Can we justify such an ag exemption by saying that wealth in farm land is different from wealth in cash, stocks, bonds, mansions, or even other land holdings (gold mines, oil fields…)?
The Obama Administration is working to redefine what a ‘farmer’ is. $1.59 of every dollar the estate tax generates in South Dakota comes back to the state: right?
Cory, have you seen this?
http://www.mitchellrepublic.com/opinion/columns/3727390-noem-taxing-tragedies
Has anyone ever seen so many personal family photos and news coming from their official political news media as Noem’s? What was she supposed to do for South Dakotans when she was elected as our sole US Representative?
CK,
Tugs at the heart doesn’t it in a very manipulative way?
An individual is able to pass the farm on through the use of s-corporations and various trusts with just a little bit of forward planning. If a farm/ranch couple has over $11 million in assets then they should be able to afford a good financial planner.
Kristi has taken a story from her private life, the tragic death of her father, and made it part of her public, political personna. As such she needs to flesh out some of the particulars. What was the value of her fathers estate when he died? How much was the estate tax? How much money was borrowed to pay the tax and did it put an undue burden on the farm business? Had her father done any financial and succession planning? Has Kristi’s family done any financial/succession planning since her father’s death or is Kristi’s plan to rely on the repeal of the “death” tax?
Rich right wingers want the poor to work for what they have. But they themselves want to have what they have because daddy worked for it. If they are not comfortable working for their own place in the world rather than protect the right to have it all given to them, then they are entirely selfish since they want the poor to have it much harder than they do themselves.
CK, thanks for linking Noem’s deceptive sob story. As Paul points out, people smart enough to accumulate enough wealth to trigger the estate tax ought to be smart enough to do some simple financial planning. Noem is using the estate tax as a political sideshow, an image builder, and a scapegoat for her family’s own errors.
For more on family farm financial planning, see…
It’s time Kristi Noem got caught in the hoax she’s spread about her father’s death and the reported debt on the family farm created by the federal estate tax in 1994.
At the time, both the state and federal governments had a death tax. The federal estate tax affects a scant number of South Dakotans, less than 1 percent. The state estate tax was a source of debt to a much wider group of people and was particularly damaging to middle income family farm operations. Eighty percent of South Dakota voters repealed the state estate tax in 1980. I believe Mike Rounds did a fair amount of whining about the loss of this income (was it $20 million per year?).
http://madvilletimes.com/2014/01/hb-1057-south-dakota-officially-buries-long-dead-inheritance-estate-taxes/
By the time Noem ran for the legislature, the state death tax was already nixed by voters. My guess is a big chunk of the alleged indebtedness was the result of the state tax. Despite the fact the Arnold-Noem farm operation has sucked in $3.1 million in federal subsidies (your taxes) between 1995 and 2009, Kristi continues to bite the hand that has fed her and her kin so well. In fact, they bought a pricey hunting lodge, a restaurant and expansions to the family bid’ness. So much for the poverty bullshit.
It’s time somebody called this liar down on the carpet. Let’s see the records of the debt, its real sources and what Noem actually paid.
Driving thru H2O town you see the Noem Insurance billboards.
96 -just to clarify: Noem was born in 1971 and tells us her dad passed when she was 21 years old, which would have been in 1992. According to your linked Madville article, it appears South Dakota continued collecting an estate tax until July 1, 2001 (not 1980), so you are absolutely correct that Noem’s family would have had to pay the SD estate tax, as well as the federal estate tax. It seems curious that she did not mention that detail in her letter.
I agree with Paul that the questions he asked of Noem should be answered and all answers disclosed to the public. If Noem won’t answer them, which seems likely, perhaps an investigative reporter with Cory’s outstanding skills can somehow find the answers. Cory?
Certain veterans are required to do a “MEANS” test annually to determine if they must make co-pays to the VA for medical care and prescription medications. I was a VA employee whose job included helping veterans with their MEANS tests. The vast majority of farmers, ranchers, and other business owners had set up trusts so that spouse, children, siblings, etc, each had a share. This meant that the value of the assets conveyed was only the value of their share of the trust. A farm, ranch, or other business with assets of $20,000,000.00 and five shareholders meant that each shareholder had 1/5 of the assets or $4,000,000.00. The value of a share was distributed equally between the remaining shareholders when a shareholder passed away. Each share would then be worth $5,000,000 so it would still be below the federal estate tax. The accountants, lawyers and financial planners are quite good in protecting their clients. I would be surprised if 1% are paying the “death tax”.
If you work for a parent for 10 years for $100,000/year you pay income taxes. If you sit on your arse and don’t work for 10 years and you inherit $1 million from your parent you don’t pay any taxes at all. The tax code favors unearned income over earned income.
I say sure. Repeal the tax on estates and replace it with an income tax on beneficiaries. Shouldn’t matter whether one earns it or has is just handed to him/her. It’s income to the recipient all the same.
BCB, I suspect I’d run into the same wall that the Department of Revenue has erected on the Bollen bank franchise tax investigation.
Lynn, did the Noems have billboards before she went to Congress? Ah, these ads brought to your by federal subsidies.
Was Congresswoman Noem’s mother married to her father? If so were both their names on the title to the farm? Doesn’t the Federal estate tax have a spousal exemption where no tax is owed until the second parent dies?
Nick, you’re right: IRC 2056(a) gives the marital deduction: “For purposes of the tax imposed by section 2001, the value of the taxable estate shall, except as limited by subsection (b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.”
https://www.law.cornell.edu/uscode/text/26/2056
Looking at Cornell’s notes on this statute, the amendments indicate the marital deduction existed before Ron Arnold’s death. I remain puzzled as to why Corinne Arnold did not take advantage of the marital deduction.
What were the rules on the the later repealed South Dakota Inheritance Tax? Did the Noem family owe the South Dakota tax and Kristi is just getting things mixed up in her mind? Congresswoman Noem appears to be tilting at windmills that no longer, or never did exist.
Here’s another link with short and sweet answers on the spousal exemption.
http://www.nolo.com/legal-encyclopedia/estate-tax-will-estate-have-29802.html
Cory,
I never saw Noem Insurance billboards before Kristi was elected to congress while driving thru H2O town. Hey! It’s obvious this is the best job she ever had or ever will have and it’s been very lucrative for her family. South Dakota average citizen? Not so much.
The current $11,000,000 Federal estate tax exemption per couple is sufficient to protect all the assets in a family sized farm. If the farm is worth more than that, and no estate planning has been done to reduce the size of the estate prior to death then tax is only owed on that portion of the estate over the exemption amount. Additionally the estate tax exemption is annually adjusted upward to account for inflation.
Despite their rhetoric Noen, Thune and Rounds are not protecting family farmers, they are protecting a small handful of the very richest Americans and using family farmers as a shield to hide the true results of their efforts.
The true threat to family farms upon the death of the older generation is equal division of assets among surviving heirs, and the non-farm surviving heirs wanting to cash out their share. At that point the farming heirs might choose to not buy their siblings out and be forced to go along with the sale, take their share, and find another line of work.
20 South Dakotans would benefit from what Noem is proposing. I believe I know who a few of those 20 are and they usually donate the maximum in SDGOP campaign and party contributions. 60 would benefit in Minnesota for example with far more population than South Dakota.
Let’s face it, the typical SD voter doesn’t care. They return to the polls election after election, look for the (R) after the name and punch the card or pull the lever. What difference does it make?
And Democrats go to the polls and look for the (D). What difference does it make?
Daniel,
History has not always shown that to be true. Too much division with in the party or just did not feel comfortable with that candidate who was running as a Democrat. There are other reasons that have played out also some of which did not reflect much research into who they voted for.
Can you prove that Lynn? Seems like Democrats hate being pointed out as following lines when they probably do it just as often as Republicans. There is just more of us around here. I don’t believe for a second that a different percentage of Democrats as Repubs tend to follow party lines.
Daniel,
Proof? Sorry I don’t have the hard numbers or the time to do it right now but a few observations. 1st a number of Democrats just switched parties to either Independent and mainly Republicans so they felt they had a little more control with who advances within the Republican primaries and is ultimately elected in the general election.
What about Stephanie Herseth Sandlin and how she lost to Noem? Some Dems felt she was not progressive enough on her stances or felt betrayed with being a blue dog Democrat. Those Dems either refrained from voting for her in the general or voted for Noem in protest.
My mother is a life long Democrat and father was a Republican but now an Independent. Politics was discussed at the dinner table growing up and my mother was fairly well informed in regards to issues and candidates but she surprised me by voting for a Republican that won a state constitutional office because he was from a family we knew and just had a new addition to their family. It had nothing to do with what he brought as a candidate or the party he represented and that there was actually a very good and experienced SDDP candidate for that position on the ballot.
If Mike Huether ends up being the Democratic nominee for Governor in 2018 and I am still a resident of South Dakota I highly doubt I will vote for him.
Whether you vote Democrat or Republican the fact remains that South Dakota has a Republican congresswoman and two Republican senators that are pushing for the repeal of the estate tax. I don’t see too many Democrats backing that bill.
Folks: take a breath. This will never become law. It’s just a bill designed to force a veto to create an issue for 2016. Just like every other BS bill one or another house of Congress has passed the last ten years or so. The only legislating either party seems to do these days is about fund-raising, not governing.
the difference Daniel is that following the republican line is only in the interest of the few vastly wealthy; following the dem line is in the interest of the huge middle class engine that runs the nations economy and thus the world.
Dan – Polling and precinct election results election after election show you don’t know what you’re talking about. Historically, South Dakota Democrats who vote regularly have a much higher incidence of splitting the ticket than South Dakota Republicans who vote regularly. The percentage of non-ticket splitting Democrats is 18 percent in South Dakota while the percentage among Republicans is 26 percent, based on polling research.
mhs, you’re right that it will be vetoed, but it sure seems to me that Democratic candidates should shove this “save the family farm” rhetoric right back in the face of the Republicans who spout it. If they did it forcefully enough and when presented with the facts rather fear mongering scenarios I think most people would understand the truth.
I don”t consider farms as large as the Noem farm, family farms. Family farms are a small farm that the male family member can handle and most of the time they don’t have the new expensive equipment. in regard to the Noem insurance billboards go, her husband’s insurance office is located about 50 miles from Watertown and I’m sure there are insurance agents a lot closer to Watertown than Bryant, SD. Nick, yes Noem’s parents were married. One of my sister’s went to beauty school with Noem’s mother and attended the wedding. She said it was the most beautiful wedding she has ever attended. She also votes for Noem because he thinks Noem is God herself and because she went to school with her mother.
Nick, to figure out the state inheritance tax rules, we could look at 2014’s House Bill 1057, which finally took the inheritance tax off the books after it ran its 12-year statute of limitations after the 2001 popular vote to repeal the inheritance tax via constitutional amendment. But that bill isn’t a complete list. Who’s got an old law book sitting around?
This South Dakota Estate Tax form indicates the state’s estate tax was keyed to the federal estate tax. So if the spousal deduction got you out of federal tax, it also got your out of state tax.
Take a look at this South Dakota inheritance tax form. Scroll down to the third page, “Schedule B,” which requires a listing of jointly owned property. The instructions say, “Except for property held with a surviving spouse, and no one else, all property reported on this schedule will be taxed as though it were owned absolutely by the decedent except such portion thereof as may be proved belonged originally to the surviving joint owner(s).” That prefatory exception appears to say that, if Ron and Corinne had jointly owned the farm, Corinne would have paid no inheritance tax.
Later in the same form, the general instructions say, “transfers between spouses are exempt.”
Oh! And then there’s a table (1A) which says that, for deaths on or before June 30, 2000, sons, daughters, and other “lineal issue” receiving inheritances of over $100K had to pay inheritance tax of $3,750 plus 7.5% of the inherited amount.
Joan, I thought the same on family farms, but surprisingly, it seems there is a different definition:
According to the U.S. Department of Agriculture (USDA) definition, family farms are those where the majority of the business is owned by the operator and his or her relatives. Family farms may hire outside labor. As farms become larger, there’s a need for more outside help, Garcia pointed out.
South Dakota aligns with the national average with about 98 percent of farms being family owned. But South Dakota farms are bigger than those in other states. A recent survey found that the average South Dakota farm is triple the size of the average American farm.
http://www.farmandranchguide.com/news/crop/south-dakota-s-farms-big-and-getting-bigger/article_1e18e120-e777-11e4-8137-97dcb9234ed9.html
We use the word “family” differently. When we hear the word “family” (and the industrial ag lobby works to reinforce this hearing), we want to envision the Playskool toy farm, a cute, clean, bright red building with one or two of each animal smilingly grazing on the carpet while our little one pushes Farmer Jones on his tractor across the back forty beside the couch. As MJL’s definition points out, in the eyes of the law, “family” is simply a description of the ownership situation, under which farms can still turn into factories, places workers go to sweat and draw paychecks, not settings for warm fuzzy country music videos and Sunday family reunion picnics.
MJL,
Isn’t The Fehr family in Minnesota using the family farm designation registered under Riverview Farms LLP 34,500 dairy cows and the company employs 700 people, predominantly from Mexico, and houses some in on-site dormitories?
Then there is Sonstegard Foods which sells itself as a 3rd generation family farm operation hoping to build that 6 million chicken facility by Parker.
Some of these “family farms” are family farms just like how Walmart is a family general store.