Rep. Kristi Noem’s Defense of Her Estate Tax Deceptions: A Textbook Example of Political Evasion

Representative Kristi Noem of South Dakota has come under fire recently for years of deceptive statements she made in support of her goal to repeal the federal estate tax. Noem has repeatedly told the story of her father’s tragic death in 1994 and the oppressive estate tax bill she claims came in the mail from the IRS.

Turns out that much of what Noem has said either is misleading, inaccurate, or flat-out false.

The editorial board of the Argus Leader, in Time for Kristi Noem to get her tax story straight summed it up:

Noem responded through her office Thursday, telling the Argus Leader that her father’s will was followed, although she earlier told the Huffington Post that the will was never signed. She added this statement to the Argus Leader: “For a decade after a tragic farming accident took my dad’s life, the Death Tax impacted nearly every decision our family made. To allege anything else is fake news.”

For a devoted Trump soldier who is running for Governor of South Dakota, that response is not surprising. But it will do little to quell doubts about Noem’s status as a torch-bearer on such a weighty issue.

There are valid philosophical and practical discussions to be had concerning the estate tax – whether and why it should exist, which and how many estates are actually impacted.

If a prominent political player uses a family narrative as one of the driving forces of her involvement in a major issue, it’s noteworthy when questions about that narrative arise.

For Noem’s sake, and for the sake of those she represents, let’s hope that more substantive explanations are on the way.

Well, another explanation was on the way, although not at all substantive. The day after the Argus Leader published its editorial, it ran Noem’s response, My Voice: Estate tax was burden to my family. That response is a textbook example of how a politician, caught in a lie, Just. Can’t. Own. Up. To. Her. Dishonesty. To avoid that simple acknowledgment, Noem lashed out at her critics, made new arguments, and spun facts. But she never explained why she misled the public, or apologized for doing so. Set forth below is Noem’s statement, with statements of reality interspersed in bold.

“In the Matter of the Estate of Ronald D. Arnold, Deceased.”

I read that line on legal documents countless times in the months that followed my dad’s death. I was 22 years old. A new mom. A grieving daughter. And a citizen in disbelief that her government was coming after her family. And why? Because our dad wanted to leave the farm he built to the children he raised.

False. Noem’s father wanted to leave his farm not to his children but to his wife, who is still alive today, 23 years after his death. In fact, that’s what he did. And the tax law in 1994 allowed him to do that without his estate being subject to estate tax. The problem was that his Will was drafted to conform to the law as it existed in 1976 and he never updated after the law changed in 1981. As a result, a portion of Noem’s father’s estate did not qualify for the favorable treatment allowed property left to a surviving spouse.

In recent weeks, some have called our family history into question despite the validating documents being out in the public for more than 20 years. So, let me start at the beginning.

Noem attempts a sleight of hand here. Yes, the documents have been in the public realm for 20 years, but her statements have continued right up to the current day. Had she made the statements 20 years ago and never repeated them, it might be somewhat relevant that the documents were available back then. But every time a politician repeats a statement it is fair game to fact check it. And the statements being fact checked were made very recently.

As many parents do, my dad signed a will about a year after my youngest brother was born.  That was 1976.  Life went on. By the early 1990s, he began the process of updating his will. That new document, however, was never signed.

Noem’s father’s 1976 Will was a well-drafted document under then current law. It is hard to believe his attorneys did not advise him of the need to update it within a short time after the law changed in 1981. The reality here is that Noem’s father put off the responsibility he had to his family to make sure his legal affairs were in order. For a politician who preaches personal responsibility, Noem should understand this. If a poor person renewed his car registration one month after the deadline and was whacked with an excessive late fee, you can bet Noem would be pointing to his lack of personal responsibility. But when her wealthy father didn’t take care of his financial affairs for twelve years running, she feels victimized.

Further, on the subject of personal responsibility, Noem herself has not exactly practiced what she’s preached. Prior to 2010, Noem racked up over 20 traffic citations, at one point having a warrant issued for her arrest for failure to pay. And in 1996 Noem seems to have submitted a corporate filing for the Racota Valley Ranch, which she signed in front of a notary, stating that her father was the registered agent for the corporation. At the time she signed the filing and swore the information in the filing was true, her father had been dead for two years.

My dad didn’t expect to die on March 10, 1994. He was young and vibrant, but that day, he was moving too fast. As I’ve explained many times before, people came quickly, ripping apart our grain bin to find him – a grain bin that still stands on our farm, patched with new metal over the spots they tore away. Despite their best efforts, my dad died in the hospital that night.

Yes, Noem’s father’s death was tragic. But nobody disputes the tragic nature of his death. By repeating this mantra, Noem is attempting to silence her critics. But the tragic nature of her father’s death did not give her a license to make dishonest public statements about his estate tax situation.

As per the legal process, an unsigned will is not valid, and therefore, our farm was split according to the 1976 version – a document that has been in the public record for more than two decades. Because the will indicated that some of our farm go to the kids and some to my mom, our family was not protected from the Death Tax.

No, the entire farm was left in trust to Noem’s mother. It was just done in a fashion that didn’t achieve a readily available tax result, because the transfer to Noem’s mother was structured to optimize the result under law that had not applied for over a decade.

We spent hours pouring over probate court documents. It was clear that when someone passes away, there are three groups in the room: the family, their attorney, and the government. I’ve fought to get the latter out ever since.

That’s ridiculous. A large estate, and Noem’s father’s gross estate was over $4 million in 1994, is required to file an estate tax return. But the estate is allowed nine months after the date of death to do so, and can readily extend that deadline for an additional six months. The American tax system is based on voluntary compliance.  Requiring the filing of tax returns, including estate tax returns, is part of that voluntary compliance.

At the time, we paid lawyers thousands to figure out what was owed – and that was money we didn’t have to spare. As the Courthouse News Service recently reported: “Court records show Ron Arnold was the proverbial farmer: cash-poor, but asset- and land-rich.”

This is wildly misleading. Court documents show that over $1.24 million of life insurance was paid out. Ron Arnold may have been cash poor, but his estate was not. That life insurance paid off $124,000 of farm debt directly and provided Noem’s mother with $1,119,000 of cash. She used much of that cash to pay debts, but chose not to pay about $85,000 of the estate tax, in all likelihood because the repayment terms were more favorable than any of the estate’s other debt.

But let me be clear: my moral opposition to the Death Tax is not because of dollars-and-cents.

That’s entirely inconsistent with her past statements about how devastating the tax was. This is an attempt to pre-empt criticism for the dishonesty of those statements. If her moral opposition to the estate tax was not “because of dollars-and-cents” why did she make up stories about the financial hardship inflicted on her family?

I fight this tax because it’s a double tax. We had already paid the government when we bought our land, machinery and cattle. Paying again because of death is double taxation – plain and simple.

Noem is changing her argument here. Although she has spoken about double taxation in past statements, it always has been in the context of supposed financial devastation to her family. And, in Noem’s family’s case, there was no double taxation. Federal tax policy here is to impose an estate tax, but to eliminate unrecognized gains associated with appreciated assets. Consequently, the untaxed appreciation in Noem’s father’s land and equipment would be excused from income tax by virtue of his estate being subject to estate tax. Moreover, the life insurance proceeds that caused his estate to be taxable never were subject to tax. There was no double taxation in the case of Noem’s father’s estate. Is Noem free to disagree with those policy choices? Of course, but to characterize her disagreement as “moral” in this context is absurd.

Which raises the question of what the real motivation is behind Noem’s efforts to repeal the estate tax. Although Noem’s opposition to the tax isn’t “moral,” it likely is about dollars and cents, despite her assurances to the contrary. Specifically, it’s about (1) South Dakota’s trust industry and (2) one of Noem’s staunchest benefactors, Jeff Broin. Broin owns the largest biofuels business in the world, an operation large enough to employ 1600 people. While the extent of Broin’s wealth is not publicly available, his family obviously stands to save hundreds of millions if the estate tax is repealed. The trust industry in South Dakota is huge, with the assets under management in the hundreds of billions. That industry generates fee income based on the total value of assets under management. So, when assets otherwise needed to pay estate tax remain in trust, the industry maintains a larger fee base. If the estate tax is repealed, the industry stands to increase its fee income by billions of dollars over time.

I understand Death Tax exemption levels have changed since my dad’s death. But if you think that simply moving the exemption levels makes this tax “fair,” you’re misdirected. My principles don’t change because the dollar amount does.

I have heard the recent debate over whether our family did estate planning effectively. To that, I ask: What does it matter? If a tax is only levied because someone didn’t pay lawyers enough before they died, then there’s a problem with that tax.

It matters for a number of reasons. First, it matters because it was dishonest for Noem to have left this detail out of her public statements, especially given her calls, and the calls of her Republican colleagues, for personal responsibility. The fact is that Noem’s statements intentionally left the impression that the tax on her father’s estate was unavoidable. It wasn’t, and Noem knew it, but made those misleading statements anyhow. Second, this is not about forcing people to pay lawyers. The estate tax applies only to families that would be paying lawyers to do estate planning anyhow. And, yes, compliance with the law can require payment for assistance. Third, it matters because tax policy, as embodied in the tax code since 1982, provides that a person can leave an unlimited amount, free of estate tax, to a surviving spouse, but the amount left to others is subject to tax. Noem just voted in favor of a tax bill that continues that policy. So, yes, if a person wants to qualify for the favorable tax treatment associated with assets left to a spouse, he needs to arrange his affairs to have the assets go to that spouse.

After all was said and done, our family took out a loan to pay our Death Tax liability. Agriculture is a highly leveraged industry. Many take out loans annually to get the seed in the ground. But this loan wasn’t building our business. It wasn’t buying fertilizer. It wasn’t going toward a new combine or tractor. We weren’t fixing our torn down grain bin with that money. We were writing a check to Washington.

This is nonsense. There were life insurance proceeds adequate to pay the estate tax liability several times over, which likely was part of Noem’s father’s purpose in carrying the insurance. But the tax law allowing for a deferral of the estate tax payment also allowed for an interest rate on the deferred portion more than four percentage point below the then prevailing prime rate. So the family used insurance proceeds to pay off other debts and left the estate tax unpaid because of the favorable interest rate. There’s nothing wrong with that. Congress intended it to work that way. But for Noem to twist the financial planning made possible by a favorable provision of the tax code into a government imposed hardship is blatantly dishonest. 

I’ve spent the last 23 years without my dad. He didn’t get to meet my kids or see how we were able to grow the family farm. He didn’t get to see me elected to Congress. And he’s not going to be there when his granddaughters walk down the aisle.

But he did get us started. My home sits on land he owned – land he warned me never to sell because “God isn’t making any more of it.” He built that farm so one day his kids could come home and farm together. And the government jeopardized that dream. That’s the straight up reality.

No, it isn’t. The straight up reality is that the tax law provides for estates of farmers to defer their tax liability on very favorable terms. The government did not jeopardize Noem’s father’s dream. Nor did Noem’s father jeopardize his own dream. Yes, he should have updated his estate plan sometime during the 12 years prior to his death. But he did purchase ample life insurance to cover the liability. He left his family protected. But that didn’t fit the narrative Noem wanted to convey, so she’s lied to South Dakotans for the better part of a decade. For purely political purposes, she knowingly left voters with the false impression that her father’s death and the resulting estate tax left the family in dire financial straits, knowing full well reality was exactly the opposite. Her father had the financial situation covered and the terms on which the family could pay what really was a modest estate tax liability were far better than any the family could obtain from a lender.

A careful review of the probate filings reveals that Noem’s family was left with a farm operation with a value, net of outstanding debt, of over $2.7 million when her father died. Specifically, the probate filings show that her father’s estate net of debt and all amounts going to Noem’s mother was $1,041,000. In addition: (1) Noem’s mother received $56,000 as a survivor in jointly held property, plus $1,119,000 in life insurance proceeds; (2) family members or entities controlled by the family appear to have owned undivided interests in real property with a total value of $148,000; (3) The Racota Valley Ranch corporation, owned 92.5% by Noem and her siblings, had a value of $185,000, only $13,000 of which was included in Noem’s father’s probate estate; and (4) of the debts identified in Noem’s father’s probate filings, $222,000 was owed to family members or family controlled entities, whereas only $26,000 of the assets of the estate were debts owed by Noem and her siblings. The largest family creditor of the estate was a trust established by Noem’s grandfather. In all likelihood, upon the death of Noem’s grandparents, Noem and her siblings stood to receive the share of that trust that would have passed to her father had he not died prematurely.

For Noem to say the government jeopardized her father’s dream demonstrates that she is either delusional or dishonest. At the same time her family was making payments of the outstanding estate tax liability of between $8,800 and $12,000 per year to the government, that same government was paying subsidies to the family’s farm in the following amounts:

1995                            $16,005

1996                            $80,882

1997                            $79,902

1998                            $174,105

1999                            $482,500

2000                            $528,472

2001                            $396,252

2002                            $101,785

2003                            $174,129

2004                            $172,996

Source: https://farm.ewg.org/persondetail.php?custnumber=A09529125

When you add it up, that government that “jeopardized her father’s dream” paid the family farm at total of $2,207,028 in subsidies while receiving a total of about $100,000 in payments of estate tax (including interest). In other words, for every dollar of estate tax the family paid, it received twenty-two dollars in subsidies. It is mystifying to believe that Noem could say that jeopardized her father’s dream. 

Our family paid the Death Tax after my dad died. No family should have to go through that. So, write what you will. Question whether our estate planning was up-to-snuff enough for you. But as you do, I’m going to keep pushing forward. I’m going to spend the rest of my life, if I have to, fighting to repeal the Death Tax.

Of course she will.