South Dakota members of Congress say a federal tax is unfairly targeting farmers and needs to be repealed. But critics argue that repeal would be another tax cut for the ultra-wealthy.
U.S. Sen. John Thune, R-S.D., reintroduced legislation on Tuesday to repeal the federal estate tax, also referred to as the "death tax." He had introduced the same legislation in 2015, but it died in Congress. U.S. Rep. Kristi Noem, R-S.D., is presenting a companion bill in the House.
The federal estate tax is assessed on property transferred from a deceased person to heirs for any estate valued at more than $5.49 million per person — or close to $11 million for a married couple. The tax raises more than $20 billion annually for the federal government and is expected to raise $275 billion over the next 10 years.
“As if the long arm of the IRS isn’t intrusive enough during life, too often the death tax punishes hardworking Americans even after they’ve passed away,” Thune said in a release Tuesday.
Noem sent out a similar release and told a story about her family having to take out a loan to cover the federal estate tax when her father died in 1994.
Both Thune and Noem say the tax targets farmers who are often land-rich but cash-poor and causes them to sell off land or machinery to pay the tax.
Opponents of the repeal say it taxes only the ultra-wealthy.
In December, Bloomberg News reported that repeal of the "death tax" would save more than $20 billion a year for the millionaires and billionaires the tax applies to — including the family of President Donald Trump and several of the people he has chosen for his administration.
Senate Minority Leader Chuck Schumer, of New York, said in December he was against repealing the tax. “To do it would sure help out the wealthiest few in America,” he said.
According to a report by the congressional Joint Committee on Taxation, 99.8 percent of estates in the nation pay no federal estate tax. That is in large part due to the federal exemption rising from $675,000 in 2000 to $5.49 million this year.
When Noem's father died in 1994, the federal exemption was $600,000 per person or $1.2 million in assets per married couple. Adjusted for inflation, the exemption would be just below $1 million per person in today's dollars.
Though the exemption level has risen significantly in the past 20 years, so has the value of farmland.
Last year a report from the American Farm Bureau Federation found that, on average, farms larger than 2,222 acres in South Dakota could exceed the exemption level for the federal estate tax. The report says that the heirs of thousands of farmers in South Dakota would be in line to pay the tax if those farmers died.
However, many farmers and business people can find ways out of the tax if they employ lawyers and accountants to plan their estates and exploit the loopholes within the tax code.
A report by the Urban-Brookings Tax Policy Center in 2013 said roughly 3 percent, or 120, of the 3,780 estates subject to that tax in the entire nation that year were farms and businesses. Of that 120, only 20 were considered small business or small farm estates. Another report by the Center on Budget and Policy Priorities from 2015 said that only about 20 people would pay any estate tax in South Dakota for 2016.
Thune maintains the bill is to help small farms and said estate planning can be a costly endeavor for small farms or businesses.
"In an environment where it’s frequently too difficult and costly for family-owned farms to be passed from one generation to the next, we should be knocking down hurdles to find ways to incentivize families to retain these multi-generation businesses," Thune said in the release.