Saturday, May 10, 2014

Memo To South Dakota Workforce Summiteers: Low Taxes Aren't Much Of A Come-On When Recruiting Out-of-Staters.

     Governor Daugaard's declaration last January that labor force development would be one of his top priorities in 2014 led to his formation of a series of "workforce summits" to be held throughout South Dakota this year.  Whether they turn out to be an election year sideshow or actually produce some substantive ideas and action remains to be seen.  Of one thing I have no doubt.  When it comes to discussions of how to successfully recruit out-of-state workers, South Dakota's non-existent personal and corporate income taxes will be brought up as a potential enticement to out-of-staters we're hoping to recruit.  That ancient canard (along with the phony one about SD's low cost of living--we're actually in the middle of the pack when it comes to COL)  has been used since as long as I can remember as an excuse for our low wage scales and a reason for out-of-staters looking for new digs and opportunities in South Dakota.
     Turns out, though, that low state taxes aren't given as much of a reason for Americans who relocate to other states.  The Center On Budget And Policy Priorities just produced this study, heavily dependent on data from the U.S. Census Bureau and the Internal Revenue Service, that concludes "State Taxes Have Negligible Impact On Americans' Interstate Moves."  Of acute interest to South Dakotans is a table based on IRS data that shows during the period from 1993-2011, South Dakota had a net out-migration of a bit more than 5,000 families.  It might have been more but for the tax climate in South Dakota, but it's clear that despite our absence of income taxes, South Dakota hasn't been able to attract more families than it loses.
     Fact is, that despite all the vaunted benefits of our no-tax system in South Dakota, including that oft-cited ranking about our "number one business climate," economic growth hasn't been anything to write home about.  Per the CBPP study, from 2002-2011 among the "nine states without a personal income tax, [economies grew annually] an average of 5.2 %, [while they] grew 8.2% in the nine states with the highest income taxes."  You really have to conclude that based on population and economic data, having no income taxes in South Dakota hasn't been a particularly productive asset when it comes to moving this state forward.  It's little wonder that Governor Daugaard is now scrambling to find an adequate labor force to supply even the relatively modest growth needs of South Dakota.  In the meantime, Daugaard should consider that according to the study, "primarily low- and moderate-income households, not high-income households, are migrating to states without income taxes."
     It's still about services and infrastructure.  Workforce summiteers should note an interesting "heads-up" produced in the report for states that are thinking of significantly reducing their tax burdens, thereby hoping to stem their out-migrations:   "If deep tax cuts result in significant deterioration in education, public safety, parks, roads and other critical services and infrastructure, these states will render them selves less--not more--desirable places to live and raise a family."  Interesting. Obviously, South Dakota can't contemplate cutting taxes that don't exist in the first place, but the study does call attention to services and infrastructure as primary considerations when it comes to desirability.
     That South Dakota consistently shows up in the top tier of states in most "quality of life" rankings I see is a very nice thing, but doesn't get the job done when it comes to attracting workers.  We continue to lag in the "show me the money" department when it comes to wages, both regionally and nationally, and our education rankings have been historically low, particularly when it comes to teacher salaries.  It's hard for me to see how a lack of income taxes can trump salary and education considerations when a family contemplates moving to South Dakota.  By themselves, lower taxes do not make an attractive home state, and it seems clear that they aren't much of an incentive to draw in the people that we need to move South Dakota into a more dynamic gear when it comes to economic growth.



  1. As usual John, a very insightful article. I have never understood the idea that cutting taxes is the most important mantra of a political party. The way to stop the expansion of government, is to be a watchdog on that expansion, not to starve the beast. The Rounds administration liked to brag about their conservative principles, but they expanded State government by 1500 FTEs at a time when the States' population barely moved and toward the end of his administration, because of the downturn in the national economy, got caught with not enough sales tax collections to fund the programs that his administration had created.

  2. It will always be about wages, why would somebody come here just so they can starve? Part of the "business friendly attitude" in this state is the low wages. I fear it will take a major shakeup at the ballot box to fix it, and I don't think the conservative majority here has the stones to make the leap.

  3. I too, find your post not only makes sense, but is factual.

    Living in MN for the past 7 years has been a wonderful opportunity for me to see a major economy in action. MN is one of those high tax states that keeps growing. The state government is all Democratic, though not ⅔ majority. In the past two years education support has risen significantly, same sex marriage has been approved by the voters, and minimum wage is being raised to $9.50 in steps.

    MN is home to 19 businesses in the Fortune 500. The business community, except for low wage stalwarts like Walmart and McDonalds, supported these moves. Business is also behind the push to improve housing, transportation and other things that are not explicitly business needs. That's because business knows that a good business climate is much more than taxes and transportation of goods.

    The people who do the work matter! Allow them more freedom, more openness, better pay, housing, ways to get to work, a good education so they can not only do the work in front of them, but aspire to improvement.

    SD has gone with the "low/no taxes, dirt cheap labor" at least since Kneip. That's about 40 years. It has never worked. Its way past time to adjust the plan to something effective!! Geez!

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