Sunday, December 27, 2015

It's Crazy (x2): South Dakota Has No Income Tax

     Yes indeed, there are two dimensions of craziness to the notion that South Dakota doesn't have an income tax.  Dimension 1) it's crazy that we don't have one. Dimension 2)  it's crazy to think that we ever will.
Wow
And We're Trying To Attract Workers?

Regarding that first dimension of derangement, consider how we stack up on some vital elements of public budgeting compared to our neighbors (ex-Wyoming, which is left out of this discussion because the state uniquely derives about 25% of its revenues from taxes on mineral production) and all but  5 other states in the country.  The Council of State Governments in 2011 produced a document that summarizes the contrasts, some of which are pretty stark indeed. On a national scale, individual income taxes generate about a third of total state tax revenues, with slightly less than that share coming from sales taxes. South Dakota is a much different story. Sans income tax revenues, South Dakota in 2013 got an astounding 80% of its total tax revenues from sales and excise taxes.  Talk about regressive, good grief.  The tax burden in this state falls heaviest on the lower tiers of wage earners, who carve out taxes from a much larger share of their incomes than the well-to-do. 
     South Dakota is a low tax state, no question.  State and local revenues consume just 8% of the state's total income, third lowest in the nation.  This is a feature of fiscal life here that is frequently pushed as an advantage of some sort, but I think that's bunk because the "advantage" is belied by our persistent worker shortage.  In fact,  the shortage is so acute that last May our state government started pushing an ad campaign  to lure workers and their families by claiming that South Dakota is a better place to live than the planet Mars. Uh-huh.  The tongue-in-cheekishness of the ad notwithstanding, I think it reflects the reality that our worker shortage isn't merely acute . . . it's desperate.  That desperation is created by issues that trump low taxes in the minds of people who might be thinking about migrating into South Dakota.  
     Now that our socialized stinginess has resulted in the manifestation of those serious issues on two fronts--abysmal teacher pay and infrastructure maintenance--our elected leadership is busy configuring ways to squeeze more money out of existing revenue streams.  Most notably, the mind-numbing gesticulations regarding property tax reform seem like nothing more than a "strife of interests masquerading as a contest of principles." **  And trying to squeeze more sales tax out of an already overburdened class of ordinary citizens isn't going to happen.
     Ergo, the craziness of the status quo.  As to the prospect for income taxes, you can count me as one of the crazy ones who think there might be some change in our thinking on them.  First off, we
SD Rich Folks Have It Made
Working Stiffs Not So Much
(graph from sdbpi.org)
need the money. Paying our state's 8,000 teachers another $10k/year comes out to $80 million, and that just gets them on the low end of the range of salaries immediately surrounding South Dakota. Secondly, a progressive tax that would shift some of the state's tax burden upward might have a shot at succeeding if people can be made to understand the connection between constructive government spending and the quality of their lives.  Because of two constitutional amendments, created in 1978 and 1996, the only ways South Dakota could impose an income tax are via voter initiative or a two-thirds vote in both houses of the state legislature. 

     You can forget about the politically impossible latter, but the former might fly.  I think enough signatures could be gathered to at least get an income tax initiative on a ballot and that the subsequent public debate could clarify and instruct voters about the possibilities that can accrue to a state that has a progressive tax system.  Limiting the tax to businesses that make quite a bit more than a typical  mom-and-pop operation would probably be a realistic place to start. If nothing else, it might start moving us out of the realm of states with the "most regressive tax systems in the United States."  

     
 ** Ambrose Bierce, "The Devil's Dictionary"         
     

14 comments:

  1. After the lowest 20% receive their subsidized or free health care, food stamps, subsidized housing, subsidized daycare, earned income tax credit rebate, etc, just exactly what percentage do they pay in taxes???

    ReplyDelete
    Replies
    1. Probably a point not worth pursuing, considering the subsidies and tax breaks given to the wealthy have to be calculated to come up with a meaningful answer.

      Delete
    2. AnonymousDecember 27, 2015 at 10:55 PM

      (Probably everyone but you benefits from the items you list).
      After the lowest 20% receive their subsidized or free health care (healthcare providers), food stamps (food producers), subsidized housing (Landlords, contractors, utility companies), subsidized daycare (daycare providers and employers), earned income tax credit rebate (Retail businesses), etc (etc), just exactly what percentage do they pay in taxes???

      Delete
  2. What portion of the budget is funded by revenue from the central government so many Republicans rail against? If memory serves, the state receives more than it contributes.

    ReplyDelete
    Replies
    1. Per one of my links above, federal aid contributed to 41% of SD's spending in 2012.

      Delete
    2. That percentage dipped a bit in subsequent budgets, but Governor Daugaard's FY2017 budget proposal is 42.1% federally funded: http://bfm.sd.gov/budget/rec17/SD_Total_Recommended_2017.pdf

      Delete
  3. Thanks John, it's not the first time I've failed to thoroughly read a post.

    ReplyDelete
    Replies
    1. No prob, Jerry. It's kind of buried in the link as it is. Just wanted to call attention to readers that I do indeed have some factual back-up. Always appreciate your comments.

      Delete
  4. John- Has the Republican Party contacted you yet to turn in your membership card?

    ReplyDelete
    Replies
    1. They'll have to pry it out of my cold, dead hands, Curt. :-)

      Delete
  5. One of the most persuasive reasons for folks to support our nonpartisan election initiative is just that reason--Nebraska has a much less regressive tax system than South Dakota (despite being a more conservative, Republican state), and the main difference is the fact that their legislature isn't run by political parties, and legislators are there to find solutions to problems, not steamroll the opposite party. It's also why Nebraska funds their kids' education at about a 30% higher level, per capita, than we do in SD...

    ReplyDelete
  6. I'm of a mind that if there is anything constant about American politics it is that votes can always be harvested by insisting that those who have the lowest income benefit the most from whatever tax system is in place. It doesn't make a lick of economic sense, but the counter argument is not amenable to sound bites so it doesn't get made.

    ReplyDelete
  7. This comment has been removed by the author.

    ReplyDelete
  8. For 7 years, I lived in Tennessee, which had no state income tax, right on the border of Virginia, which did. Tennessee was a very poor state; Virginia a well-off one. TN ranks 47th of “best states to live”, VA, #5. TN 7.1% unemployment, VA 5% unemployment. TN roads were awful, VA roads were great (sort of like the difference when you cross the border into Minnesota). Yes, housing cost more in VA (but it was pretty good housing), but food and utilities were about the same. TN had, and still has, the highest sales tax in the country, 9.45% local and state sales tax (with the result that those who could, went across the border to VA to buy stuff). Property taxes were high. And those sales and property taxes increased the cost of living in TN the same way it does in SD, whether people up here want to admit it or not.

    ReplyDelete