My Column On South Dakota's Tax Unfairness In Today's Rapid City Journal
Considering all the hoopla over tax policy that has dominated the national political conversation in recent days, I'm surprised that none of that talk has filtered down to the
South Dakota level yet.
Our primeval tax system, one of the most regressive in the United States, is overdue for some analysis and political discussion. As far as I know, none of the Democrats running for office in this state has made tax reform much — if any — of an issue, probably because they're terrified of having to utter the two most reviled words in South Dakota's political vocabulary: "income tax."
Yet, any discussion about fairness in taxation in this state has to conclude with an unavoidable reality. Our outsized reliance on sales taxes as South Dakota's principal revenue stream needs to go. Eighty one percent of our state's tax revenues come from sales taxes. Compare that to Minnesota's 42 percent, Nebraska's 47 percent and North Dakota's 30 percent.
Structural differences among the states can account for the disparities, but it doesn't change this fact: South Dakota depends on a much larger share of the earnings of lower- and middle-income residents than it does on the money made by those in the higher-income brackets.
The non-partisan, non-profit Institute On Taxation And Economic Policy says that in 2015, South Dakota had the fourth most regressive tax system in the United States. Poor and middle-income residents paid, respectively, 12 percent and 8 percent of their earnings to state and local authorities, while the wealthiest paid less than 2 percent.
The unfairness is self-evident, yet the "official" South Dakota position seems to be that the status quo, meaning no income tax, is one of our state's most compelling assets.
Last spring in his pro forma message to graduating high school seniors, Gov. Daugaard added a pitch to remain in South Dakota, telling them that "without an income tax ... you can keep more of the money you earn," not mentioning that they'd be paying a higher share of their incomes in sales tax than their prospective employers would.
USA Today took note of the fact that no income taxes are irrelevant to South Dakota's status as a place to work last year when it wrote that we're the 8th-worst state in America to make a living, adding that we're the second lowest average-income state in the country.
Looking at it as an employer of many years standing, I haven't seen much enthusiasm for our no-income tax status among people who want to stay or relocate here to make a living. Our state's chronic labor shortage is acute. Using our “income tax” pitch as a siren song for workers is delusional. It hasn't worked.
Meantime, the inequity lingers on. We need to air this situation out, and this election cycle is a great time to do so. I hope challengers will start raising this issue during the next few weeks and use it as a prod against incumbency and the status quo, which has failed to do the job of insuring fairness among our taxpayers.