Saturday, November 26, 2016

Time For South Dakota To Institute An Income Tax

   South Dakota has to find a way to shift its tax burden away from sales taxes to income taxes.  During the last few weeks we've gotten some pretty grim news about how sales taxes this
Why Is This Man Laughing?
We're Way Short Of Cash
year haven't matched up with projections ("sales tax isn't close to generating enough revenues," per a Rapid City Journal report a month ago), meaning that some tough budget-cutting is probably the likely outcome. The always excellent and comprehensive South Dakota Dashboard prepared by the Black Hills Knowledge Network notes that the revenue decline is nearly 2 per cent for the quarter completed last September, which contrasts badly against the 3% growth rate forecast by the state's analysts when the current budget was set last January.  That's a 5% drop from expectations, which is enough to set off the collective "ouch" we've been hearing from Pierre.

    A lot of this has to do with the big drop in agricultural commodity prices during the past couple of years.  USD business prof Ralph Brown told the RCJ that the falloff in farm revenues in South Dakota amounted to more than $3 billion, which reduced the ripple effect to something barely noticeable this year. Our economy just isn't diverse enough to absorb that much of a shock.  BHKN also notes that growing e-commerce sales, which are sales tax exempt, probably had something to do with it.  I'm having trouble getting information on how much those sales amount to in South Dakota, but I have no doubt that they're a factor.
     Consider this: swings in commodity prices make farm state revenues subject to the vagaries of global markets. By now we should have reached a point where
The Current Set-Up
Unfair As All Get-Out, Anyway
on sales taxes needs to be reconsidered as a primary revenue source.  Throw in the growth of e-commerce and you've got a situation like the present one, where the only surprise is the fact that so many people are surprised.  
     We really need to think about another source of state revenues, which in this case is income.  Even as our sales taxes have turned into a serious floppola this year, median income in South Dakota has been rising.  Though hovering slightly behind the national growth rate during the last 5 years, South Dakota median household income (per BHKN) has nevertheless risen steadily during that period.  Taxes raised from income would have avoided the sudden lurch we're currently experiencing.
      Politically difficult as the prospect of instituting an income tax may be, the sensibility of it seems self-evident.  It's long past time for us to start the conversation about this.  


  1. A state income tax is the fairest way to tax, everybody pays their fair share and, as you stated, it eliminates a lot of ups and downs. For the reasons I stated the state legislature will never go along with it and most voters won't see it the way you or I do. Other benefits would include eliminating sales tax on food and clothing and maybe some real property tax reform. Will never happen, the right wing boogieman won't allow it.

  2. Better be careful, John, they will start labeling you a socialist. It is so hard for me to understand why a clear thinker like you, can present a well thought out proposition and the powers that be cannot see the clearness of that thinking.

  3. How about instead of raising taxes, the govt cut expenses? Now that's a novel idea isn't it? And don't say they can't, because I happen to know there are employees kept on the payroll who actually do not even have to report to work!

    1. You made me laugh! I needed that the way my day was. Thanks.

  4. If anyone knows of state employees who are shirking, I'd ask them to pick up the phone and call someone rather than posting it on a blog.

  5. With all the talk of shop local, I would be more apt to shop local if we (South Dakota) had a corporate income tax. When I shop at Walmart, menard's or any of the big stores, I hate that the profits leave the state. Why we don't tax the profit is beyond me. When Walmart gives $1 million to a local community they spend $50 million crowing about it.