Thursday, December 29, 2016

South Dakota's Unfair Tax System Extends To Our Farmers And Ranchers

     Meade County Commissioner Galen Niederwerder penned a most provocative and insightful look into South Dakota's nagging problem with fairness in agricultural property taxation.  Writing for
Snowed Under By Taxes
In South Dakota
himself (not the Commission) Niederwerder's piece appears in my blog just below this post as a welcome addendum to my Nov. 30 Rapid City Journal column in which I called for tax reform by substituting income taxes for many of the regressive sales taxes imposed on South Dakotans.
     In that piece I had to ignore property taxes on agricultural land for space reasons and am glad that Commissioner Niederwerder followed through on this essential element in the conversation about tax reform.  He calls property taxes "the most regressive form of taxation" and adds, "ag property does produce income; however the taxes due are not based on the actual income produced, but rather a Department of Revenue bureaucrat's theory of what it should be able to produce."
    This seems an amazing and intolerable situation. The taxable amount is driven by income, which I can see, but not on actual income.  It's based on theoretical income.  There's an intrinsic craziness to this set-up--sort of like my accountant informing me that my tax obligation this year is not based on what I actually made but should have been able to make.  Subjected as they are to that kind of nuttiness, it's little wonder that Niederwerder and his many ag-oriented constituents in Meade County are crying "foul" and calling for some reform.  I know enough about the grain and livestock markets via my many years as a commodities trader, broker and producer to understand that producers have gotten clobbered during the past couple of years.
    Actually, the 76% drop in ag income in South Dakota during 2015 is more like a bloodbath than
Wheat Prices Wither
Taxes Don't
a mere clobbering.  Given the static nature of their property taxes, farmers and ranchers in this state are being unfairly squeezed by a tax system that is too rigid to accommodate their uniquely volatile markets.  As Niederwerder notes, "taxing the revenue stream is vastly preferable, whether it's on the incoming side when it's earned, or the outgoing side when it's spent."  He adds that he would support my suggestion for an income tax as a substitute for sales taxes if the proposal also called for elimination of property taxes or a designation that property taxes be used solely to fund local government services.  As with me, Niederwerder wants income taxes as a substitute for, not an addition to, existing taxes.  And also with me, this savvy county commissioner wants the word "fairness" applied more judiciously to South Dakota's tax system, which is profoundly indifferent to the equitable distribution of its burdern.

1 comment:

  1. It's a little late for Commissioner Niderwerder's "or as it's spent" theory. Now that 75% or more of the farmers have been forced off the land, and those that have remained have spent a lot of their income over the years to buy up that land from which the previous farmers have been forced. It is quite obvious, that a lot of the income earned by the hardest working, or the most astute or maybe even the luckiest of the farmers who remain, was spent in a way and still is, that would not be taxed. Therefor to put the onus on more sales tax is actually the most regressive, not property tax as the commissioner is wont to assert.