Sunday, April 23, 2017

South Dakota's Fiscal Policy Is Based On Finger-Crossing

     It looks like there's no relief in sight for South Dakota's chronic fiscal problem, a shortfall in sales tax revenues.  As RCJ correspondent Bob Mercer put it in his report on a legislative board
SD Makes Projections On This?
Give Me A Break
meeting discussing the issue a few days ago, "the news is getting worse."  Mercer notes that Sioux Falls GOP Representative Mark Mickelson called the downturn in state revenues "the No. 1 issue" facing state government, adding that his concern is "the erosion of our ability to keep pace."  Rising expenses and falling revenues are a persistent reality for South Dakota government, which is headed for a second straight year of declining sales tax revenues, even as our state's population has increased by a bit over a percentage point since 2015.  Little wonder that Mickelson is concerned about our ability to keep pace.  

     Even more wondrous to me is that nobody in Pierre acknowledges the obvious, which is that our fiscal policy is based on finger-crossing.  South Dakota's agriculturally-dependent economy has suffered a three billion dollar hit in the past few years, seriously cutting down the flow of cash that streams through the state and surfaces as taxable sales.  For the government to base its cash-flow projections on any assumptions about commodity prices is folly, as we've seen the past couple of years. Our state's rigid dependence on sales and, more locally, property taxes for the lion's share of operating revenues is the stuff of gambling and hoping that lady luck will be with our commodity markets every crop year.
     A comprehensive review with an eye toward tax reform should be on Governor Daugaard's order of business for the remaining months of his term.  Our regressive sales tax-based system (4th most regressive in the nation) plants its burdensome feet most heavily on our lower-income residents, and our high property taxes (16th highest in the country at 1.4% of valuation--mine being closer to 2%) could stand some downward adjustment.  Taking those taxes down significantly and replacing the revenues with corporate and possibly individual income taxes
An Impractical Set-Up
That's Also Unfair
would smooth out the state's revenue stream and give property owners some long-needed relief.  It would also inject some equity into our state's financial structure.  It might even give our area ag producers some relief from the pain of paying the same property taxes every year whether they've made money or not.  The impracticality of the status quo is self-evident.  Fixing it would also be a way of having the word "fairness" applied more judiciously to South Dakota's tax system, which is profoundly indifferent to the equitable distribution of its burden.  

13 comments:

  1. Republicans will never change our tax codes as long as they have the lower income folks picking up the tab. They have shown no desire here or any other red state to make taxes fair. Trump will finish our commodity based economy with his incompetent policy, if that's what you want to call it.

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    1. I understand your skepticism, which is politically realistic, Tim. These cash crunches might spur some reformist changes. Mickelson is justifiably concerned and sounds like he's ready to consider some ideas. We'll see.

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  2. I shall warrant those who propose reform in this area must needs consider the reality that any legislative maneuver involving taxes requires action by individuals who are, all too often, elected because of their position on guns, religion and immigrants. Asking those self-same folks to take reasonable position on revenue sources may well be a bridge too far. Health care is not the only thing that's complicated.

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    1. There may be no choice but to come up with a solution to the problem that Mickelson understands. The only reprieve would be a sudden upsurge in commodity prices, but that would be short-term at best and doesn't solve the structural problem. Forward thinking elected officials know they have to address this.

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    2. In the hope the Universe, and all the planetary bodies, cooperate, and find your optimism acceptable, I am sending positive thoughts upwards through the firmament! 🤞 Please note that I grew up in Kansas, and I still have people down there. In consequence, the depth of my skepticism about Republican governance is more akin to the Mississippi than the Platte.

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    3. When a mainstreamer like Mickelson starts publicly doubting that the status quo is sustainable, there's reason to think that Pubs in this state will have their hands forced and face up to the inevitable.

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  3. Bart Trucano April 26 2017

    I like your columns in the RCJ as I feel they offer a different point of view on economic issues. But I remain highly skeptical that our SD gov't by using a personal & corporate income tax can come up with a system that is fairer. Our legislators are strongly against having limits put on what they can receive from lobbyists. And if we "follow the money" then there's no way that system will be fairer. The special interests will win!

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    1. I believe it would be harder for special interests to influence South Dakota's government if it were substantially funded by by taxpayers who feel the "pain" of writing a check. People will pay closer attention to government spending, much as they do with their local governments financed directly by property taxpayers.

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  4. Bart Trucano April 26 2017

    John, I like reading your columns in the RCJ as they offer a different point of view on economic issues. But I am very skeptical of the idea that going to a personal and/or corporate income tax would create a fairer system. Our politicians don’t even want limits on the amount of money that lobbyists can give them. So if we “follow the money” then this will most likely only benefit the special interests even more!

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  5. After reading a letter to the Argus yesterday, it occurred to me that 'RV folks' will most certainly be a factor in any referendum over an income tax. Those people could care less if the state provides services for its permanent residents.

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    1. No question you're right, Mr. Sweeney, but if an income tax were part of an omnibus tax reform package that included property tax relief I think the notion could get a lot of support from voters who actually live here.

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    2. I wonder if there's a data base that connects property ownership and voter registration. That information would be invaluable in selling a tax reform package.

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  6. Do you think the folks that pushed the bigotry heavy adoption bill through to passage considered the cost of defending it in court? Texas just passed a similar measure, but I swan SD is more likely to find itself in court first. The Texas legislature has put so many pieces of legislation on the table this session the courts will be clogged for years.

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