Monday, December 4, 2017

South Dakota's Budgeteers Are In A Self-Induced Hypnotic Trance.

     Self-hypnosis seems to be the governing style that defines how South Dakota keeps ignoring some fundamental causes of the state's persistent shortfalls in tax collection.  Governor
Daugaard
Costs Are Up, Revenues Are Down
Daugaard last month announced that we're headed for another lean
 budget year because of lower than expected receipts from sales and contractor excise taxes.  As if hypnotically transfixed into denial of the obvious, Daugaard blames a trend toward more spending on medical expenses, which are exempt from sales taxes, noting that healthcare takes 20% of consumer spending, up from 15% in 1997.
     This is a new excuse and it doesn't wash.  There's no reason to doubt its conclusions about the growth of healthcare spending, but why it was suddenly discovered and declared to be the whipping boy for our state's anemic showing on tax receipts is open to question.  For one thing, the growth of healthcare as a portion of South Dakota's economy matches closely  with the national trend, so there's good reason to wonder why it seems to come as a surprise to our state's leadership.  The trend has been clear and well-known for decades.  Daugaard's revelation of it merits a big "duh." 
     The national economy, which has performed vastly better than South Dakota's, has successfully absorbed the shift in consumer spending toward healthcare.  Why hasn't South Dakota's?  It's a compelling question, and Daugaard needs to address it.  The fact is, South Dakota's economy hasn't come close to matching the overall growth of the U.S. economy, which on a per capita basis has grown 30 times more than South Dakota's.  Ours actually has a declined a bit during the period since Daugaard's first year in office, 2011.  It's little wonder that the increased spending on healthcare has had such a major impact on our state's revenues while the more robustly growing national economy hasn't been hampered by it.  
     A rising share of healthcare spending and it's effect on South Dakota state revenues only exposes the inefficiency and inadequacy of our state's tax system.  82% of SD's revenues are generated by sales and gross receipts taxes, which are disproportionately paid by lower income earners, leading USA Today to rank us the 4th worst state in the country when it comes to regressive taxation.  Turns out that healthcare spending hits lower income folks disproportionately harder also, so if Daugaard is contemplating slapping a sales tax on healthcare goods and services, South Dakota's lower-earning households will be more burdened than their higher-income neighbors.  The contempt for our poor and lower-income-bracket citizens that is built into South Dakota's tax system would only have its meanness intensified by taxing healthcare services.
     Meantime, as long as we're looking at sales tax-exempt goods and services, a scan of how much those tax exemptions cost South Dakota is long overdue.  The SD Department of Revenue in 2015 calculated that all exemptions, if taxed, would yield $1.1 billion to the state.  Our agriculture sector receives about 15% of those breaks while healthcare gets about 12%. The rest of the list is long and studded with special interest categories.  Unfair as the system is, there's a way to spread out some of the burden by putting those interests on to the sales tax rolls.  It probably amounts to a short term fix, but it might be a way to get South Dakota on the road to real tax reform.  
   
   
     
     

10 comments:

  1. Idea...remove all exemptions for one year. After that year, bring back exemptions very carefully.

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    1. Agreed. I'm sure you've seen the list of exemptions, Kathy. Some of them just make no sense to me.

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  2. How about cut Government and crony spending.

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  3. We're all being hood winked by Duggard, he always talks of a lean year, just as last year and around June/July he will claim the state has a a surplus just to try and make his party look better than what they are.

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  4. Anonymous is right on the money. Gov. D does this every year to explain why he has to tax, say, education some MORE, and would we all just shut up and take it. So far, the only thing our legislature rolls over, but then the only thing it dares to oppose isn't our governor, but voter-backed initiatives to look into government corruption.

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  5. I think you are missing the point....though I do not agree with Daugaard's economic disaster....I believe the outrageous amount people have to now spend on ObamaCare taxes, premiums and out of pocket expenses (es ObamaCare IS a tax according to the Supreme Court) that there is little money left for good making less sales taxes also.

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    1. I think you are missing the point with your reply. You have the cart before the horse. Healthcare is taking 20% of GDP with little incentive to contain rising costs. My health insurance premium went up $225/mo last year and I expect it to go up even more this year due to intentional uncertainty in the markets. That $225/mo could have gone towards consumer goods, a used car payment, appliances, groceries, entertainment, and any number of items that generate economic growth and tax revenue. I guess if you can't afford quality healthcare you should just die.

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    2. Curt, I have no doubt that spending on healthcare is a factor in our state's sales tax shortfall. As I said in the piece, the rising cost of healthcare and its effect on state revenues "exposes the inefficiencies and inadequacies of our state's tax system."

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  6. Every state in the country has had to deal with the same issue, Lora, yet the country as a whole since 2011 has seen 6% per capita GDP growth, contrasted to a slightly negative growth in South Dakota. You can find the Bureau of Economic Analysis chart in my link above, in the paragraph that starts with "The national economy . . . " Our state's reliance on sales taxes is regressive and antiquated.

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  7. From reader Bob Olson, via e-mail: Excellent piece you did on sales tax. " we need to ride this thing out".
    Define thing, oh wait just read John's editorial and it explains "thing". Better yet, if sales tax is regressive and has competition from e commerce, bs exemptions, etc, then raise the tax rate another "1/2 penny" the governor called it in his speech. How'd that work for the state revenue? Stay on it John, low income are getting creamed at every turn.
    I have a friend, woman 68, hill city, Penn co., property taxes about 3,000, annual income, SS, part time work etc, about 15,000, that's 20% of income, add sales tax and as you pointed out 4th most regressive in US. Ride the "thing" out to the end of the poverty railroad line, courtesy of the great state of SD. Bob



    RCJ" It's just the way it is. I mean, if there's not money there, there's not money there," House Majority Leader Lee Qualm said after the speech. "There's some other people that are struggling as well with this whole economy, and so we just need to ride this thing out."

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