Democrats Offer 5% Sales Tax Exempting Food, Raising Teacher Pay to Regional Median

The Democratic caucus in Pierre has filed its teacher-pay tax plan. Senate Bill 151 exempts food from sales tax, then raises the rest of the sales and use tax from four to five percent.

SB 151 reads much like SB 161, which is a bill Democrats have introduced three years in a row (see the 2014 and 2015 versions) to zero the food tax and simply offset the losses with by adding 0.35 percentage points to the remaining sales and use tax. SB 151 directs that the additional revenue of its additional 0.65 percentage points toward state aid to K-12 education. Check out the final two sections:

Section 20. That subdivision (4) of § 13-13-10.1 be amended to read:

(4) “Per student allocation,” for school fiscal year 20162017 is $4,876.76$5,813.32. Each school fiscal year thereafter, the per student allocation is the previous fiscal year’s per student allocation increased by the index factor;

Section 21. That § 13-13-72 be amended to read:

13-13-72. It is the policy of the Legislature that the appropriation for state aid to education increase on an annual basis by the percentage increase in local need on an aggregate statewide basis so that the relative proportion of local need paid by local effort and state aid shall remain constant. For school fiscal year 2013, it is the policy of the Legislature that the relative proportion of the total local need paid by state aid shall be amended by adjusting the proportion of state aid to fifty-three and eight-tenths percent of the total local need. However, the increase in the per student allocation on an annual basis that exceeds three percent shall be paid solely by the state and is not a factor in this policy [Senate Bill 151, introduced 2016.02.04].

That 19% increase in the per-student allocation is 19.2% higher than this year’s PSA and 6.4% higher than the equivalent per-student allocation provided by the Governor’s new K-12 funding formula for schools with enrollment over 600 (which would include 77% of South Dakota’s students). If I’m doing my math right, applying the Governor’s figures for benefits and overhead, SB 151’s per-student allocation would provide funding to bring the teachers up to an average salary of $51,601, beating the Governor’s target salary by $3,101 and, as Democrats have promised since the beginning of Session, putting South Dakota in the middle of the regional teacher pay pack instead of leaving us at the bottom.

The Democratic plan shows that the Governor’s Blue Ribbon K-12 teacher pay plan is unnecessarily complicated. We don’t need three bills with an overhaul of the funding formula and a bushel basket of other programs to achieve our fundamental goal: raise teacher pay. As a bonus, we can do it by mitigating the regressive effects of our tax increase by exempting food from sales tax. Go Dems!

21 Responses to Democrats Offer 5% Sales Tax Exempting Food, Raising Teacher Pay to Regional Median

  1. PlanningStudent

    Raising the overall tax rate and dropping it on food won’t help the large number of small towns who’s only retailer is a grocery store and / or gas station.. 5% of nothing and 0% of 2 million in sales is nothing.. This will kill rural SoDak muni government.. Remember towns can’t tax gas so again their only income is the tax on the food at the gas station.

    I get that when you take the sales tax numbers statewide you seemingly are able to balance the numbers by dropping food and raising the overall rate, but that only takes the states bottom line into consideration.

  2. Hang on, PlanningStudent: SB 161 sets the state sales tax on food at zero percent; does it require municipalities to set the same rate?

  3. C Brechtelsbauer

    This bill changes the state’s portion of the food tax to zero, except it leaves the full sales tax on pop and candy. The bill leaves the city portion of food tax unchanged (2% in almost all cities).
    I believe any bill that raises sales tax should include a reduction in food tax. Sales tax is regressive, ie, it puts a bigger squeeze on lower incomes than upper incomes. In lower-income households, squeezing anywhere impacts the flexible part of the family budget, including food.

  4. Hrm.

    My household spent $5300 on food last year and $6000 on other stuff.

    Food tax was $300 (basis was $5000)
    Other stuff was $340 (basis was $5660)

    At 2% food tax, assuming same expenditures, my household will pay $5,100 for food and $6,056 for other stuff. Our total tax burden just went from $640 to $500.

    We’d have to spend an additional $2000 in stuff to give South Dakota (and the municipalities) that extra $140 we saved.

  5. “Raising the overall tax rate and dropping it on food won’t help the large number of small towns who’s only retailer is a grocery store and / or gas station.”

    It is only the state portion of the sales tax that would be removed so those small towns shouldn’t be impacted one bit assuming they don’t change their own city tax rates.

    Secondly, if we are honest… any small town large enough for a grocery store likely has at least one or two bars that are likely responsible for generating a large portion of their revenue.

    You know how it is when a small town is dying. First the school closes, then the grocery store, then the gas station…. then the church – and the last thing is the bar. Small town people have their priorities!

  6. @c brechtelsbauer That is an assumption most states do not charge food sales tax.

    States that tax groceries (2010 rates): Alabama (4%), Arkansas (6%), Hawaii (4%), Idaho (6%), Illinois (6.2% with a 1% local option), Kansas (5.3% with income credit to qualifying households), Mississippi (7%), Missouri (1.225%), Oklahoma (4.5%), South Dakota (4%), Tennessee (7%), Utah (3% Groceries, 4.7% prepared food), Virginia (2.5% + 1% local option tax), and West Virginia (3%, 6% prepared food served with a utensil).

    When you compare that data to states and their poverty level:

    Alabama (40th, 16.2%), Arkansas (43rd, 16.5%), Hawaii (18th, 11.5%), Idaho (25th 13.3%), Illinois (24th, 13.2%), Kansas (29th, 13.6%), Mississippi (51st, 21.3%), Missouri (34th, 14.6%), Oklahoma (32nd, 14.3%), South Dakota (28th, 13.5%), Tennessee (42nd, 16.1%), Utah (3rd, 9.1%), Virginia (12th, 10.6%), and West Virginia (39th 15.7%).

    Now compare that data with those states current teacher pay (2012 data revised):

    Alabama (36th, 47,949), Arkansas (41st, 46,631), Hawaii (20th, 54,300), Idaho (48th, 44,669), Illinois (13th, 59,113), Kansas (39th, 47,464), Mississippi (50th, 41,814), Missouri (38th, 47,517), Oklahoma (49th, 44,373), South Dakota (51st, 39,018), Tennessee (37th, 47,536), Utah (44th, 45,543), Virginia (30th, 48,988), and West Virginia (45th, 45,543).

    We could further this analysis more be comparing states that don’t charge sales tax, cost of living (actual number versus wages earned) and a half dozen other statistical categories but I’m long winded enough on here.

  7. This plan has my full support! It is a rational plan to shore up the teacher shortage and proposes a less regressive version of sales tax than the Governor requests.

  8. PlanningStudent

    If it leaves cities alone, i’m cool. i guess i didn’t read enough before yapping

  9. If really trying to look out for the poor, shouldn’t the tax be on retained on food AND increase food assistance to poor families so there is a direct effect? That way we have the rich paying for needs of the poor. Food assistance is tax exempt (right?).

  10. @ O how would you increase food assistance? What would be the qualifiers for it? Low income families benefit more from no food tax then increased assistance (as assistance is a temporary item). Also no food tax benefits everyone.

  11. Porter Lansing

    I like you Planning Student. You’ve got a home here.
    PS … food assistance is from the Farm Bill and we all know who couldn’t cut the SNAP funding fast enough, Ms. Noem.

  12. Madman, funding is zero-sum. To raise X dollars one has to raise taxes X. If I do not pay the taxes on food, then where does that revenue come from to fill that need?

    I disagree that assistance helps the poor less than tax relief, directly reducing the expense of food is better met through subsidies than tax breaks – tax breaks that will benefit the wealthy.

  13. In 2015 the study from ITEP found that South Dakota’s poorest people pay 11.3% of their income in taxes. As compared to the middle class in South Dakota which is 7.9% and the wealthy pay 1.8%. South Dakota ranks fourth in the amount of taxes our poorest wage earners have to pay in the nation.

    If you decrease food tax to zero, you can increase corporation taxes by x amount. This is South Dakota though and we don’t believe in taxing corporations.

    What is comes down to is assistance has to be provided with dollars as well. Whether they are factual or paper dollars. If I forgive x amount of money based on your tax return some program down the line has to make up for that. If I provide x amount of assistance based on your income level once again that money has to come from somewhere. In the government budget that funding dollars have come from other areas that were deemed less important….I wonder what in South Dakota has been deemed unimportant for decades.

    What the difference between assistance is that short term it is a cheaper program and can limit money based on funding. Tax breaks means that everyone benefits but the income must be made up in other areas (such as a corporate income tax). Assistance though is not a long term solution to solving taxing issues. There are companies in the state that use our resources (such as roads) at no cost to them.

    Let’s face it though South Dakota is in the top five in one category. Yeah!!!!

  14. Jeff Barth

    I don’t like the idea.
    It seems to me that what we have is the Governor asking for 1/2 a cent and now the Democrats saying , “Oh ya? Well here is your half a cent and raise you to a full penny!”
    Then the Governor will get his ha’penny and claim he stopped the Democrats who wanted to raise it 100% more.

  15. Jeff Barth

    You are the only actual teacher I have seen or heard from asking for teacher pay. Superintendents and School Board folk are working on it but it isn’t enough. Teachers should be out marching and asking for support on the issue.

  16. Douglas Wiken

    I see grossly over-weight people buying cases of pop. If the sales tax on food is irking them, cutting out the can or two of pop a day they drink would probably cover it.

    If food taxes are changed, they should only go off raw vegetables, raw fruit, flour, sugar, raw meats, milk, and bread.

    And still, most SD schools have such large reserves they can increase teacher pay for several years without increasing taxes.

  17. @Douglas where is this information that you have on school reserves?

    I have posted information on Henry and Florence’s reserves and they don’t have the money to support a pay increase past one year at most. Those reserves are highly dependent on the local economy. Henry has around 400,000 in reserves and is struggling to stay afloat. If it were to lose the wrong business in town then it could be completely cash strapped. Henry has 16 teachers and if we use the state average of 40,000 they would need a 8,500 increase. That would be an additional cost of 136,000 a year. Henry is highly dependent on maintaining its current class sizes and any fluctuations that could cause students to be added could add additional staff. Without this Henry would deplete its entire reserve within 3 years.

    Garretson another school has around 600,000 in reserves. It has 41 instructors who if we use the state average of 40,000 they would need an 8,500 increase. In one year it would cost the district an extra 348,500 a year. If they were to do this without an increase in funding and once again if ten students enroll in the district in classes that would cause them to be split you could have this district in the red.

    Stanley County has 480,000 in its reserves. They have 36 instructors and using the same average number of 40,000 they would need an 8,500 increase. That would mean 263,500 would be needed to cover that raise. Those reserves wouldn’t make it past year two.

    These are three random schools I pulled did the 12 month balance on reserves.

    If anyone needs to dig into those reserves it is the state, perhaps they can release some of that tax revenue back to the counties so they can operate as there supposed to.

  18. Do a query on the department of eds statistical digest using 14-15 numbers. Do a comparison of a districts tax base vs enrollment. You get Taxable Valuation per student. About 1/3 have $1M/student base. 1/3 $600 to $1M and 1/3 that are under 600k. Look at the first group, all but 6 of the 50 have enrollment over 400 students. Rest are all small schools. If anyone has the ability to pay teachers more it would be these schools. Because they have the asset base to help themselves, but they won’t. I think it’s time realign our school districts to our education system now, not something set up 50 to 70 years ago. Yes I think some districts need to close. We cannot continue to spend tax dollars inefficiently.

  19. Kimberly Jacobson

    I appreciate the respectful repartee. You all keep going and I’ll keep learning!

  20. @ 1254I will finish the query whenever the state decides they want to put their website back up and running.

    It comes down to a few other things then just realigning school districts. The trend that nearly every community has seen that once the main reason people come to town and its largest employer closes, the town begins to empty out.

    We spend tax dollars so inefficiently in this state that its not even remotely funny. Can you tell me what exactly were supporting out there in Lead? How about the department of education outsourcing grants? Or the inability to trust the federal government to accept medicaid assistance three years ago? How much money has this state wasted in failed attempts to lure businesses here or given the businesses it has gotten tax breaks? Or the wasted time the legislature has spent arguing daylight savings time, roe vs wade, peeing in a cup, restricting fishing rights, figuring out bathroom issues, and basically anything in its power to avoid the issues that South Dakota faces? How many years could we fund teacher raises just by cutting the backdoor politics and finding jobs for former public officials?