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Low Inflation, Tax Incentives Contribute to Depressed Tax Revenues

Apparently South Dakota isn’t alone in sluggish tax revenue growth. Governing says that, even as we squeeze the last bits of growth out of the Obama economy before President Trump brings the American Century and its concomitant prosperity to a crashing end, many state and local governments are seeing tax revenues decline. Predictably, Governing doesn’t count declining ag prices as a nationwide factor the same way it is in South Dakota. But it does identify lower prices for consumer goods as a damper on sales tax collections:

…even though consumers may have more money in their pockets and are buying a greater number of goods, the value of those goods may not be growing in line with expectations. In fact, the taxable value may be declining.

…Looking solely at goods prices, which make up the lion’s share of all taxable sales, we actually still see deflationary pressures weakening sales-tax collections.

…Lumber prices, for example, were down by more than 10 percent at one point in 2016. So even though more housing units were being built, the sales-tax collections from each unit were much less than the year before [Dan White, “The Economy’s Expanding. So Why Aren’t Tax Revenues?Governing, 2017.01.19].

White identifies another revenue-depressing factor of keen relevance to South Dakota—the increasing use of targeted tax incentives:

This isn’t necessarily a bad thing either, as these incentives can be effective at spurring local growth. But these rarely tracked incentives can also create a scenario in which the fastest-growing parts of an economy are growing tax-free. This distorts the relationship between broad-based economic statistics and tax revenues, making life very difficult on revenue estimators [White, 2017.01.19].

If we want tax revenues to keep up with economic growth, we need to target taxes to capture wealth fairly, not excuse the greatest concentrations of wealth from taxes.


  1. rick sterling 2017-01-23 09:31

    Great insight Cory. SD is facing one of the major consequences of a highly regressive fiscal strategy that has for too long relied on the middle class and working poor to continue to pay a higher percentage of their income for basic products and services than the wealthy. This will only get worse without intervention.

  2. Troy 2017-01-23 10:16


    From your source (“Governing”), I find it interesting you only mention two of the three reasons states are “in a revenue recession.” Why did you fail to mention the most significant reason (increased reliance on progressive income taxes)?

    If you had been less selective, you might have saved Rick from reaching an erroneous reason for dipping state tax revenues.

    I am also curious on the specifics of your plan to tax “wealth” since the predominance of South Dakota wealth is in land and owned by farmers.

  3. jerry 2017-01-23 10:26

    Mr. Sterling, the state is even stiffing vendors, while they wait for the government handout to keep this failing ship afloat. The coffers are empty until the legislators act to put some more money in the budgets to pay bills from 2016. You know, one thing that is clear, the state of South Dakota and its non reservation residents should never ever claim superiority to their form of government over tribal government. The tribes see by example how governing is done when you do not have the resources to pay for goods and services required to keep things running. The state blathers that it has a surplus, but that is just blather, we are broke as a joke. We all need change as it will get worse as we look to the East.

  4. jerry 2017-01-23 11:07

    Punkin head just put a hiring freeze on federal workers and eliminated federal pay raises. I must have missed this, but it seems that you are supposed to be hiring people when you say that you are gonna be creating jobs. In Republican land, up is down. We are off to a great start to improving that Obama economy.

  5. Greg Deplorable 2017-01-23 11:46

    I guess it’s a far fetched idea that Government spending rise and fall with revenues as well.
    The reason there is a problem is government views tax revenue as a one way street & spends accordingly. I can only wish that business profitability could automatically bank on increases each year, wouldn’t that be nice.

  6. mike from iowa 2017-01-23 12:13

    I guess it’s a far fetched idea that Government spending rise and fall with revenues as well.

    I just bet you loved dumbass dubya’s policy of slashing taxes for the wealthy and spending like a drunken sailor. Then when responsible adult Dems have to come in and clean up nut job financial disasters, wingnuts refused to allow Dems to pay the bills by raising the revenue the government needs. 20 trillion dollar debt is an albatross that belongs solely around wingnut necks. And Donnie Douchebag is only going to make it at least 10 trillion dollars worse.

  7. Troy 2017-01-23 12:24


    Not exactly a good argument on your end as nobody added more to the debt than Obama ($7.917 trillion in seven years” and we still have one more year to add to the tab). Granted, GWB added the second most at $5.849 trillion in eight years.

    I don’t consider GWB’s $731 Billion a year vs. Obama’s $1.1 Trillion a year a badge of honor. But, it is roughly 50% less a year.

  8. Super Sweet 2017-01-23 12:36

    Minnesota legislature is struggling with what to do with a $1 billion + surplus.

  9. Darin Larson 2017-01-23 12:50

    Troy, are you considering the fact that W inherited an economy that was humming along while Obama inherited the greatest mess since the Great Depression? Are we just supposed to ignore the factors confronting each president?

    W used his debt spending on a massive tax cut for the rich and two major wars. Obama used his debt spending to jumpstart an economy on life support, save the auto industry, keep the banks from failing and sending the rest of the economy into a death spiral as well as tax policies that favored the working class.

  10. jerry 2017-01-23 13:03

    D dude, that would explain why Daugaard announced his 10 plus million surplus. Or better put, WTF was that?

  11. Craig 2017-01-23 13:06

    Troy you know as well as I do that your comparison isn’t entirely accurate. First it doesn’t take into account the recession that Obama inherited through no fault of his own. This resulted in the government having to spend hundreds of billions upon stimulus packages and bailouts which nobody had planned for.

    Second, it doesn’t take into account yearly adjustments to the reported number. If you look at a historical chart most Presidents added more to the debt than their predecessor regardless of political party when adjusting for number of terms (ex. George HW Bush didn’t add as much debt because he served only one term rather than two).

    What you should be looking at is the overall percentage of growth during each administration. This isn’t a perfect comparison, but it is better than looking at the actual number since it is more telling of what has transpired. You could also look at annual budget deficits to see which administrations raised this by the largest percentages vs. which reduced the annual deficit.

    I’m sure I’m not telling you anything you don’t already know – and I know it is fun to pin over $8T in new debt to Obama since it makes his spend-happy predecessors look great by comparison, but it isn’t intellectually honest.

    Case in point – Obama raised the deficit by roughly 68% over seven years. By contrast Bush 43 added 101%, Clinton added 32%, Bush 41 added 54% (which appears better than it should due to him only serving one term) and Reagan added an amazing 186%. We have to go all the way back to FDR times to find a number larger, but that is an entirely different conversation.

    All things considered, Obama’s budgets resulted in a lot of deficit spending and a much larger number of new debt than any President throughout history, but the rate of growth wasn’t as high as most of the Republicans over the past 40-50 years. Now I won’t fault Trump for any spending that occurs in his first year, but if early indicators (and campaign promises) are any hint, he is on track to grow spending by more than any administration since the 1940s. I guess we just need to wait and see… and perhaps hope he is able to cut spending and reduce deficits as promised without managing slow to stop economic growth.

  12. Troy 2017-01-23 13:09

    I keep forgetting everything is Bush’s fault. Sorry.

  13. Greg Deplorable 2017-01-23 13:10

    I actually agree with you mike. Republicans and Democrats have been spending like drunken sailors, where the rubber meets the road they both have exploded the budget and debt over the past two decades.

    The way inflation is calculated anymore is bias toward fed accommodation and that feeds right into Washington & States spending & borrowing more and more without recourse. Money gets taken from our pocket book in two ways, through taxation or devaluation. We are currently experiencing both. There isn’t a line item on my GL that hasn’t seen drastic increase throughout the past 5 years.
    Power, Insurance, Health Insurance, Property taxes, license & Fees, professional services, custom hire, machinery & equipment, they all have been increasing much faster than the stated CPI.

  14. Craig 2017-01-23 13:23

    Troy: “I keep forgetting everything is Bush’s fault.”

    How about you try to have a mature discussion instead of this type of comment. Do you believe a President (ANY President) should be held accountable for budget deficits in his first year in office even though he had zero control over that actual budget or the economic conditions that led to it?

    Trump should not be held to blame for the spending in 2017 because he had nothing to do with the budget. The only thing he could potentially be held liable for would be if he goes to Congress and requests funding for a new war or some type of stimulus. Barring that, the first year really has nothing to do with him whether it is good or bad. Same is true with every other administration.

    If you feel otherwise then by all means let’s run the numbers just looking at the date a President is sworn in until the day he leaves office. You will still find that the percentage of growth under Obama was less than that of Bush or Reagan.

    You are now free to shift to one of the other Republican talking points (read: excuses) about how it was the Democrats that allowed or forced banks to give out home loans to people who couldn’t afford them which resulted in the recession, or that Bush was forced to spend trillions on those wars because Clinton failed to deal with Iraq and Bin Laden when he should have. One way or another I’m sure you can find a way to pin everything on the left if you try hard enough.

  15. mike from iowa 2017-01-23 13:40

    Wingnuts tried real hard to push the first trillion dollar deficit onto Obama in 2009 when that budget was passed in Nov of 2008, dumbass dubya’s final budget. According to WSJ the deficit for 2008 was over a trillion bucks, but offset by borrowing nearly a half billion bucks from SS.

  16. Donald Pay 2017-01-23 13:52

    Bush put his wars off budget. Republicans ditched “pay-go” in 2001. Deficits resulted. Bush tried to blame Social Security for his deficits and advocated partial privatization. That’s the Republican playbook. The 2009- 2011 deficits are mostly due chargeable to Bush, because they were necessary to drive the country out of the Republican ditch.

    We are about to see a repeat.

  17. Rorschach 2017-01-23 13:54

    Darin, among the other money drains that President Obama inherited, don’t forget he inherited the two wars President Bush started too. Deficits increasing dramatically was a foregone conclusion for anybody that replaced President GW Bush.

    Let’s hope that President Trump takes Warren Buffett’s advice and changes the tax structure so that billionaires don’t pay lower tax rates as a percentage of income than their secretaries. When the tax rates paid by the 1%, investors, hedge fund managers, beneficiaries of large estates, and corporations, match the rates paid by wage earners – the US will balance the budget. I don’t believe my tax rate should be higher than Mitt Romney’s tax rate, and Donald Trump’s tax rate. Why Republicans think this is how it should be makes no sense to me.

  18. Porter Lansing 2017-01-23 13:57

    Troy, before you choose to spin yourself into trouble, understand that in the context of ethical communication, you should be clear, truthful, and honest in what comes out of your mouth. Spinning is like any other kind of dishonesty, it’s wrong. It makes good old fashioned lying sound clever and trendy. It’s often said that stupid people lie and smart people spin. Your standard excuse is that it isn’t really lying, just putting a bias on what is already true.
    ~ Luckily, the universal expectation that people tell the truth is alive and well. Fortunately, we don’t have to worry about getting ripped off every time we buy something in South Dakota. We trust that when we shake hands on a deal, the other person is being straightforward with us, Troy Jones. Of course, wisdom and good judgment still mandate a healthy amount of caution, but one can still live in South Dakota with a fair amount of trust in their fellow man. Try to keep it that way in business and in comments, Troy.

  19. Troy 2017-01-23 14:03

    MFI said: “20 trillion dollar debt is an albatross that belongs solely around wingnut necks.

    I only pointed out that almost half the debt was incurred during Obama’s term. Of course, if everything is Bush’s fault in your eyes, the “solely” is appropriate.

  20. jerry 2017-01-23 14:22

    Alrightty then, Obamacare repealed, cost 9 trillion. Punkin head’s infrastructure jobs plan, 1 to 2 trillion all added to the debt. How does it all equate? What does it all mean?

    South Dakota, broke as a joke and unable to pay the costs of business from at least the 3rd quarter. 25 million tax dollars stolen by the state, are due this month to the federal government to pay down that 20 trillion Tell’m Troy.

  21. jerry 2017-01-23 14:24

    Iraq is what Troy forgets about conveniently. See that unfunded war was not unfunded. We went to the mall as directed and make a whole lot of purchases that we did not have the money for. We call that debt at my house, what do you call it at yours Troy?

  22. Troy 2017-01-23 15:00


    1) As I said, Bush’s performance with regard to the deficit isn’t a badge of honor. I relieve him of no responsibility. I was just pointing out MFI’s comment is not factually accurate by a long ways.

    2) The deficit impact of the Iraq War is included in Bush’s number.

    3) I was adamantly opposed to the Iraq War. I don’t remember anyone (liberal or conservative) defending my position (I’m not a nation-builder). All I remember is both sides questioning my patriotism.

  23. mike from iowa 2017-01-23 15:00

    The difference between wingnuts and Dems, Troy, is Dems were the fiscally responsible party of our government. Dems were not afraid to raise the revenues needed to pay America’s bills. They were constantly derided as tax and spend liberals, but Dem administrations always had smaller deficits and added less to the debt that their fiscally irresponsible wingnut counterparts.

    Except for Obama, who was tasked with cleaning up dumbass dubya’s mess w/o being allowed to raise revenues. He had all of Bushes bills to pay, plus had to pay for the ongoing government outlays. Bushes prescription drugs for Medicare plan was an unfunded mandate if I remember correctly. The two wars were guestimated to cost 5o billion and are near 2 trillion and counting. Many of those wounded soldiers need a lifetime of healthcare for some inexplicable reason.

  24. Troy 2017-01-23 15:15


    Like I said before: I forgot it is all Bush’s fault. Sorry.

  25. Richard Schriever 2017-01-23 15:53

    Greg Deplorable. Each of those items in your GL you cite as increasing are things either under STATE government control – or regulated by your PRIVATE contracts. NONE of it is due to federal government. Maybe you should put your complaints in to the actual causers.

  26. jerry 2017-01-23 16:27

    I would never question patriotism by anyone. My youngest went there and was in the surge so he got what is called the “back door draft”. My point was not to chastise you Troy it was to point out that when you start a war, you should have the means to pay for it. President Bush did not and the bill just keeps adding interest. Add that unfunded war and corrupt bankers, you get 20 trillion in the hole.

    So now we will soon be going down the road to Medicaid block grants for South Dakota. As you are a smart feller with ciphering and the like, can you explain how taxes will be changed in the state to compensate for the added costs?

  27. jerry 2017-01-23 17:11

    Troy, mfi brings up a very valid point about the current situation in Iraq and our troops around the world. We will have to continue the care for those veterans and their health issues due to wounds exposure to spent nukes and so on. There is no way to equate the deficit impact in President Bush’s numbers. So your explanation to that is natta.

    Now, to South Dakota. How are you going to find the money to pay the difference between the Medicaid block grants and the reality of the actual costs? Will it be increased property tax, a VAT tax, higher sales tax, where are you boys heading with this?

  28. Darin Larson 2017-01-23 17:16

    Ror, you are correct that Obama’s debt total also includes the money spent on the ongoing wars in Iraq and Afghanistan. There were approximately 186,000 US troops in Iraq and Afghanistan when Obama became president. It seems like everyone, including myself, forgets this fact.

  29. caheidelberger Post author | 2017-01-23 18:50

    Troy, I don’t know what all the punkin’heads are talking about, but I want to address your point about the content of the Governing article and my selective reading of it.

    I didn’t mention factor #2 because it doesn’t apply to explaining South Dakota’s sluggish revenues, since we don’t have a progressive tax structure.

    The author does not call reliance on progressive income taxes “the most significant reason for declining revenues.” The author calls that reliance “a more structural reason” compared to the temporary reason of lower inflation.

    Interestingly, the author talks about more progressive income taxes as more volatile but doesn’t tie his point closely to his thesis about declining revenues. Let’s look at his text:

    First, states have become increasingly reliant on highly progressive personal income taxes. This isn’t necessarily a bad thing — an efficient tax structure should have at least some progressivity — but a side effect is increased volatility. By making their tax structures more progressive, states are relying on a smaller set of higher-income taxpayers for a larger portion of their revenues. This set of taxpayers typically has some of the most volatile incomes. A taxpayer in the top 1 percent of the income distribution can make $10 million one year and very easily lose $10 million the next. It is no anomaly then that some of the states with the biggest income-tax surprises are also those with some of the most progressive tax codes [White, 2017.01.19]

    I think he actually got a little sloppy with his writing there. Declines from volatile progressive taxes don’t seem to be structural. Dips in income tax receipts would be as temporary as, though perhaps on a different timeline from, the dips in sales tax revenue. Heck, I might even go find a real economist to argue the opposite: maybe the incomes of the super-rich (the top targets of progressive income taxes) will fluctuate based on myriad temporary, non-repeating factors, but maybe low inflation is tied to structural changes in the economy that lead to slower GDP growth and lower consumer spending. (Not positing evidence, just saying it’s possible and beyond the scope of the original article.)

    But notice that the volatility problem is not an indictment of progressive income taxes and a call to focus on regressive sales tax. We can read the author’s observation as a warning that we don’t want a hyper-progressive income tax that relies on too small a base of income earners. We don’t want to tax just the ten richest South Dakotans, because, sure, their incomes will fluctuate wildly, and if just two of them move to Phoenix, we’re hosed. We want a broad base for our progressive income tax—include all income earners, rich and poor. Set reasonable base exemptions, scale the rates up with income at a reasonably progressive (i.e., not hyperbolic) slope. Soak rich SOBs like Trump and his tax lawyers who have it coming, but don’t bank on revenue from a handful of billionaires to pave the roads and pay the teachers.

  30. caheidelberger Post author | 2017-01-23 18:51

    Greg, there are plenty of reasons government spending should not rise and fall in lockstep with revenues. The economy may shrink 5%, but that doesn’t mean schools have 5% fewer students with 5% fewer needs. Those kids may even have more needs, like hot breakfast. The state may need to increase spending on the social safety net to get people through the recession. See also stimulus.

  31. Greg Deplorable 2017-01-23 19:33

    Hey Richard get a clue.
    I’ll give you 2 examples.
    Electricity, our rates have been moving up 7-12% per year with the primary cause being Coal Fired plants shutting down and being forced to buy more expensive wind power. We have been told the rate increases are not done yet. That is all EPA driven, there is absolutely jack I can do about it. Production takes power.

    Diesel machinery costs. Tractors, Trucks, construction equipment all has had to phase in Tier emission protocols. This has added anywhere from 50-100K to a piece of equipment that provides 0 additional productivity or efficiency. All EPA driven. There is no way getting around it.

    These are huge COP increases and inflationary in nature, and lets not even get started on insurance we all know what that has done to HR expense.

  32. Ryan Deplorable 2017-01-23 21:52

    There seems to be a common theme on this thread, government intervention in a free market leads to a sluggish economy. Pretty simple to observe. Yes, Bush was a Republican…but far from a fiscal conservative, as pointed out on the government spending numbers above. He may have started the 2008 recession, but Obama prolonged it…guess how? More government intervention. WORST recovery cycle ever in the U.S. economy post recession/depression because of his policies. “Squeeze what is left of the Obama economy”…? We’ve been squeezing for 8 years. GD brings up a great point of the effects of government intervention/bureaucracy.

  33. Ryan Deplorable 2017-01-23 21:54

    Someone using BuzzFeed as a source on this thread is one of the boldest things I’ve ever seen. Jerry had to have been trolling.

  34. Greg Deplorable 2017-01-23 22:17

    Even in Obama’s best year the economy didn’t breach 3% GDP growth. GW’s was not much better.
    We’ve had the bailouts, stimulus, TARP, cash for clunkers, takeover of healthcare, expansion of unemployment benefits, green energy mandates, etc. It clearly hasn’t had any affect on growth, rather you could make the case it has stymied it. Clearly there is something to be gleaned from the prior years when the nation had growth spurts of 4-5%. Growth fixes all the tax revenue problems.

  35. Greg Deplorable 2017-01-23 22:28

    And before jerry or whoever comes on here talking about he rich not paying their fair share…
    In 2012 the top 50% of taxpayers paid 97% of all income taxes, with the bottom 50% paying 2.8%.
    The top 1% (1.3 million filers) paid paid a greater share of income taxes than the bottom 90% (124.5 million filers) combined.

  36. Roger Cornelius 2017-01-23 22:29

    republican lies are now called ‘alternative facts’.

  37. Greg Deplorable 2017-01-23 22:30

    Show me where I’m lying Roger.

  38. Ryan Deplorable 2017-01-23 22:42

    It’s funny when Greg states hard facts, and then gets a response that has nothing to do with what he just stated.

  39. Darin Larson 2017-01-23 23:10

    Greg, you left some facts out that should be considered:

    -The bottom 50% of taxpayers received only 11.5% of total adjusted gross income.

    -Thus, the top 50% of taxpayers received 88.5% of adjusted gross income.

    -The top 1% of taxpayers received more in adjusted gross income than the bottom 90% of taxpayers combined.

    This is interesting as well: the 8 richest men in the world have the same wealth as the total wealth of half’s the earth’s population.

  40. Roger Cornelius 2017-01-23 23:18

    Why did you take ‘alternative facts’ personally, Deplorable?

  41. jerry 2017-01-23 23:21

    I declare if it isn’t Mr. and Mrs. Deplorable, working together like a true couple. Touching as that may be, I can see now why you both are concerned with South Dakota tax revenues. You don’t want your house and property to have a tax increase. You should be concerned about that indeed.

  42. mike from iowa 2017-01-24 11:31

    Darin, 6 of the 8 are Americans and are all white. Drumpf will be pissed because he got dissed again.

  43. Porter Lansing 2017-02-01 10:23

    A New Revenue Stream, Untapped. On the back of SoDak now getting Amazon to collect state sales tax. In my state, sales taxes will also be collected online from AirBnB. South Dakota should have them collect state sales tax, also. IMHO *Helping Republican legislators, one new idea at a time.

  44. Porter Lansing 2017-02-01 10:41

    To Extrapolate … Think of things you pay for online before you receive the product or service. Those sales should collect state sales tax and probably just need to be asked to do so. How about UBER? How about online sports tickets? Online concert tickets? Online movie tickets?

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