Republican blogger John Tsitrian criticizes Governor Dennis Daugaard for more reactive budget stinginess. Tsitrian says that instead of constantly retightening the belt and hoping things get better, South Dakota should go where the wealth is and create a fairer, smoother tax system—yes, that means a state income tax!
We’re too self-fixated on our status as a state with no income taxes, as I often hear, but I think some comprehensive tax reform that reduces sales taxes, puts a freeze on property taxes with strict limitations on annual increases, and initiates a progressive tax on income, both personal and corporate, merits consideration. Ideally it would result in a tax shift, not a tax increase. Using U.S. Census Bureau data, the financial information website 24/7 Wall Street reports that income growth in South Dakota households from 2011-2015 ranged from 5% in the middle levels to nearly 10% in the upper. The story lists us as one of the 9 states in the country where the middle class is being left behind, income growth disparity (definitely a subject worth pursuing in another post) being a good reason why. Given the trend, a graduated income tax seems like a reasonable way to expect people making good money here to bear their share of the burden, which they now escape given our regressive and bumpy sales tax-dependent system. The dots between tax fairness and smoother government revenue streams look connectable to me [John Tsitrian, “Some Dot-Connecting Between Fairness and Efficiency,” The Constant Commoner, 2017.05.14].
Note that Tsitrian takes the same line I do: the state doesn’t necessarily need to collect more revenue; it just needs to collect revenue more fairly, in ways that reflect how South Dakotans are actually making their money.
Income tax—it works for the federal government and for 43 other states; it can work for South Dakota.
Thanks, Cory. It’s also time to dispel the myth that states with no income tax have some sort of an edge when it comes to economic development. There’s no evidence to support that. Bankrate notes a 2013 study by the Institute on Taxation and Economic Policy that found job growth trailing economic growth in 8 of the 9 states with no income tax (TX being the exception, probably because of its energy-intensive economy) http://www.bankrate.com/finance/taxes/state-with-no-income-tax-better-or-worse-1.aspx
We already have a state income tax. Our state income tax is the inherently low wage mentality of the “jobs creators” in this state. The working poor and the lower middle class are taxed everyday in this state through their wage scales. If you can assure me that a state income tax will be progressive and not bent by Republican dominance, where the rates are adjusted by the Republicans to protect the wealthy and further tax the middle class and the working poor, then I am on board, but I question if that wish is realistic.
I think we should test the waters first with a corporate income tax and not a personal income tax. In some ways, though, we already have a corporate income tax, when it comes to banking, that is. The franchise tax for banks in this state is merely an Orwellian attempt to hide the obvious, which is that banks in this state pay a state corporate income tax. And this hidden Orwellian quality is even more telling, when you realize that this bank franchise tax has not prevented the stellar growth of banking in this state over the last 35 years, has it?
Some, and especially many Republican leaders in this state, often claim that income taxes stall economic growth, but if that is the case, then how do you explain banks like Citibank moving to South Dakota then?
Then, add comments by Reagan in ’75 on the Johnny Carson Show, and some of us also remember Janklow saying the same thing in the early 1980s, that corporations cannot be taxed because they can pass the cost of taxation onto the consumer (Actually, it is not quite that simple, especially if you have ever worked in retail), then you are further aided in your contention, that corporate income taxes do not prevent corporate interests in further economic growth.
I think it is time we took the advice of Reagan and Janklow, and a little bit of Republican Orwellianism, and broaden the franchise tax to include all corporations in this state…. That’s it, we will just call it a “franchise tax” and everything will fine, right?
It’s been so long since a party change in the governor’s office that the permanent bureaucracy in Pierre has calcified. Nobody with new ideas is welcome there. Nobody with new ideas even wants to go there and stand out like a sore thumb. There’s no buzz, no excitement in simply managing decline and keeping SD’s one party in power. Meanwhile, many young people with any ambition are leaving SD for more dynamic places with more opportunities. Heck, even SD’s unlimited usury rates aren’t enough to keep SD’s trophy employer Citibank from shipping the good jobs out to other states now. Whatever competitive edge SD may think it has, it doesn’t.
Good link, John! Little influence on job growth, heavy burden on the poor… oh! and that article John links mentions that our property and sales taxes contribute to a higher-than-median cost of living. Oops.
JKC, the only way I can promise you that Republican dominance won’t bend a state income tax out of progressive shape is if you help me elect a Democratic supermajority… and elect Tsitrian and me as your Governor/Lt. Gov. team.
Of course, if we do just call it a franchise tax and strike the word “bank” from the enacting legislation (hee hee!), then we might fall into Ror’s concern of offering no new ideas. :-D
Seriously, I’m all for starting with a corporate income tax. More profit, more tax. No profit, no tax…
…but I’m already feeling the urge to engineer: could we include a bonus wage credit for raising wages to meet or beat the CPI for all employees at or below 4x federal poverty level?
Cory, I hear you! It sounds like a good team and a good start!
What South Dakota should consider is its own FICA tax picking up where the federal government’s leaves off. The same 6.2% each for employer and employee starting at $127,200 and going up to infinity. Adjust it annually to pick up where the federal tax leaves off.
Why should only lower paid employees pay this? If employers paying/people making up to $127,200/year are paying this, why not employers paying/people making over that amount?
Rorschach, I like that idea. Perhaps, those tax dollars should first be directed towards state Medicaid and K-12 education costs as well….
Mr. Rorschach, I realize you are a lawyerly fellow with much knowledge of the legislatures doings, but did not some years ago they decide to scrape away some of those amounts into some other cause? Maybe it was only half of the amounts and you could FICA up the other half for your causes.
In the mid 1970’s the dems had the Gov and legislative control. It was the democrats ( two) that killed the income tax bills. The pubs used the income tax effort to derail the dems for the last 40 years.
Thank you to John Tsitrian for keeping after this issue even when the powers that be don’t want to hear it. I can remember arguing in favor of an income tax back in law school with some of the future leaders of our state. I remember some of the inane arguments being made against an income tax back then like we don’t have enough income in this state to tax it and it is too easy to raise income taxes compared to other taxes.
I’m interested to see the argument questioned that it is some competitive advantage for a state not to have an income tax. When you compare South Dakota to the states around us that have an income tax, it seems like we lag in economic development. To a certain extent, I think the state has to make investments that support economic development, such as education funding, infrastructure and research.
But part of it also is the entrepreneurs and other highly skilled business people want to live in a state or area that offers great schools for their kids, numerous recreational and cultural activities, and other quality of life considerations. In sum, state tax policy is way down on the list that attracts people to a state. But state tax policy is directly involved in determining if important public investments like education are properly funded.
This guy should be running for Governor on the Democratic ticket. What a resume.
While I really appreciate the very thoughtful and well articulated reasons that most American states implement an income tax, SD conservatives do not yet think that what they’ve believed in for decades has room for improvement. Change, to them, means the liberalization of conservative values, and they are absolutely paranoid of it – like they are about poor people getting high on industrial hemp – and it’s just simply sad.
Rapid City has become a much better place to live in the last 4-5 years, but the people haven’t changed much (or at all). So, developing an income tax plan… well… Godspeed to Mr. Tsitrian on this journey to create a better and fairer tax system which would undoubtably vitalize our economy.
Ya know, not that long ago, the wealthiest Germans asked their country to raise their taxes – because they didn’t, “want to be rich men living in a poor country.” In America, our wealthy are all about building stockpiles of personal wealth so that they can comfortably live far enough away to avoid having to watch the least amongst them suffer by their very own hands.
Whatever happened to building wealth for your country (rather than hoarding it from your country)?
[talking to the top 1% of income earners]
John T for me. Should be the campaign slogan as well.
@ Rorschach: “What South Dakota should consider is its own FICA tax picking up where the federal government’s leaves off.”
FICA is composed of 3 taxes:
6.2% Social Security tax ($127,200 cap) w/ employer match
1.45% Medicare tax (no cap on earned wages) w/ employer match
0.9% Medicare surtax on wages over $200,000.
Are you suggesting that employers should also pay their matching amount above and beyond on just SS wages? And are you suggesting that those state FICA taxes be used to finance a retirement program for South Dakota citizens just as Federal FICA taxes are dedicated to the Federal Social Security retirement program?
FWIW, it’s relatively easy for the “rich” to bypass the “earned wages” requirement of FICA by taking compensation in other forms of remuneration such as company stock.
Adam, I love the German taxations taxation stance you reference. Here is why I do not think that will fly here: Americans LOVE low prices. Prices of cars, pickles, clothing are low now (in large part because of foreign low-wage workers). The same practices that keep prices low keep wages low. There has been a WalMart-ization of America where consumers are sold products at low prices – those low prices spell the doom of those worker’s wages.
So many poor in the US are stuck in a chicken and egg scenario where the way to increase wages may increase prices and consumers reject increasing prices so wages stagnate. Our country is electing to be poor by its consumer habits.
Our rich do not see our poor as “poor.”
But South Dakota is ranked number 3 for least unemployment, so related to economic development this is as good as it gets. Less desirable, very rural areas may have issues, but that trend is not gonna stop. The “poor” in our country are not poor relatively either globally or historically. Don’t make the mistake of comparing SD to more attractive areas. Top talent is never gonna get excited about living here. If it ain’t broke don’t fix it!
https://www.bls.gov/web/laus/laumstrk.htm
happy’s comment
is simply another variation of the “Reagan welfare queen, or Obama free phone” memes used to justify denying help to the needy. This viewpoint omits consideration of the fact that the “poor” include a wide range of circumstances and individuals.
The federal poverty guideline for an individual is $13,850. Individuals with incomes near the $13,850 line are likely better off than individuals with incomes closer to $0. The people at the upper income end are likely better off than many of the poor throughout the world.
For many of this nation’s “poor” with incomes and resources at the bottom – near or approaching $0, however, circumstances are actually pretty difficult – no home, no bed, few possessions, eating out of fast food trash, no place for regular baths and hygiene needs, chronic sickness without care – as just a few examples.
And consider the poverty in our Native communities – Shannon County, Pine Ridge, Rosebud, Sioux Edition, etc. A visit to these areas and to the homes of the poorest people who struggle to survive there is a powerful eye opener to the reality of poverty here in good old SD.
Thank you John for your efforts and I am enlightened by the responses. I’m not too savvy on taxation policies except to say that as a ‘non-exempt’ property owner in SD it feels like we constantly have targets on our backs! Not too many options out there to raise revenues.
A question: about what percentage of our state revenue is derived from tourists and gambling each year? It is embarrassing to watch state-sponsored lottery advertisements. Really, we need to promote gambling to balance the budget? And if commodities fall off or the Rally has a down year the State has to make cuts in roads and education? Doesn’t seem too fiscally responsible… There has to be a better way.
Do your own search: satisfaction ranked by state. South Dakota ranks high in all of them. The people who live here like it by and large the way it is. If you’re unhappy move to a place that suits you. The state is not going to change.
Grumpy Camper, the only thing that’s constant is change. Declaring that South Dakota will never change is a fools errand, and it fully embodied what’s wrong with SD’s conservative voters.
Thank you for that.
“Don’t make the mistake of comparing SD to more attractive areas.”
So, just put your head in the sand – LOL – and ignore how the rest of the country is (and has been) changing. Dig in on your isolationism.
Isolationism has been proven to be the biggest factor holding cultures and advancement back.
Treading dangerous waters this applies to both Native Americans who choose to stay on the reservation and those Muslims who refuse to mix and accept new western values after they immigrate.
As I’ve been told by Spike, many Native Americans appreciate a beauty they see on the reservation that others don’t recognize and appreciate, but staying is a choice.