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Increased Health Care Spending Leaves Sales Tax Collections Anemic; Daugaard to Revive Medical Tax?

Governor Dennis Daugaard’s budget address on Tuesday will tackle one thorny contributor to South Dakota’s lagging sales tax revenues—increased spending on health care:

Twenty years ago, South Dakota residents spent 15 cents of every dollar for health care. By 2016, they were spending 20 cents.

That is a major shift in South Dakota’s economy. One result has been less and less tax revenue for state government and public schools.

Here’s why: Medical services aren’t subject to sales tax in South Dakota.

…Personal consumption expenditures in South Dakota totaled nearly $13.9 billion — with a b — in 1997. Health care spending was nearly $2.1 billion.

For 2016, personal consumption in the state was more than $34.1 billion. Health care spending took up $7 billion of it [Bob Mercer, “Daugaard Plans to Show Legislators How State Tax Base Has Shifted,” Aberdeen American News, 2017.12.02].

If South Dakotans were still purchasing health care at their 15% 1997 rate instead of the 20% 2016 rate, their additional taxable purchases would pump more than $80 million more into state sales tax revenues, enough to cover the teacher pay increase enacted by the 2016 Legislature. According to the Bureau of Finance and Management, the exemption of health services from sales and use tax leaves $140 million out of the FY2018 budget. (That’s up 13% from the “tax expenditure” calculated for the FY2017 budget.

Will Governor Daugaard broach the topic of taxing medical services in his speech Tuesday? Mercer notes that Governor Bill Janklow pushed a medical services tax as part of his property tax relief push in 1995. Democrats attacked that proposal as “soak the sick“, and the plan failed. During the discussion of the 2016 teacher pay plan, I merely included health services in the long list of sales tax exemptions that could be used to pay for increased K-12 funding, and Al Novstrup adopted the 1995 Democratic cry and warned voters that I would tax the sick. Of course, Novstrup has turned “liberal” to support tax hikes when his leaders tell him to, so if Governor Daugaard asks the Legislature for a medical sales tax, Novstrup may say o.k.

19 Comments

  1. Donald Pay 2017-12-03 10:09

    Non sequitur. The population is older today than thirty years ago, and older folks spend more on medical issues. If they are spending this through Medicare, which is probable, Medicare is going to disallow a tax on medical charges, so docs get to pay it. Really, it would be nice if the Republicans started dealing honestly with the public on taxes.

    Who is the next highest spender in terms of health care: newborns and fetuses. Great, Daugaard wants to tax babies and fetal tissue. What a great way to encourage young folks to stay in South Dakota!!! Here’s a your new slogan designed to get young folks to leave: We Tax F***king.

    I suspect there has been a rather large increase in the income of wealthy folks. That doesn’t get taxed. I would suspect an income tax on higher income folks would provide much more revenue than taxing newborns. But, no, Republicans would rather tax a baby still attached to an umbilical cord, than tax their crooked donors.

  2. John 2017-12-03 10:11

    The governor is a lame duck. Hopefully this goes nowhere. Before taxing the sick, tax income producers who are untaxed or undertaxed: farmers, ranchers, truckers, advertisers, etc. We’ve seen the lists earlier so I’ll not repeat them here.

  3. grudznick 2017-12-03 11:59

    I read Mr. H to say that perhaps the Governor will propose, and that perhaps Mr. Novstrup, the elder, will support and vote for, along with a majority of the legislatures, a tax on what Mr. H perceives is a slap to the sickly, a whomp on the weakly, and an eye-gouge to the elderly. Mr. H is speculating about new taxes.

  4. Donald Pay 2017-12-03 15:36

    Well, Grudz, you and I know they truth. Republicans can’t support tax justice, which would mean an income tax that would hit fat cat Republican donors, so they’ve got to come up with a gimmick. Taxing babies, sick folks and the elderly seems to be in line with the Republican Way. With the new tax federal tax “cuts” to the wealthy, you won’t be seeing as much federal largesse being doled out to the red welfare states, so you’re in a heap of hurt out there. Republicans tried this medical tax once already, so I expect they’ll dust it off and recycle it. I can’t remember what Janklow’s reason for proposing that tax was back then, but it probably was to avert some fiscal problem that could have been solved rather easily by instituting an income tax.

    The Republicans are in a bind. They’ve taxed all the sins, except screwing and pot, and even hooked the state government on gambling revenue. If South Dakota is true to form, they’ll legalize weed and prostitution, set up a state monopoly on the sex and drug traffic and collect that money. Better that than and income tax on the wealthy elite that run the state.

    It tell you, if they could tax stupidity, they would make billions off the Republican Party.

  5. buckobear 2017-12-03 15:49

    Yep. They already tax our food. Now our healthcare (and that would include prescriptions, eh?). So basically, they’re planning to tax us for staying alive. What’s next, a “breath” tax ??

  6. grudznick 2017-12-03 16:44

    Your first sentence, Mr. Pay, is at least half accurate. The rest of it all belongs in another paragraph with your half of the first sentence. But what would I know, as I’m just an angry old man sipping at my soup.

  7. jerry 2017-12-03 18:15

    CVS is purchasing Aetna for 69 Billion bucks. So instead of a bunch of Walgreen’s on every corner, guess what we will be seeing? Also, they will be doing healthcare at these locations. Denny is such a crooked republican that the only way he could see expanding something like Medicaid, for a cool Billion, would be if he could cook the books on it.

  8. grudznick 2017-12-03 18:28

    Mr. jerry, do your opinions stated above support or refute Mr. H’s proposition that it is possible, even likely, that the Governor, Mr. Daugaard, will propose a massive increase in taxes on healthcare costs? I am confused by your statements so perhaps others are as well.

    Do you agree with Mr. H that Governor Daugaard will propose massive tax increases or the repeal of massive tax exemptions for sick, old, and stupid people? Mr H. seems to think he has back door information on this matter so it will be interesting.

    I am sick, old, and stupid, so I might get smited far worse than most by this repeal of tax exemptions.

  9. jerry 2017-12-03 18:59

    Mr. grudznick, I agree that Daugaard will impose a tax on healthcare costs. Of course Daugaard will propose tax increases for the sick and old. Did you not get the news on the cut cut cut tax bill that not only cancer treatments would cease to be covered, but also Medicare and Medicaid would be cut drastically?

    What my opinion would be is that not only will this tax cut that has been approved in the senate devastate Medicare and Medicaid completely, but it will also single out expensive treatments for cancer in the mix as well. The tax imposed locally by the governor would further erode healthcare treatments by putting a tax on the tax that already exists.

    Also Mr. grudznick, I am an old feller as well. Old enough to remember that in 1995 Wild Bill kept his word about lowering property tax for about a month or so…and then the mil levy was raised to offset his campaign rhetoric and we were right back where we started from. We have never looked back either, property tax is to damn high.

  10. Cory Allen Heidelberger Post author | 2017-12-03 19:08

    Hmmm… maybe we wouldn’t have this problem if we had a tax system that taxed income instead of expenditures….

  11. grudznick 2017-12-03 19:40

    I just want to be clear, Mr. H, you also agree flat out with Mr. jerry that the Governor Daugaard will pull back the tax breaks given to old people. It is sad, as an old person myself, to hear that you two predict this. In fact, it is a little terrifying. I, for one, will write to my representatives, who as a collective are probably the least effective group in the legislatures, and beg them to oppose this.

    Messrs. Russell and Goodwin, and Ms. Frye-Mueller, would you please contact Governor Daugaard post-haste and tell him to not do this. Stop this, and you will have my gratitude, if not my vote.

  12. jerry 2017-12-03 19:55

    True that, this would be the time to enact a state Income tax to offset Daugaard’s mumbling bumbling leadership style.

  13. grudznick 2017-12-03 20:06

    Dear Messrs. Russell and Goodwin, and Ms. Frye-Mueller, would you please stop the movement to enact a state income tax. If you stop it, this very session of the legislatures, you will be hailed as heros.

  14. jerry 2017-12-03 20:16

    Must be in the sauce again sir to not want a state income tax when you say you do not have income. See, that would offset the pain that your governor wants to inflict upon you by providing revenue for things needed for the Game Fish and Parks.

  15. grudznick 2017-12-03 20:26

    One of my representatives has already responded saying they will oppose a state income tax. In fact, I was assured that given all the powers that will be thrown at the legislatures it is a likely outcome no state income tax will even be proposed, for it will be smited down in the Caucuses and at the pre-meetings at that bar where Mr. Abdallah behaved poorly.

    There will be no state income tax this year. grudznick has been assured, which makes me sleep better as some days I have an income and some days I do not. I told my representative that if the day comes it should be a fair tax. Flat percentage for everybody. Every single body.

  16. jerry 2017-12-03 20:49

    Okey dokey then, stand by for the Daugaard compassionate tea party declaration of the tax…er punishment. Punishment sells better to the base, so they can self flagellate themselves into a tizzy knowing the harm they think they have done to others.

  17. John Kennedy Claussen, Sr. 2017-12-03 21:05

    Back in 1995, it was dubbed the “Sick Tax” and twenty-two years later it is still a sick tax.

    Our Republican friends have no shame. They will do anything, including a tax on the sick, to protect the wealthy in this state. Maybe it is time to tax the heathy doctors instead of thinking of taxing their sick patients.

  18. Cory Allen Heidelberger Post author | 2017-12-04 10:14

    Grudz, taxing income is far saner than taxing consumption, especially consumption of medical services.

    South Dakota would do better to follow the current federal example. Uncle Sam taxes income and allows taxpayers to deduct their medical expenses beyond 10% of their adjusted gross income. How very humane: if you have the misfortune of an illness or injury that takes more than 10% of your income, the government should back off on taxing you.

    Rep. Kristi Noem broke from that humanity, voting last month to repeal the medical expense deduction. You should call her, Grudz, and ask why she’s trying to tax the sick more.

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