The disgust South Dakotans feel over rising property taxes has yet to surpass the disgust their legislators feel at the prospect of implementing a state income tax of any sort to bring those property taxes down.
South Dakota remains one of the few states that eschews the three-legged stool of property/income/sales taxes and tries to get by taxing only property and sales. But if Legislators could get over their bias against income tax, how much wealth could they tap to rein in property taxes?
Consider that in 2024, South Dakotans paid $1.715 billion in property taxes on real property valued at $138.1 billion. That’s an effective tax rate of 1.24% on your house, your farm, your insurance office, what have you.
Per capita personal income in South Dakota in 2024 was $73,959. The Census Bureau figures South Dakota had 924,669 capita in 2024, so total personal income statewide was $68.388 billion.
So the amount of money South Dakotans make each year is just about half of the value of the wealth South Dakotans are sitting in the form of land, houses, offices, etc.
Suppose we wanted to trade one two-legged stool for another: eliminate property tax and replace the lost revenue with income tax. Getting $1.715 billion in tax out of $68.388 billion in income would require a personal income tax rate of 2.508%. Charging just a hair above the flat 2.5% state income tax rate in North Dakota and Arizona, the lowest flat-rate state income taxes in the nation, totally replaces property tax revenue in South Dakota.
But why trade one wobbly stool for another? The three-legged tax stool offers more fiscal stability.
So suppose we wanted to slash South Dakota’s effective property tax rate to 0.5%, a lower effective rate than you’ll find in any neighboring state. That would bring property tax revenue down about 60%, to $690.5 million. To recoup the $1.025 billion of lost property tax revenue, South Dakota would need a flat income tax rate of 1.50%.
In short, South Dakota could replace some property tax with a state income tax and easily manage to have the among the lowest effective rates of state taxation on both pots of wealth in the nation.
Income tax is bad. It is very bad.
Even Bill Dougherty voted against that.
Not going to happen until 2108.
A state income tax in South Dakota! Jon boy is hyperventilating already. He can run on his stupidity.
As a wise and learned man once told me, such a tax scheme would end you up with two high taxes that you would have to contend with.
How about an income tax that starts at $500,000 or $1 million per year? That would also help make our overall tax system a little less regressive.