Self-hypnosis seems to be the governing style that defines how South Dakota keeps ignoring some fundamental causes of the state's persistent shortfalls in tax collection.
Gov. Daugaard announced last month that we're headed for another lean budget year because of lower than expected receipts from sales and contractor excise taxes. As if hypnotically transfixed into denial of the obvious, Daugaard blames a trend toward more spending on medical expenses, which are exempt from sales taxes, noting that health care takes 20 percent of consumer spending, up from 15 percent in 1997.
This is a new excuse and it doesn't wash. There's no reason to doubt its conclusions about the growth of health-care spending, but why it was suddenly discovered and declared to be the whipping boy for our state's anemic showing on tax receipts is open to question.
For one thing, the growth of health care as a portion of South Dakota's economy matches closely with the national trend, so there's good reason to wonder why it seems to come as a surprise to our state's leadership. The trend has been clear and well-known for decades. Daugaard's revelation of it merits a big "duh."
The national economy, which has performed vastly better than South Dakota's, has successfully absorbed the shift in consumer spending toward health care. Why hasn't South Dakota's? It's a compelling question, and Daugaard needs to address it.
The fact is, South Dakota's economy hasn't come close to matching the overall growth of the U.S. economy, which on a per capita basis has grown 30 times more than South Dakota's. Ours actually has a declined a bit during the period since Daugaard's first year in office, 2011.
It's little wonder that the increased spending on health care has had such a major impact on our state's revenues while the more robustly growing national economy hasn't been hampered by it.
A rising share of health-care spending and its effect on South Dakota state revenues only exposes the inefficiency and inadequacy of our state's tax system. 82 percent of the state's revenues are generated by sales and gross receipts taxes, which are disproportionately paid by lower income earners, leading USA Today to rank us the 4th worst state in the country when it comes to regressive taxation. Turns out that health-care spending hits lower income folks disproportionately harder also, so if Daugaard is contemplating slapping a sales tax on health-care goods and services, South Dakota's lower-earning households will be more burdened than their higher-income neighbors. The contempt for our poor and lower-income-bracket citizens that is built into South Dakota's tax system would only have its meanness intensified by taxing health-care services.
Meantime, as long as we're looking at sales tax-exempt goods and services, a scan of how much those tax exemptions cost South Dakota is long overdue. The Department of Revenue in 2015 calculated that all exemptions, if taxed, would yield $1.1 billion to the state.
Our agriculture sector receives about 15 percent of those breaks while health care gets about 12 percent. The rest of the list is long and studded with special-interest categories. Unfair as the system is, there's a way to spread out some of the burden by putting those interests on to the sales tax rolls. It probably amounts to a short-term fix, but it might be a way to get South Dakota on the road to real tax reform.