At the words “income tax,” many of you will roll your eyes. But hear me out, please, and consider what an income tax could do for South Dakota.
Let’s go back to those families I talked about in part one of this series. If we instituted a 1 percent income tax on everybody, here’s how it would generally work. Leaving aside the complicated issue of deductions, the family making the average salary in South Dakota, $42,525, would pay income tax of $425.25 in income tax, and the family making $350,000 would pay $3,500.
Although that may seem like a lot, the family would still have $346,500 in income. I, for one, could easily live on that. Would the $3,500 in taxes hit that higher-earning family significantly harder than the $425.25 would hit the average earner? No.
Many South Dakotans on fixed incomes will assert that an income tax will hurt them just as much as property taxes. To that I say, make those people exempt unless they have significant portfolios. Impose the income tax on those who can afford it.
And how about a small corporate income tax? Forty-four states have them, with rates ranging from 2.5 to 12 percent, with two of our neighbors, Iowa and Minnesota, charging among the highest rates.
But wait, many people say. South Dakota is tax-friendly to business and we have to keep it that way if we want companies to move here. But consider this: if low taxes were the determining factor in deciding business location, most Minnesota and Iowa businesses would be eager to move west, but they don’t. Logic says that there are other factors that influence business location choices — educational opportunities for employees and their families, skilled labor, quality of life, recreational opportunities, a high-quality medical community and many others.
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Right now South Dakota is dependent on property tax and sales tax for almost all of its revenue. Sales tax is not only regressive and subject to abuse by cheaters, it is also not recession-proof. Do you remember the 10 percent cut across the board that Gov. Daugaard ordered for all state departments when he took office in 2011? That was the result of a recession that flattened the tourism industry for nearly two years. Sales tax revenues were down significantly.
Nobody wants to have to cut services again. And if farm and ranch incomes continue to fall, as they have for the past five years, both property tax and sales tax revenue will fall along with them.
South Dakota has lots of needs, many of which Gov. Noem outlined in her State of the State address. We need treatment facilities for the methamphetamine epidemic. We need mental health treatment facilities. We need rural broadband. Where are the funds for these projects — and more — going to come from? Until we increase the amount of money the governor can work with, she cannot accomplish what she wants to do — unless she takes funding away from … what? Schools? State employees?
We need many things, and right now our taxation system is clearly not fair and clearly not adequate.
Let’s consider a small across-the-board personal and corporate income tax to stabilize our tax revenues, remove the sales tax from food, and provide the services that South Dakotans deserve.