In an earlier installment of this op-ed about taxes, we discussed sales tax, determined that it disproportionately hits lower income South Dakotans over those of means, but also came to understand that it’s a significant source of revenue for both small towns and larger cities. And though it seems fair (in terms of treating everybody the same), it’s regressive, especially because it is applied to purchases of food.
So what type of taxation would be fair? Let’s look at property taxes. Wait. Not everyone owns property. Is it fair to tax only property owners over those who rent? No, but it’s likely that rental property owners pass most of those expenses on to their tenants, so those renters are also paying property taxes, though indirectly. But as property taxes rise, wages have not, partly because much of our economy is based on the low-wage tourist industry. Thus, as landlords raise rents when property taxes rise, rental housing becomes more and more unaffordable. U. S. Census Bureau statistics show that 32.7 percent of South Dakota renters pay 35 percent or more of their gross income on rent. For that average family making $42,525, that means rent payments of $1,240 per month. That leaves the family only $2,305 each month for everything else – food, utilities, clothing, car payments, federal taxes and more. Again, like sales taxes, property taxes put a greater squeeze on those at the lower end of the wage scale than those at the top.
Additionally, there’s the issue of property taxes and those on fixed incomes. Many South Dakotans are retired and have a limited amount of cash on which to live. Property taxes on my own home have risen significantly since we purchased it in 2002. As property taxes rise, some homeowners may be taxed right out of their homes, forced to sell them and purchase something of lesser value, or to rent. Is that fair? Definitely not.
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Finally, the Journal recently published an article about declining farm and ranch incomes in South Dakota. For those families, increases in property taxes can mean increased debt or, in the worst cases, bankruptcy or sale of the family farm.
Declining farm and ranch incomes have been a significant problem in the past. In the Dust Bowl years of the early 1930s, farm and ranch income almost disappeared as crops and grasses dried up. Property taxes went unpaid and the state, its revenues reduced, struggled to pay its employees. Despite large state budget cuts, property taxes couldn’t be eliminated entirely. Foreclosures were common and families lost their land. So in 1933, the state imposed a severance tax on gold, added a 2 percent sales tax, and instituted, for the first time, a South Dakota state income tax. That tax relieved the burden of property taxes by shifting taxation away from farmers and ranchers and onto the shoulders of those who could best afford it. That income tax lasted until the war economy of the 1940s, coupled with the end of the Dust Bowl, returned farmers and ranchers to solvency.
It’s time to have the conversation about income tax again.