Raising S.D. Sales Tax Creates Unfair Burden

In yesterday’s Press & Dakotan, I wrote an editorial stating why I think a proposal to raise South Dakota’s sales tax by 1 percent is a bad idea. If that sentence alone doesn’t bore you, please read on. 🙂


Last week, a group of advocates for health care providers and public schools announced that they will attempt to get an initiated measure on the ballot that would permanently raise South Dakota’s sales tax by 1 percent.
According to The Associated Press, the proposed language for the measure will be submitted to the Legislative Research Council for review this week.
If such a measure were approved by voters in 2012, the sales tax increase from 4 to 5 percent would raise state revenues by approximately $175 million annually, according to its proponents.
While there was no word on how the advocates would like to see this new revenue distributed, it is fair to assume they would like to see it go toward education and healthcare. In the 2011 Legislature, education was cut by 6.6 percent, while Medicare providers saw decreases of 4.5 percent to 11.5 percent.
We, too, would like to see funding restored to these essential areas, but we question the wisdom of using the sales tax mechanism to raise revenue. The problem is, it is a regressive tax that would unfairly burden the state’s poorest citizens.
We believe a fair tax system is one in which the cost of government services is based on the ability to pay. As a society, we think it is prudent to work together to raise the tide for everyone. Part of that equation is the understanding that those to whom much is given, much is expected.
South Dakota’s tax system is currently structured so that is not even close to the reality. In fact, South Dakota turns that expectation on its head.
According to a 2009 study by the Institute on Taxation and Economic Policy (ITEP), the poorest 20 percent of non-elderly taxpayers in the state contributed 11 percent of their income to the state’s sales, excise and property taxes in 2007. The top 1 percent of that same category of taxpayers — those making $423,000 or more — contributed 1.9 percent.
It seems that, in South Dakota, those to whom much is given, little is expected. It is not a fair tax system.
Approving a 1 percent increase to the state’s sales tax would only increase this immoral imbalance. It would hit those with the least ability to pay the hardest.
ITEP sums up our beliefs in a report entitled, “Tax Fairness Fundamentals”: “Because sales taxes are levied at a flat rate, and because low-income families spend more of their income on items subject to the sales tax than do wealthier taxpayers, sales taxes inevitably take a larger share of income from low- and middle-income families than they take from the wealthy. Excise taxes on cigarettes, gasoline and alcohol are also quite regressive, and property taxes are generally somewhat regressive.”
What are the fairest taxes, according to ITEP — taxes which can be scaled based upon ability to pay? Personal income taxes.
South Dakota is one of a minority of states without a broad-based personal income tax.
Even in these economically difficult times, when South Dakota needs revenue to support essential services, that’s not a tax solution you hear in serious conversations by Republicans, Democrats or independents in the state.
But for discussion purposes, we’d like to provide some food for thought. According to United for a Fair Economy, if you restructured and inverted South Dakota’s tax system so that the wealthiest 20 percent — those making more than $84,000 — paid 11 percent of their income in taxes as the poorest 20 percent currently do, and those poorest citizens, who make less than $18,000, paid 3.9 percent of their income as the wealthiest 20 percent currently do, you would solve the state’s current budget problem. In fact, it would nearly double South Dakota’s annual revenue.
That sounds like a solution. A fair solution.
Unfortunately, a 1 percent sales tax increase does not.


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