‘Biggest tax cut ever’? Depends on how you slice it — and on Noem’s reaction
Reps. Mike Derby, R-Rapid City, left, and Chris Karr, R-Sioux Falls, shake hands after a $104 million tax cut passed the House unanimously on March 9, 2023, at the Capitol in Pierre. (Makenzie Huber, South Dakota Searchlight)
Some legislators are describing the $104 million sales tax reduction they adopted Thursday as the “biggest tax cut in state history.” But is that true?
The answer is complex. It might be more accurate to call the current proposal the state’s largest single tax cut in raw, unadjusted dollars.
The qualifiers are necessary because of some big historical tax cuts that rival or surpass the current one.
In 1978, the state repealed its personal property tax on items such as household goods, appliances, sporting goods, farm machinery and livestock. Veteran journalist and columnist Terry Woster has said the personal property tax was known as the “liar’s tax,” because it relied on self-reporting. Selective amnesia was apparently widespread.
At the time, annual revenue from that tax totaled about $40 million. Adjusted for inflation, that’s equivalent to about $180 million today, making it technically a bigger tax cut than the one legislators just passed. But lawmakers in the late 1970s also adopted other tax and fee increases to make up for the lost revenue.
Lawmakers approve temporary sales tax cut worth an estimated $104 million in first year
In the mid-1990s, then-Gov. Bill Janklow and lawmakers passed legislation to drive real-estate property taxes down. Those efforts resulted in $80 million of property tax savings initially, plus $40 million more in further years as the effort continued. At a total of $120 million, it was a bigger cut than the current one, although spread over multiple years. And there was some shifting around of the tax-and-fee burden to make up for some of the lost revenue.
There’s another historical tax cut that wasn’t as big as the ones mentioned above. That was South Dakota’s short-lived income tax, which was bringing in about $1 million annually when the Legislature repealed it in 1943. That’s about $17 million in modern, inflation-adjusted money.
All of those historical tax cuts continue to save South Dakotans money every year compared to the higher taxes they would otherwise pay, making it difficult for a new tax reduction to ever catch up in cumulative terms. The bill legislators passed Thursday is further hindered in that regard by a four-year sunset clause, which means it could ultimately save taxpayers about a half-billion dollars and then nothing more if it’s allowed to expire. Lawmakers have not proposed raising other taxes or fees to make up for the lost sales tax revenue — not yet, anyway.
And there’s one final, important consideration when determining which tax cut is biggest: The one legislators adopted Thursday hasn’t actually been signed into law yet by Gov. Kristi Noem. She hasn’t used the word “veto” in her public comments so far, but she’s been clear about her displeasure that legislators pursued a general sales tax reduction instead of her targeted repeal of state sales taxes on food, which would have saved taxpayers roughly the same amount of money overall.
Noem has said multiple times that her proposal would have been the biggest tax cut in state history. Legislators stand on the cusp of swiping away that achievement.
The only question now is whether Noem is willing to shift from being the governor who proposed the state’s supposedly biggest-ever tax cut to the one who vetoed it.
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