Even as he proposes 10% cuts to education, Medicaid, and other vital social services, Governor Dennis Daugaard wants to extend handouts to big corporations, in hopes of drawing more business to the state. (That bill, HB 1230, is on the House State Affairs agenda tomorrow.)
Rep. Bernie Hunhoff (D-18/Yankton) doesn't just opine that corporate subsidies are a bad investment: he cites some serious corporate honchos who back up his claim:
"I never made a decision based on the tax code," says Paul O'Neill, the former CEO of Alcoa (parent company of Yankton's Sapa Extrusions) and President George W. Bush's treasury secretary.
"If you are giving money away, I will take it. If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements. They do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources."
..."In the facility location process, taxes are not relatively important when compared with other cost factors," says Robert Ady of Ady International, a company that helps corporations made location decisions. He ranks taxes as the last issue, far behind labor, transportation, utilities and occupancy [Rep. Bernie Hunhoff, "Pierre Report: Using Dynamite to Catch Fish," Yankton Press & Dakotan, 2011.02.15].
South Dakota already offers numerous pro-business amenities: abundant building space, wide-open roads for easy transportation, relatively low building costs, a labor force too cowed by Midwestern-Lutheran hyper-humility to organize or ask for a raise. (I'd rather fix that last one than advertise it.) If we're serious about solving our structural deficit, let's cut these unnecessary corporate subsidies from our budget before we cut salaries and jobs for necessary teachers and nursing home aides.
As I have said before we not only have a funding problem for education and medicaid, we have a priority problem first and foremost.
South Dakota perennially gets cited for its good "business climate" of low pay for workers and low taxes. Still, it struggles to attract businesses. As the people who do market studies and community assessments for businesses looking for places to base operations will tell you, the first priority is not how low taxes are, but the value of what the taxes pay for in terms of infrastructure and services that facilitate and support business activity. And those people will also point out that businesses equate low pay with low performance. Except for sweatshops in which worker quality doesn't play much of a role, businesses require people who can do the work with skill and reliability. South Dakota touts its work ethic, which in reality is get good at what you do, and then move to places willing to pay for it. The same goes for businesses that accept start up money. The incident involving the cheese factory that took state start up money is a case in point. Once it got a successful start, it started looking for a better place to locate, and it left.
This year's legislative session supplies multiple reasons daily for why intelligent people avoid the state. As my daughter, who lives in Denver, commented to a friend on a recent piece of proposed legislation, "reason 98706 for abandoning this state." The pathetic attempts to attract business pall before the offenses offered.
Recently I was told that South Dakota's lack of a corporate income tax actually means that corporations based in other states pay for the income they earn in South Dakota in their home state's income tax.
Meaning we are giving millions of dollars away to other states that have corporate income taxes. My source told me this equals about $90 million a year.
Can anyone verify if this is true?
Good point, Frank! We as individuals get to deduct our state and local taxes from our federal income tax. So by that mechanism, what we don't tax Wal-Mart goes to Uncle Sam and gets divvied up around the country. (Of course, we get $3 back from D.C. for every $2 we pay, so maybe we still come out ahead.)
I'm trying to figure out the state-to-state question. I would think that yes, if Wal-Mart doesn't pay tax on what it makes in South Dakota, that money goes to HQ in Arkansas, and Little Rock takes its cut in state income tax there. But I don't know my state law well enough to know who deducts what. Any tax lawyers out there have the answer?