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Children’s Advocates Oppose Sales Tax Increase to Fund K-12 and Medicaid

Last updated on 2012.10.05

Here's why I'm still struggling with Initiated Measure 15. Good people like my friend Matt Groce support adding a percentage point to the state sales tax to increase funding for K-12 education and Medicaid. Opposition to the plan comes from pro-Republican, pro-corporate voices like former pro-corporate Farm Bureau exec Mike Held and the Watertown Public Opinion. WPO's argument against the bill is strikingly illogical (they slip down the slope saying IM 15 will open the door to an 8, 9, 10% tax rate) and anti-democratic (they claim the Legislature can "make the best decisions for us based on facts and reason with an eye on the best interests of the state, both in the long term and short term," a claim the Legislature disproves on several bills each session).

I put Matt Groce and support for education and health care against anti-tax, anti-education forces scrambling for rhetorical cover, and I think, "Easy call: Yes on IM 15!"

But then comes Cathy Brechtelsbauer and Children's Agenda for South Dakota*, who give multiple reasons that restoring cuts to education and Medicaid through an increased sales tax is a bad idea:

  • Sales tax is regressive: the poorer you are, the larger a chunk of your income the sales tax takes.
  • The poorest 20% of South Dakotans would pay over $100 more each year in sales tax.
  • Make food more expensive, and some people will eat less and eat less well, meaning more health impacts that offset the benefits of increased Medicaid funding.
  • No matter how tightly the initiative is worded, the Legislature may still find ways to divert or offset the additional revenue, leaving us paying more for nothing better in education or Medicaid.
  • And in an interesting argument about priorities, Children's Agenda for SD notes that IM 15 raises $180 million by unfairly raising the tax on food, clothing, and other necessities while ignoring the $527 million that could be raised by closing sales tax exemptions.** We give boat dealers a tax break; we don't tax gold at all. One would think we could go after that low-hanging fruit before taxing apples.

Again, the refrain to progressive opponents of IM 15 will be, "Don't let the perfect be the enemy of the good." But Children's Agenda for SD raises some good questions about whether an extra-penny sales tax is good enough.

*Correction 19:32 MDT: The original version of this post incorrectly ascribed the statement of opposition to Bread for the World, another organization for which Cathy Brechtelsbauer does good work. I apologize for the error.

**Clarification 2012.10.05 16:55 MDT: Cathy Brechtelsbauer asks that I distinguish CASD's statement from my next logical step. "Is it fair," CASD writes in its original statement, "that the tax increase would apply to so many necessities and not to yachts, RV's, personal aircraft, jet skis, and hot air balloons? These items have tax breaks already. Is it fair to leave zero tax on gold and even on some of the purchases of aircraft and hot air balloons? No tax increase is proposed on these." They don't specifically address the full hundreds of millions of dollars of exemptions we provide each year, but the CASD text got me thinking about all the money we could go after first before imposing an extra-penny sales tax on food and clothing.

35 Comments

  1. Charlie Johnson 2012.10.04

    All of these points leads to the argument that we are trying to raise funds for educaion in the 21st century with a 19th century tax system.

  2. Matt Groce 2012.10.04

    I stopped at the courthouse and voted this week. And I realized that the most important vote I will cast for education is not on the 2nd page of the ballot. It's on the front were I can vote for candidates like Charlie Johnson, Roy Lindsay and Scott Parsley. If we vote for more forward thinking minds like these men possess, we will find ourselves facing far fewer of these rock and a hard place problems.

  3. Steve Sibson 2012.10.04

    "Make food more expensive, and some people will eat less and eat less well, meaning more health impacts that offset the benefits of increased Medicaid funding."

    Like handing out the more expensive fruit and veggies and watch the kids dump their subisdized school lunches into the garbage.

  4. Steve Sibson 2012.10.04

    Hey Matt, did you know that the state collected nearly a $150 million more revenue than what was budgeted when those cuts were made? ANd only $47 million of it made it into reserves. What happened to the rest of it? Until we answer that, we should not be increasing sales tax by 25%.

  5. Rorschach 2012.10.04

    Once again. Do we need tax increases for education and medicaid when we have over $377 million in an education enhancement trust fund and over $104 million in a healthcare trust fund? Stockpiling money and living off the interest is fine if you're saving for retirement, but I don't expect state government to retire. So I'm not supporting any tax increases while the state government sequesters huge sums of money and doesn't use it for its intended purpose.

    SD lost $125 million on the stock market in FY 2008 & FY 2009 in the education enhancement fund and $29 million those same fiscal years in the Healthcare trust fund. Neither of those funds has recovered to their FY 2007 levels. Where's the outrage that we lose far more money on stock speculation than we spend from those funds on SD education and healthcare?

  6. judy 2012.10.04

    Cathy Brechtelsbauer makes many good points. We need quality education in South Dakota and we need to fund it better, but raising the money by increasing an already regressive sales tax is wrong and it will increase the tax burden unfairly on those least able to afford it. SDEA and the big hospitals should be ashamed of themselves for pushing this proposal. I plan to vote against it and I encourage everyone else to vote against it too. Before we permanently increase the sales tax we need to eliminate it on food to make it less regressive. If we do that first then I could support a similar proposal.

    Being fair often means being smart too.

  7. caheidelberger Post author | 2012.10.04

    Matt, that's a pretty important observation. We need to clean House... and Senate! I would love to be able to count on our legislators to make the right choices so we don't have to do the long, hard work of initiatives and referenda to fix things that they either neglect or actively wreck.

    Judy, I think SDEA and the hospitals will acknowledge that a sales tax is not an optimal solution. But they might add that since it's almost impossible to get anyone to talk honestly about a fair income tax or other sources of revenue, a sales tax increase is the only policy tool they have a chance of using to provoke this useful conversation, let alone possibly get funds to solve the problems they see.

  8. Rep. Susan Wismer 2012.10.04

    The sales tax exemptions are a nonissue for anyone who understands how broad South Dakota's sales tax law is compared to other states, and understands the resale principle. The really big dollars supposedly left laying on the table are for inputs to other products. We don't tax those inputs when the end product is going to be sold again. Ideally, we only tax it at the final sale. And that's about where South Dakota's sales tax laws are.

    As an accountant and tax preparer I see the federal assistance that is available to low income people: A family that earns between $20,000 and $30,000 with two kids receives as much as $5,000 of earned income credit refunded on their income tax return. They spend about $700 on sales tax in a year. (per IRS tables). That sales tax is offset by food stamps (which are NOT subject to sales tax,),housing assistance, home energy assistance, and Medicaid for the truly destitute. And no, certainly not every family struggling to pay the rent is eligible for all of these programs. But, poor kids suffer more than others when our schools are struggling, because they don’t have the resources at home to supplement what they get at school. When I weigh the injustices, (regressive tax system vs funding our schools) protecting the future tips the balance for me.

  9. grudznick 2012.10.04

    Ms. Wismer: BAH! You want to tax me more and give the money to only certain select groups. I say BAH on that.

  10. Rorschach 2012.10.04

    If this passes, watch the Republicans say this it too much of an influx of money for schools and medicaid all at one time. Best to phase it in slowly. So they're gonna put the principal into the education enhancement trust fund and the healthcare trust fund and schools & providers will just get the extra interest (if the stock market goes up rather than down).

  11. caheidelberger Post author | 2012.10.04

    Thanks for that correction, Cathy! I have edited the headline and text to properly attribute the talking points to Children's Agenda for South Dakota. My apologies!

  12. caheidelberger Post author | 2012.10.04

    Grudz, again, what's this "certain select groups" nonsense? IM 15 is an opportunity to have an intelligent debate about how we should tax all citizens fairly to fund programs that affect all citizens. Don't try to oversimplify it into some false good-guys-vs.-bad-guys melodrama.

  13. judy 2012.10.04

    Dear Representative Wismer,

    I am an accountant too and from what I see people who are poor receive the help you mention because they need the money to live marginally. I do not begrudge them this assistance. I am just thankful I do not need it and can live in the style to which I have become accustomed. I certainly do not see this assistance as a reason to ignore the burden the proposed tax would place on the poor or hard working middle class families.

    I agree with you that schools need more money just to maintain some of the quality of education we have provided our children in the past. But, to raise this money through an already regressive tax which unfairly burdens those least able to bear it is simply wrong.

    And lest we forget, half of the money raised from the proposed tax will go to health care providers many of whom already make plenty of money. I see the proponents of this Initiative choose to ignore this inconvenient fact in their advertising. As a reminder of the truth of the matter I propose a slogan for the opposition "Not another penny for Mr. T Denny .... Sanford that is"

  14. Charlie Johnson 2012.10.05

    With some mixed views, I have indicated with my senate campaign that I will support IM #15. With that said and the possibility that it might not pass, I will whether elected or not --push hard for the BEEF program-"Better Education Expects to be Funded". BEEF would establish a education trust fund that would fully fund the School Aid Formula(SAF) with an ongoing balance two years out. BEEF would enact a gross receipts tax on all forms of revenue received by any person or corporation including both earned and unearned including but not limited to wages, dividends, business, farm, contractual, interest,etc. The rate would be capped at 1% and would not allow for any exemptions or deductions for or by any individual or entity. BEEF would also repeal the state general levy for education on all real estate with taxable value in SD. In addition, the SAF would no longer be funded by the state general fund. Revenues for the state aid portion of the SAF and the local property tax portion would instead be funded by school trust fund set up by BEEF.

  15. Justin 2012.10.05

    Judy, as much as you talk about the poorest people, and claim that the proponents are ignoring the poorest people, I would remind you that Medicaid GOES to the poorest and most needy people.

    I am on the fence due to the corruption of our legislature and Governor, remembering how they stole the lottery money from schools, resulting in not only the lowest paid teachers in the nation BUT ALSO the lowest state share.

    We are almost the lowest taxed state in the nation. If your contentions are true, you will support the breaking of the AMA and the end of Medicare and Medicaid fraud by greedy "non-profits". Denny Sanford isn't going to profit from this at all. Already overpaid doctors will partially benefit, but the needy that may or may not be denied coverage of pre-existing conditions will benefit more (if our corrupt GOP crony government doesn't steal the money).

    Denny wants to die broke and has been among the most charitable people in the U.S. for many years. I personally find Sanford Health to be a flawed organization, but it is mostly due to their objective of driving up the cost of healthcare in South Dakota in order to make doctors rich while they deny raises to the people that do most of the work in our health care system.

    To make the blanket statement that this hurts the poorest people by funding education and Medicaid is both true and false.

    I hope as a humanitarian you do not support the conversion of Medicare to a voucher program. That will do more to hurt the most needy people in the state than this initiative ever could.

    Charlie, I find your proposition intriguing. I hope to learn more. Whether or not IM 15 succeeds, we are severely lacking in our appreciation of education in South Dakota. Our legislature and Governor are far more interested in selling out our integrity to out of state business interests that will help them keep their clutches on power over the voters they so despicably underestimate.

  16. Charlie Johnson 2012.10.05

    Justin or anyone else--message me at my campaign FB site with your address and I will send you more information albeit very general. Right now BEEF is a major concept in need of further research.

  17. judy 2012.10.05

    I wonder about Justin's logic here. He rightly states South Dakota is one of lowest taxed states. He doesn't say so but I think he would agree South Dakota also has one of the most regressive tax systems in the country, a regressive tax system which burdens not only the poor but all South Dakota citizens except the well-to-do, the one percent you might say. Then he argues for a 25% increase in the state sales tax rate, the most regressive part of our very regressive tax system, because overall we are a low taxed state and those who will bear the burden of this additional tax will receive some of its benefit..... maybe.

    As a whole, we are not better off by making a regressive tax system more regressive. Those in the health care industry may get more money and teachers may get a well earned pay increase, but as a state most people will be less well off.

    In addition, in all likelihood the legislature will short change the programs which the 25% sales tax increase is designed to benefit and nothing will have actually changed. We are in our current situation because political calculus determined it. Nothing will have changed that calculus, so why would anyone expect legislative priorities to change.

    The 25% sales tax increase is a short sighted proposal designed to get some money for a couple of large special interests. It doesn't tackle the real problem here in South Daktoa, the undervaluing of the benefit to everyone of quality education and healthcare and, as a result, our unwillingness to adequately fund them.

    Until we address the core problem I oppose Rube Goldberg solutions such as M15, and repeat myself, "Not another penny for T. Denny...Sanford that is."

  18. Rep. Susan Wismer 2012.10.05

    Justin,
    I believe that people who let their disapproval of Denny Sanford and his redistribution of ill-gotten gains are “cutting off our noses to spite our face.” Instead of the hospitals and doctors who could benefit from the Medicaid increase, I think more about other people it would help: our elderly private pay nursing home residents whose bills are thousands of dollars higher than they would be if Medicaid patients paid something closer to their own way, and the permanent class of working poor who are nurses aides in our nursing homes and who care for our developmentally disabled. The legislature will have every right to dictate to which Medicaid providers this extra money would go. By allowing ourselves to become distracted by the Sanford jealousy, as we have done in everything from the inheritance tax to video lottery to being brainwashed into masking our last place funding effort as “best business climate” we are allowing the “haves” to highjack our votes to benefit themselves, and our state is the worse off for it.

  19. Justin 2012.10.05

    In fact, Judy, I don't know whether or not we have one of the most regressive tax schemes. The lack of an income tax would generally imply that. However, the reliance on property tax to fill the void isn't as clear. The very poor are hardly large property owners, but those that own their own houses may pay a disproportionate share. I would like to look into it further. I would say my impression is that farmers and real estate owners bear an exaggerated burden, especially vs doctors, lawyers, etc.

  20. Rep. Susan Wismer 2012.10.05

    Whoops, correction: "hijack"

  21. Cathy Brechtelsbauer 2012.10.05

    The last bullet point in the original post was not how we wrote it. We weren't talking about the $527million in sales tax exemptions. Rather, we were trying to point to unfairness and more ways that SD's tax structure is regressive. Here is what we said:
    • IS IT FAIR that the tax increase would apply to so many necessities and not to yachts, RV’s, personal aircraft, jet skis, and hot air balloons? These items have tax breaks already. IS IT FAIR to leave zero tax on gold and even on some of the purchases of aircraft and hot air balloons? No tax increase is proposed on these.

  22. caheidelberger Post author | 2012.10.05

    Rep. Wismer, it seems this personal pettiness rears its head in other issues and keeps us from simply solving problems. I have no love for T. Denny and his usury. But I'll bet that some of the people wheezing about T Denny include a number of Republicans who accuse us of playing class warfare when we critique Mitt Romney's plutocratic policies.

  23. grudznick 2012.10.05

    I am against One Penny for T. Denny and am going to get signs for my granddaughter to put in her yard and give to all her friends that have yards.

  24. Justin 2012.10.05

    Never mind the fact that the slogan makes no sense. It rhymes, I guess that's all that matters. Because Denny gave Sioux Valley enough money for them to change their name to honor him doesn't mean he benefits from the tax.

    If you out the other sign up it just let's people know you have no idea what you are voting for. I think you do know. "Pensioners against regressive tax hike" fits you better even though it doesn't rhyme.

    I can't think of a good rhyming slogan. Maybe "Vote No on the Tax Hike Docs Like" if you want to focus on the Medicaid side.

  25. grudznick 2012.10.05

    Then perhaps "Don't Tax Me Just To Give Money To You"

  26. Justin 2012.10.05

    If I put up that same sign people might think I supported the abolishment of Social Security and Medicaid.

    I think it needs to be more specific.

  27. caheidelberger Post author | 2012.10.06

    Yo, Grudz, you aren't just giving money to me. Pass IM 15, and as a teacher, I may not see a penny of it. At our in-service last week, our principal asked us teachers for suggestions on how to use the money. At current estimates, Spearfish would get about $700 per student—$1.4 million per year, about half of what the district has cut from its budget since 2000. We teachers suggested salary increases and insurance premium coverages. But we also suggested restoring classes that have been cut, with a strong sentiment that we need to restore auto mech, home ec, and other vocational classes. We could restore field trips. We could do a number of things that wouldn't put more money in my pocket but which would hire back staff we've let go to provide more help to kids.

    And even if some portion of IM15's money goes from me to you, you aren't just handing money over and getting nothing for it. You pay teachers more, and you are recognizing that you aren't paying them a fair wage for the work they are already doing. You also make it possible that you might get more value from them: boost my salary, and I feel less pressure to work a second job and have more time outside of school to pour into grading papers and preparing challenging lessons.

    That said, I'm still thinking about whether a sales tax is the right way to attain that added value.

  28. LK 2012.10.06

    Cory,

    Your last comment also points out the flaws in HB 1234. The alleged bonus will do nothing to make any teacher teach better. The vast majority of teachers are doing the best that they can. Further, it won't be enough to make any teacher who needs a second job decide to quit that job, especially since its subject to student test scores administrative politics, and school board whims

  29. Les 2012.10.06

    I think everyone here agrees a sales tax is the most regressive tax we have in SD.
    Justin, the poor do pay RE taxes through the rents they pay.
    SD's RE taxes are far from the lowest in the nation.
    Charlie Johnson will never get re-elected after the word on his GRT gets out, if he even gets elected because of it.
    Some percentage of business will leave SD if an income tax is initiated, besides, the teachers would be against an IT as well other white collar.
    I believe we would all do well to remember these are not normal times and these repairs will take abnormal measures.
    Charlie Johnson, someone has to man the front line, it might as well be you!

  30. grudznick 2012.10.06

    Mr. Johnson is bringing the BEEF tax, the biggest overhaul and massivest tax increase in South Dakota history after this Penny for T Denny tax.

    STOP TAXING ME!!!

  31. caheidelberger Post author | 2012.10.06

    Justin, I'm a teacher. I support a state income tax.

    Grudz, get serious. We can't stop taxing you. You benefit from civilization. You need to pay for its upkeep.

  32. Les 2012.10.06

    Wy don't you run a poll on the income tax at your Speartown school Cory and see.
    It seemed to me in the 80's or later the subject got hot and teaches were a good part of quenching that idea.

  33. Justin 2012.10.06

    No business is going to leave because of an income tax.

    If they do, they shouldn't be here in the first place and they are probably bribing our Governor.

    Farmers would far prefer it if they are smart.

    If there is no farm bill, it may become imminent. It makes far more sense than the arbitrary assessment and tax rate disco that goes on in Pierre. I would love to see a small income tax and a drastic reduction in real estate taxes. When they do it, they can steal this sales tax, too.

  34. Les 2012.10.06

    There are business coming and going without an income tax and there will be fewer coming with one.

    Farmers should have preferred it in the past. They are now making a pile and watching their ability to expense purchases go out the window in 13 and14.

    I pay over double the RE taxes on my similar value business property to my ag land and have paid as high as 4 times in a different area of the state.
    Your wishful thinking has the praise of many I'm sure, just remember,you're dealing with politics and if they steal the sales tax, it won't come back into our pockets.

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