I'm scratching my head over a comment reported by Ken Santema from Saturday's crackerbarrel in Aberdeen. Evidently a citizen asked the legislators about a proposal to increase funding for K-12 education through a 1% tourism tax. From Santema's phrasing, it appears the questioner opposed this use of a tourism tax because tourism and education are not connected. Senator Brock Greenfield (R-2/Clark) mentioned his agreement that there is no link between tourism and education in the context of declaring a tourism tax for education a plan unlikely to pass.

Um...

  1. Isn't everything connected to education? Don't visitors benefit from an educated workforce who can count their change, give them directions, and have job opportunities that keep them from burgling RVs?
  2. Imagine you're a tourist enjoying a stay in South Dakota and we give you a choice on how you want your tourism tax dollar spent. Either you can send your dollar to the state to support K-12 education, or you can send your dollar to Pierre to pay for more tourism advertisements. Which would you pick?
  3. Just how "connected" does a thing or activity or industry have to be for us to justify taxing that thing or activity or industry to support some specific public good or service?
  4. If a thing/activity/industry we tax has to be connected in some direct way to the public good/service it pays for, should we end the use of dollars from the sales tax on food for anything other than funding the SDSU College of Agriculture?
  5. Similarly, just what public good or service is property connected to?
  6. Federally, what is income connected to?
  7. What connection does video lottery have to non-playing property owners whose taxes those video gamblers reduce?
  8. Is Senator Greenfield saying he will go to Pierre and demand a budget that funnels every tax dollar from sales, contractors, gambling, etc. into strict budget lines connected exclusively to "connected" public goods and services? Or did he just need an excuse to shoot down a reasonable plan that would raise revenue for K-12 education and give us a chance to prove his dear old mom wrong?
  9. Does this thinking turn every government function to a fee-for-service model?

Crackerbarrels do raise some good questions. They also provoke Republicans to raise some odd objections to raising revenues to help our schools.

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How I wish I could be in Aberdeen to join Ken Santema at the Legislative crackerbarrels! My Libertarian blogospheric colleague is providing excellent coverage of Legislative issues. Yesterday he got hold of a useful handout from Senator David Novstrup (R-3/Aberdeen) comparing the costs of the competing road-tax-and-fix bills proposed by Governor Dennis Daugaard and by the interim Highway Needs and Financing Committee:

Comparison of Daugaard and Interim Committee Road Tax Proposals, distributed by Sen. Al Novstrup, published by Kan Santema, SoDakLIberty, 2015.01.24

Click to embiggen—Comparison of Daugaard and Interim Committee Road Tax Proposals, distributed by Sen. Al Novstrup, published by Kan Santema, SoDakLIberty, 2015.01.24

The immediate bottom line shows the Governor's proposal imposes half the tax burden of the committee's plan, $51 million versus $101 million, largely by leaving out the 3% wholesale fuel tax.

But remember, that's just in the first year. The above comparison does not note the increasing revenue that will come on the motor fuel tax line from Daugaard's proposed ongoing annual two-cent increase, which far outpaces the increase proposed by the interim committee. The 3% wholesale tax in the committee proposal may provide more revenue, if gasoline prices do what we'd expect and rise over time. But remember: after the 1986 oil price crash, gasoline prices remained remarkably flat through the 1990s. The wholesale tax doesn't guarantee more revenue; Daugaard's plan does.

Of course, as of this weekend, we still don't have the Governor's exact plan. The interim committee's plan was the first bill filed for the Senate; the Governor's plan has not yet been filed as a formal bill.

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I must give John Tsitrian kudos for catching Governor Dennis Daugaard in a brilliant contradiction. In Tuesday's Rapid City Journal, Governor Daugaard responds to a question about South Dakota's weak regulations on uranium mining by saying, "I don't like the notion that the state duplicates federal regulation. So, to the extent that the Atomic Energy Commission or the EPA is looking at this, I think we should let it run its course."

Tsitrian goes just seven months back and finds the Governor saying pretty much the opposite in a press release warning the feds off using the Clean Air Act to impose more regulations on power plants and calling the feds to recognize states as "co-regulators." Hee hee!

Further verbal chicanery lies in Daugaard's feigned preference for EPA regulations of uranium mining. His pal Senator Mike Rounds wants to eliminate the EPA; where would that leave our uranium mining regulations?

Inspired by Tsitrian to jump on the contradiction bandwagon, I scroll up through the Tuesday RCJ article and find another obvious whopper. Asked by RCJ's Meredith Colias about why he left education out of his State of the State Address and his funding priorities in favor of roads, Governor Daugaard dismissed complaints thus:

Bottom line is, you can’t spend money that you don’t have....

I try to give an increase to education every year … so I’m doing what I can with the resources available [Gov. Dennis Daugaard, interview with Meredith Colias, Rapid City Journal, 2015.01.20].

Um, Dennis? You don't have the money to fix the roads, either. You're proposing a plan that goes and gets more money (and still lets the roads get worse). Tell us again: why can you go get money that we don't have now for roads but not go get money that we don't have now for schools?

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Need help figuring out your 2014 federal tax return? Don't count on the Internal Revenue Service. The National Taxpayer Advocate's latest report to Congress says the IRS lacks the staff and funding to serve taxpayers:

  1. The IRS will be able to answer only 50% of the 100 million calls it will receive from taxpayers this fiscal year.
  2. Callers will often wait 30 minutes to speak to an IRS rep.
  3. In 2004, the IRS answered 87% of its calls, with an average hold time of 2.5 minutes.
  4. Last year, the IRS dropped tax prep service "for hundreds of thousands of low income, elderly, and disabled taxpayers who sought assistance."
  5. Voluntary and timely tax payment provides 98% of the federal government's revenue. Providing good customer service collects revenue far more efficiently than enforcement actions against taxpayers who don't file correctly or at all.
  6. Since FY2010, Congress has reduced the IRS budget 9.9% in straight dollars and 17.7% in inflation-adjusted dollars.
  7. Since FY2010, budget cuts have caused the IRS to cut workforce by 12.3%.
  8. Since FY2010, the IRS has cut its training budget by 87%. In a complicated field where rules and procedures change every year, the amount available to spend on training for each employee (FTE) has dropped in five years from $1,774 to $339.
  9. The IRS managed to answer a bit more its mail on time last year than the year before, but it still failed to process 51% of adjustments (i.e., "You owe us" or "We owe you") correspondence in its standard 45-day timeframe.

That lack of customer service is just one of multiple serious problems the National Taxpayer Advocate's office identifies at the IRS. We could ask for no better example of how smart government sometimes means bigger government: if we want more taxpayers to get answers to tax questions in less time, we need more staff with more training on more phones.

But Senator John Thune appears to prefer self-destructive failure:

Republicans who now control Congress and who led the effort to reduce the IRS budget don't seem too concerned about the agencies woes. It goes back to GOP charges that the agency targeted conservative groups seeking tax exempt status for extra scrutiny.

Republican Sen. John Thune of South Dakota: "I don't think that based on the IRS' record over the last couple of years that there's a whole lot of sympathy for the complaints that they're now making about not having enough funding. Obviously they have a job to do, it's an important job we want to make sure they have the resources to do that job to collect the taxes but wasting resources targeting conservative groups and other things like that is obviously something that we would take great issue with" [Brian Naylor, "IRS Budget Cuts May Make for an Unpleasant Tax Filing Season," NPR: Morning Edition, 2015.01.20].

The Cincinnati IRS office oversteps its bounds, and Senator Thune decides to strangle the entire IRS and leave taxpayers at sea. That makes about as much sense as a teacher reacting to one student scribbling on a desk by taking away everyone's writing utensils and then flunking the kids for not finishing their penmanship assignments. It's almost as if Senator Thune doesn't want us to submit our homework—er, taxes (ah ha! so that's his game!).

The Internal Revenue Service is not some partisan enemy. It is an essential arm of government, without which the ship of state sinks. Senator Thune and Congress can impose the necessary oversight on the IRS and still provide the resources to help tens of millions of taxpayers file their taxes correctly and on time.

29 comments

Keystone XL wouldn't be such a bad project if pipeline builder TransCanada could assure us that it would pay for cleaning up whatever messes the pipeline might make if it spills tar sands oil in our fair state. Oil companies provide us that assurance by paying an eight-cents-per-barrel excise tax on the oil they ship into the Oil Spill Liability Trust Fund. (One barrel produces 19 gallons of gasoline, among other products, so that tax adds far less than a penny to the price you pay at Kum & Go.)

But not TransCanada, not on Keystone XL. Back in 2011, the Internal Revenue Service ruled that tar sands oil imported into the U.S. is exempt from the Oil Spill Liability Trust Fund tax, because it's "synthetic petroleum," not "oil."

Rep. John Garamendi (D-Calif.) tried last week to amend the Keystone XL bill to require TransCanada to pay that cleanup tax on the tar sands oil it seeks to ship across South Dakota:

If you break it, you buy it, and if you spill oil over the heartland of America, you should pay for its cleanup. In recent years, we have witnessed major pipeline breaks in Michigan, Arkansas, Montana, and North Dakota, spewing oil in these communities. Instead of getting a $24 million-a-year tax break not afforded to other pipeline companies, TransCanada should be held responsible if they put America’s environment and the health of American citizens at risk [Rep. John Garamendi, floor statement, 2015.01.09].

Rep. Garamendi is talking basic responsibility. But if I'm reading the roll calls right, his amendment, rolled into a motion to recommit, failed on a straight party-line vote, with every Republican in the room, including our Rep. Kristi Noem, saying that making TransCanada pay for its messes is too much responsibility for our corporate Canadian friends to bear.

Hmm... I wonder if Congresswoman Noem picks up all of her son's dirty socks for him every weekend when she comes home from Washington.

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The New York Times reports that South Dakota is #4 among the "Terrible 10"... for regressive state and local taxes. According to data from a new report from the Institute on Taxation and Economic Policy, the percentage of income that non-elderly residents in the lowest 20% income category pay in state and local taxes is 9.5 percentage points more than the percentage of income paid by the wealthiest 1%. Only Washington, Florida, and Texas have a larger gaps between their tax burdens on poor and rich.

Here's how the state and local tax burdens stack up on income brackets in South Dakota and the surrounding states:

State/Local Tax
Burden on...
SD MN IA NE WY MT
Lowest 20% 11.3% 8.8% 10.4% 10.9% 8.2% 6.1%
Second 20% 9.1% 9.7% 10.2% 9.9% 6.9% 6.1%
Middle 20% 7.7% 9.6% 9.7% 10.3% 5.9% 6.4%
Fourth 20% 6.9% 9.7% 9.5% 9.3% 4.7% 6.1%
Next 15% 5.5% 8.5% 8.4% 8.1% 4.0% 5.8%
Next 4% 3.8% 8.4% 7.0% 7.6% 2.7% 5.2%
Top 1% 1.8% 7.5% 6.0% 6.3% 1.2% 4.7%

South Dakota offers lower tax burdens than Minnesota on everybody but the poor. Montana imposes lower tax burdens than South Dakota on everybody but the top 20%. Minnesota, Montana, and Iowa offer relatively less regressive taxation schemes, keeping the tax burden roughly consistent for most income brackets and offering the least differentials between the burdens on the bottom 20% and the top 1%.

Note that none of the states above show a truly progressive tax system, in which the percentages would get larger as we move down the chart into higher income brackets.

Note also that all of the ideas we've heard so far for improving public goods and services in South Dakota—fuel taxes for roads, sales taxes for teacher pay—are regressive taxes, which will take a larger percentage of lower-income folks' income.

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Udpate 12:50 CST: My original post ignored a 3% wholesale tax imposed by Senate Bill 1. I have refigured my spreadsheet and adjusted the text here to include that new tax in this explanation.

Wait a minute: did I call Governor Daugaard cheap? His road plan would raise you gasoline tax just as much as the Legislative plan he's rejecting.

We don't have the Governor's formal bill yet, just the points he laid out in his State of the State Address yesterday. The Governor proposes raising the tax on motor fuel two cents per gallon each year, starting this July. He gave no sunset date. He says that hike would raise $13.75 million in the first year.

Governor Daugaard justifies that annual increase by pointing out the failure of our motor fuel tax to keep up with inflation:

The legislature implemented the current $.22 motor fuel tax in 1999. That was 16 years ago, when I was in the State Senate, and Bill Janklow was governor. Gasoline was around $1 per gallon, so the motor fuel tax at the time represented 22% of the total price per gallon. That per-gallon fee of $.22 was fixed in statute and has been the same for the last 16 years. If the legislature had indexed the gas tax to inflation for construction costs, the fuel tax would be $.45 today – more than double [Governor Dennis Daugaard, State of the State Address, as transcribed by that Sioux Falls paper, 2015.01.13].

Two cents more each year won't break 45 cents per gallon until 2027 (Fiscal Year 2028).

Senate Bill 1 raises the motor fuel tax in smaller increments, from 22 cents per gallon now to 28.16 cents per gallon in 2025. SB 1 doesn't start boosting the tax until next year. SB 1 specifies no increases after that.

To keep up with inflation, SB 1 creates a new 3% tax on the wholesale price of motor fuel. That tax starts at 7.5 cents per gallon, which is then established as an ongoing minimum, just in case oil prices miraculously stay cheaper.

You can check out my spreadsheet comparing the Governor's motor fuel tax proposal with Senate Bill 1. I assume constant gasoline demand extrapolated from the Governor's first-year revenue estimate. For the wholesale fuel tax, I assume 3% inflation from this year's levy and further assume that the cost will be passed on fully to consumers at the pump. Your mileage may vary. Here's the fiscal impact by July 1, 2026:

  1. The Daugaard plan would have South Dakotans paying 5.8 cents more per gallon than SB 1.
  2. The SB 1 motor fuel taxes raise more revenue than the Daugaard motor fuel tax for the first five years.
  3. In Fiscal Year 2021, Daugaard's fuel tax raises more revenue than SB 1's motor fuel taxes.
  4. In FY2026, Daugaard's two-cent-per-gallon increases will bring in almost $40 million more than SB 1's smaller retail per-gallon hike and 3% wholesale tax.
  5. A household driving 20,000 miles a year and averaging 30 miles per gallon would pay around $293 in annual fuel tax under the Daugaard plan, versus around $255 under SB 1 and $147 under the current 22-cent tax.
  6. Over the next eleven years, the Daugaard fuel tax raises $907.5 million in additional revenue; the SB 1 fuel tax, $884.6 million. Translation: The Daugaard motor fuel tax takes 2.6% more money out of your pocket at the pump than Senate Bill 1.

The plan Governor Daugaard laid out yesterday raises the vehicle excise tax from 3% to 4%, just like SB 1. Daugaard raises vehicle registration fees 10%, just like SB 1. We'll see where the Daugaard plans gets its savings over SB 1 in its final draft when it hits the hopper.

But as it stands right now, over the next eleven years, Governor Daugaard's plan would hit you as hard as Senate Bill 1 when you buy, register, and gas up your car.

Related Reading:

  1. John Tsitrian calls Governor Daugaard for reneging on his 2010 no-new-taxes pledge after ignoring obvious shortfalls in road funding throughout his first term.
  2. Bob Mercer lists the new revenue Governor Daugaard would get from his various tax and fee increases in the first year of the plan.
5 comments

Governor Dennis Daugaard addressed several important topics in his State of the State Address to open the 2015 Session of the South Dakota Legislature this afternoon. He made up for a glaring omission from his December budget address by focusing the first half of his speech on roads and bridges. The Governor needed to do that to jump out in front of Senate Bill 1, a massive proposal from the Interim Highway Needs and Financing Committee. Governor Daugaard made clear that he "appreciates" the committee's efforts, but by gum, if taxes are going to get raised and roads get fixed, it's going to be done the way he says so. The Governor says he will be submitting his own bill on road repairs.

To justify the coming tax increases—and among the highlights, Governor Daugaard proposes outdoing Senate Bill 1 by raising the motor fuel tax two cents every year, starting now—the Governor emphasized that our economy and "our entire well-being" depend on good roads, and "our roads are underfunded. Governor Daugaard said nothing about how our economy and statewide well-being depend on K-12 education, and he said nothing about how our K-12 system is underfunded.

The Governor took time to promote his juvenile justice reform plan, which is apparently supported by everybody and requires little salesmanship. He took no time to mention how improvements in K-12 education would keep kids from ever falling into the juvenile justice system in the first place.

The Governor discussed his workforce development plans address the shortage of workers in certain technical fields and in health care. The Governor said nothing about the widely recognized K-12 teacher shortage.

The Governor talked up his rural agricultural development programs. He said the state has won an award for its innovative site-analysis program designed to help counties determine where they can put CAFOs and other big ag businesses. The Governor did not mention that good teacher pay is crucial to sustaining rural communities where the public schools are often the largest employers.

The Governor praised the state's investment in parks and pheasant habitat. The Governor said we need to spend money to preserve grasslands so pheasants have places to live and sustain our hunting our industry. The Governor said nothing about the need to make South Dakota  friendly habitat for teachers.

The Governor led a rousing ovation for the South Dakota National Guard, which for the first time in ten years has not one soldier deployed overseas. The Governor did not call for any such ovation for the teachers, firefighters, construction crews, ranchers, stay-at-home moms, or other groups who serve the Republic.

The Governor's only acknowledgement of K-12 education came in praising high school vo-tech classes (which Governor Daugaard's own budget austerity has cut) and dual-credit courses (which are a really good idea, helping kids get a jump on college and save money and helping South Dakota universities recruit South Dakota students).

The bad news from the State of the State Address is that Governor Daugaard does not appear to have any plans to do anything for South Dakota's public school teachers. The good news may be that he doesn't plan to do much to us, either. (Whew—maybe that means we can focus on fixing that really bad House Bill 1044, the Teacher Inquisition bill.)

43 comments

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