Last updated on 2013.01.07
For years I've enjoyed pointing out that, even though South Dakotans resist a state income tax harder than they resist allowing women to exercise their constitutional right to abortion, we impose an income tax on banks and a handful of other industries. I've thought the bank franchise tax argues compellingly against the primary argument that a state income tax would kill South Dakota's ability to recruit and retain business and jobs. After all, according to Bureau of Economic Analysis numbers, banking makes up 15% of our state Gross Domestic Product, compared with 8.4% of the national GDP. Banks generated an annual average of $5.5 billion in South Dakota GDP from 2007 to 2010. (The annual average over the same period for agriculture: $3.3 billion.) Banks locate more assets in South Dakota than in any other state: $2.5 trillion. Nearly one in every five dollars in American banks is technically in South Dakota.
The state banking association sees more harm than good in trying to do away with the bank franchise tax. But I suggest the real reason the bank franchise tax does not drive banks away from South Dakota because we have structured it as a Romney-Ryan regressive reverie. Check out the tax table on page 5 of the state bank franchise tax form:
|South Dakota Bank Franchise Tax
(figures in millions of dollars)
|On bank income over...||but not over...||tax due is...||of the amount over...|
Suppose that $5.5 billion average annual income was made by one South Dakota bank. That megabank would pay $31.5 million on the first $1.2 billion. On the remaining $4.3 billion, Megabank would pay $10.9 million. That's $42.4 million total. (We were at $43.6 million in bank franchise tax one month shy of the end of the 2012 fiscal year.)
Obviously we have more than one bank in South Dakota. Our regressive bank franchise tax thus means the smaller community banks pay a higher percentage of their income to the state, while the jumbo banks that move here to take advantage of our lax usury laws pay a lower percentage.
Now suppose we made the bank franchise tax a flat rate of 6%. The recent annual average statewide bank income of $5.5 billion would have generated $334 million in tax revenue.
Not all of the bank franchise tax goes to the state; counties and schools get a cut. But consider that, at a flat rate of 6% generating $334 million, the bank franchise tax could have single-handedly covered the state's K-12 education budget in FY2012.
We have enormous wealth in South Dakota, yet we refuse to tap it for public purposes. Legislators like Rep. Jon Hansen (doing his best Christian Slater impression) brag that over the last two years, "we collected fewer tax dollars per person in South Dakota than any other state in the nation." Radical Ron Paulites like Rep. Hansen and South Dakota Republicans in general take that as a point of pride; the banks and other vulture capitalists take that as a sign that South Dakotans are chumps.