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Sequestration Will Cut SD Revenues 10.3%

If Rep. Kristi Noem, Senator John Thune, and Senator Tim Johnson can't get Washington's act together, Uncle Sam will Daugaard us all over again.

Sequestration: Impact on State Revenues

If Congress and the President can't break their stalemate, the automatic federal budget cuts that Washington set as the default plan in 2011 will reduce South Dakota's state revenues by 10.3%. That's a bigger cut than any other state faces from sequestration. So yes, Pat, I'm pretty sure Governor Daugaard will mention sequestration in his budget speech today... but he won't mention that the cut we face is bigger than anyone else's in large part because South Dakota relies extraordinarily on federal handouts to prop up its public services and depress its state tax burden.

Governor Dennis Daugaard hammered public services with his 10% cuts in his first budget in 2011. With the federal fiscal cliff looming, expect the Governor to dig in his heels all the more against calls for restoring any of that funding. His budget address today will be another exercise in the rhetoric of austerity. He'll recite his mantra of persistence, frugality, and self-reliance. If sequestration happens, he may find South Dakota forced to live up to that mantra and rely on its own tax dollars for its public services.

28 Comments

  1. WayneB 2012.12.04

    Cory,

    I wonder if you wrestle with the cognitive dissonance I do... not only of the fact we're a state whose population likes to think of itself as fiscally responsible, persistent, and largely self-reliant (yet we receive a bigger share of the pie than we contribute to its making)...

    but also in the conversation about whether we deserve that pie...

    There seems to be a recurring theme to your blog posts about South Dakota receiving more than "its fair share", yet I believe you still espouse the principles of a nation which supports those less well off & needing of that support.

    Rural states are predominantly less wealthy, older, and have significant infrastructure challenges relating to transportation and water supply. It makes sense those states wouldn't be able to contribute enough to support all the programs and activities demanded of them on a federal and state basis.

    I grant we shouldn't have such a chip on our shoulder about being rugged individuals when in truth we do need and receive some help, but you come off as though - because of our attitude - we don't deserve any help at all. That's rather like telling the working single mother who's proud of herself for "doing it all on her own" that she doesn't deserve the food stamps she's entitled to (and does) receive.

    The Tax Foundation's document on expenditures per capita is pretty illuminating - most of the federal expenditures a state receives is totally out of it's control. Grants to State & Local governments (the stuff our governments can control) accounts for a little under 25% of the total expenditures per capita. Most of it is in the form of retirement & disability benefits (again, older population), Other direct payments (everything from farm subsidies to other social welfare programs).

  2. Paul Koopman 2012.12.04

    I don't think there's necessarily any cognitive dissonance in weighing a reality (a large amount of federal dollars as part of the state budget) against ideology (austerity and self-reliance). The implication is clear for a fiscal conservative in SD - if sequestration takes effect, South Dakotans are going to have to live with the ideology they (conservatives) espouse.

  3. mike 2012.12.04

    The longer Noem is associated with this disfunction the less likely she is a viable candidate for US Senate. I don't think she is viable right now and don't think she would have won reelection this year against Brendan Johnson but she actually voted for this mess. What a joke of a congresswoman. I can't believe I voted for her in 2010.

  4. caheidelberger Post author | 2012.12.04

    Wayne, I do feel a little dissonance that needs to be resolved. You explain the situation well: every state needs to pull its weight, but we as a nation must act to help those in need. Disaster relief is a core example: even a relatively wealthy state like New York or New Jersey may not be able to muster the resources necessary to respond fully to a disaster like Hurricane Sandy. Or drought relief: to the extent that South Dakota's economic strength hinges on agriculture, we may need extra help when a drought burns all of our crops.

    Let me clarify where my cognitive dissonance ends and where the prevailing culture's dissonance begins. I do not contend that South Dakota should get no aid from the federal government. I do not think government at any level should operate purely as a fee-for-service provider. In any given year, some states are going to pay in more, some are going to receive more.

    But when I drink the pure Republican philosophy that I hear during the campaign and when Republicans want to scare us about ObamaCare and Marxism, I hear a value position that would reject taking evil federal money. The GOP wants lower taxes everywhere, it wants a balanced budget, but it doesn't want to give up any the aid Uncle Sam sends us thanks to federal taxes from elsewhere and federal deficit spending. My dissonance is really just a question of striking the right balance. The GOP's dissonance, which Paul recognizes clearly, is true dissonance, two opposite and mutually untenable ideals.

  5. Stan Gibilisco 2012.12.04

    As this (non)business goes on, I grow more and more convinced that it's mostly theatrics. Saving face. Appeasing the base.

    If Obama is holding fast to his rate increase for the "rich" to give the Tea Party a taste of their own medicine, I can't blame him.

    As Bob Dylan might quip, "How does it feel?"

    Now on another tack ...

    Is it true, as I read somewhere, that the President has given himself unilateral power to raise the debt ceiling without the assent of Congress?

    How is it possible for a President to grant himself that kind of power under our Constitution?

    If he has in fact done it, doesn't that action (and its implications) put us on a slippery slope? (Read: Egypt.)

    Again if he has done it, how can we blame him, seeing as the alternative (another nerve-racking political war, and another, and another) could be even worse?

    Good God, people. Is going back to the Clinton-era top earner tax rate that big a sacrifice?

    It's rather weird, a strange feeling for me, to find myself sympathizing with Democrats more than Republicans. But here we be.

  6. G-Man 2012.12.04

    Well, I am happy to see our President stand firm in his support of the Middle Class and championing the tax cuts that will help the working people of this nation, all while, insisting that the very wealthy pay a little more. Warren Buffet is correct that it would not hurt the very rich to pay more to help sustain a stable society that they will continue to need inorder for their own business survival to be successful. We are truly all in this together: we sink or swim together :) Might I also add that the majority in this great nation of ours will hold Speaker Boehner and the Republicans responsible if we go cruisin' off the Fiscal Cliff in 2013.

  7. Linda 2012.12.04

    Stan, Obama's attempt at power grab to raise the debt ceiling by himself was part of the proposal he had Geitner submit to the GOP. It also included more spending, another stimulus package. Obama has issued many executive orders that are really not constitutional, but no one has seemed to pay any attention, so of course he thought this was a good idea to give himself power over the debt ceiling. The problem we face is not a revenue problem, it's a spending problem. But the slim majority of voters elected Obama again as they seem to like the spending, as long as it doesn't cost them anything personally. Now we and our kids will be living with the results.

  8. tonyamert 2012.12.04

    Linda-

    1. Didn't the Bush tax cuts (now continued by Obama) add debt? Wouldn't this be a revenue problem?

    2. What do you mean as a spending problem? What can we cut that will balance the budget? And more importantly, what have started spending money on since 2000 where we had a balanced budget???

  9. larry kurtz 2012.12.04

    Is you Social Security paying your property tax, Linda?

  10. tonyamert 2012.12.04

    Linda-

    Also, from what I've read, it doesn't appear that spending cuts only could theoretically balance the budget unless huge cuts to social security/medicare were to be implemented:

    http://krugman.blogs.nytimes.com/2012/12/04/three-card-budget-monte/

    But, maybe that is what you're proposing? Like cutting social security payments by 75% could theoretically balance the budget. Is that what you mean by a spending problem???

  11. Linda 2012.12.04

    How about doing as Daugaard did when faced with a fiscal shortfall - cut 10% across the board, every agency, every department, every program, everything. Of course, people will yell when their particular ox is gored, but there is huge bloat in a huge federal govt. You can't honestly say it is good to spend what we don't have, increasing our debt, borrowing more and more. If the Dems would propose honest, real, immediate spending cuts (not cuts in future spending), I would not mind paying more in taxes versus dumping this whole mess on my kids and grandkids. Also, if many of the onerous regulations were lifted it would help businesses grow and create more revenue. But if there is no attempt to curb spending, why should I want to give more of my hard-earned money to an irresponsible federal govt?

    http://www.usgovernmentrevenue.com/downchart_gr.php?year=2000_2010&view=1&expand=&units=k&fy=fy11&chart=F0-total&bar=0&stack=1&size=l&title=&state=US&color=c&local=s

    According to the above link, the Bush tax cuts actually increased revenue.

    It is interesting that during the campaign Obama criticized Romney/Ryan for any attempt to address entitlements, but now all of a sudden he has seen the light and is proposing raising the retirement age, means testing, etc for SS and Medicare.

  12. larry kurtz 2012.12.04

    Shared sacrifice or sacrifice sharing: tough choice.

  13. Douglas Wiken 2012.12.04

    "Also, if many of the onerous regulations were lifted it would help businesses grow and create more revenue. "

    Got a handy list of those "onerous regulations". Any of them include not dumping garbage in your neighbor's yard or your waste poison in the unrich's water system? Any of them regulate ineffective dangerous medicine? Any of them make your vehicle safer and more fuel efficient?

    The federal tax thing looks like it can be manipulated to show just about anything. I don't have time to play with that right now.

  14. tonyamert 2012.12.04

    Linda-

    You certainly won't be dumping this on your kids/grandkids. Social security will simply become insolvent and the program will end and with it the majority of the debt will vanish, if something doesn't change. You see, only a very small fraction of the debt is owned by an external creditor. The vast majority is just the federal government borrowing from the social security trust fund.

    No one my age or below believes that social security is going to be around for us. We've planned otherwise.

  15. Stan Gibilisco 2012.12.04

    If we actually do "fall off the fiscal cliff," I plan to (1) suck it up, (2) buy stock, and (3) re-register as a Libertarian.

  16. Les 2012.12.04

    Put yur knee pads on Stan, might not break the fall but could keep you in good standing er kneeling with our current Messiah.

    As to going back to the Clinton era tax wise, figure in what inflation has stolen from us and we are already there.

  17. caheidelberger Post author | 2012.12.04

    Linda, I continue to reject the "not a revenue problem, but a spending problem" argument. We have a revenue problem. We bought all sorts of government services over the past 40 years and did not raise the revenue to pay for them. Even if we cut all of our deficit spending, we still have to raise more revenue to pay off our obligations.

  18. caheidelberger Post author | 2012.12.04

    Linda, Linda, Linda: correlation vs. causation. Bush cut taxes. Revenues increased. That graph shows no causal link. And honest economists will tell you that we'd have had even more revenue without the tax cuts. The rebound following the Bush tax cuts appears to have been a return to the historical average percentage of GDP, not some magic boost in revenues.

  19. caheidelberger Post author | 2012.12.04

    If there's huge bloat in the federal government, is there equivalent bloat in the money the federal government hands to South Dakota? Can we take another 10% budget cut? What 10% of our state revenues is currently wasted, and on what?

  20. caheidelberger Post author | 2012.12.04

    If we do undergo the cold turkey cutting that Linda craves, we'll take an economic hit, just as we have over the last four years as Republican austerity programs have sandbagged the economic recovery.

    But suppose we do make those spending cuts and reset to a new national norm. What do we do next? If we crav e long-term economic stability, we might return to Eisenhower-style 90% top tax rates. Higher rates drive businesspeople away from get-rich-quick schemes and force them to think long-term. Using tax policy to drive more long-term thinking could lay the groundwork for a much more stable economy, which in turn would generate more stable government revenues.

  21. Stan Gibilisco 2012.12.04

    Les, food inflation has been severe lately, no doubt about it.

    As for Messiahs, I stopped worshipping Glenn Beck over a year ago.

    Knee pads? I've worn a full suit of armor for 30 years, ever since I got into the publishing racket.

    ;-)

  22. anonymous 2012.12.05

    Just yesterday Gov. Daugaard (along with your graph above it appears) said in his budget address that 10.3% of our federal money is SUBJECT to sequestration. NOT that we will lose 10.3%. Only 7 percent of that 10.3 percent, or roughly $29,000,000, is up for the chopping block. Much less than the $212,000,000 SUBJECT to cuts. These numbers came from 3rd party sources also. They were not put together by Gov. Daugaard's team.

  23. John 2012.12.05

    For YEARS I've wanted nut case republicans to get what they wish for - it may finally happen.
    Then the governor, Thune, NOem, et. al should receive EXACTLY what they've wanted for decades - cut federal government spending and clip the federal welfare queens like the South Dakota government and South Dakota economy.
    As Bob Dylan quipped, "How does it feel?"

  24. Les 2012.12.05

    To those of us who have lived conservatively it won't feel a bit different if not better.

    They all have their hand in the cookie jar John!

  25. caheidelberger Post author | 2012.12.05

    Les, I'm not clear on how living conservatively insulates anyone from the impacts of less spending on roads, schools, or other public goods and services.

  26. Les 2012.12.06

    I will still have food and shelter Corey. What more can you ask for?

  27. caheidelberger Post author | 2012.12.06

    Social contract, maybe? I'm just not big on the state of nature.

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