Tax solutions should reflect our values

The final days of the 2026 South Dakota Legislative Session are winding down with mixed reviews.

The lawmakers have faced a busy agenda with a record number of bills being introduced and each bill requiring a hearing under the rules.

Once again property tax reform, particularly with respect to taxes paid on owner occupied homes, was identified as a priority issue and once again the legislature adopted an incremental approach to problem solving.

Last year the legislature approved Governor Rhoden’s 3% annual cap on countywide property tax increases. This year the lawmakers have approved Governor Rhoden’s proposed option for county government to adopt a 0.5% sales tax to fund a decrease in owner occupied home property taxes.

Another proposal finding its way through the lawmaking process would allow cities to adopt an additional 1% sales tax to fund special projects with the stipulation that the tax be removed when the project cost is paid.

This would be in addition to the maximum 3% sales tax that municipalities can already impose.

The state sales tax is set to return to 4.5% from the temporary 4.2 % in 2027. Depending on the local jurisdiction, consumers in some communities could be paying a 9% sales tax in 2027 on one of the broadest goods and services sales tax schedules in the nation.

Proponents of Governor Rhoden’s plan note that it allows for local control of the property tax issue, and it recognizes that the issue of an ever-increasing property tax burden on owner occupied homes is not spread uniformly across the state.

Proponents also argue that rapidly growing countries like Pennington and Minnehaha, which face increased growth expenses but enjoy large tourist spending, can hope to fund their increased costs by taxing tourists with an additional 0.5% sales tax rather than further taxing homeowners.

Critics of Governor Rhoden’s plan including myself contend that South Dakota has once again resorted to an increase in the state and local sales tax to resolve a tax or revenue issue while knowing that South Dakota already has the sixth most regressive state and local tax systems among our 50 states. Regressive means lower income taxpayers pay a greater share of their income in taxes than middle and higher-income earners.

According to the latest Institute on Taxation and Economic Policy report our lowest 20% of income earners pay 11.4% of their income in local and state taxes while the middle 60% pay 7.8% of their income in local and state taxes and the top 1% of our income earners pay 2.6% of their income in local and state taxes. This inequality in taxation is due to our heavy reliance on sales and excise taxes and the absence of a state income tax. Action by the 2026 South Dakota Legislature is going to make our tax system even more regressive.

A cure for the regressive nature of our local and state tax system could be found in the adoption of a state individual and corporate tax coupled with a reduction in existing taxes.

There is nothing new about this observation. In the past five decades, there have been several unsuccessful attempts to increase the rate of our current 0% income tax rate, but a state constitutional requirement of two thirds votes of both legislative chambers to add a new tax or increase an existing tax makes change very challenging. In addition, ballot measures to impose individual and/or corporate income taxes have been defeated by well-funded opposition.

Our tax system is more than a system to generate revenue to fund governmental goods and services. Our tax system reflects our values just as much as our spending policies do. If we value education, we agree to spend public funds to support education.

If we value fairness or equality in taxation, we will abandon our very regressive tax system and adopt a progressive tax system that reduces the burden on lower income citizens and increases the burden on higher income earners.

Of course, change will not come if the wealthy, who benefit from our current regressive state and local tax system, are able to use their wealth to assert disproportionate influence over our legislative and initiative processes.