Commentary

Reducing one tax by increasing another is not real reform

By Dana Hess

South Dakota Searchlight

Posted 1/17/25

I think I just made up a saying. It could be an axiom or a bromide. Maybe it’s a platitude. At any rate, it sounds true. (Maybe it’s a truism.) Here it is: The only fair tax is one that …

This item is available in full to subscribers.

Please log in to continue

Log in
Commentary

Reducing one tax by increasing another is not real reform

Metro photo
Posted

I think I just made up a saying. It could be an axiom or a bromide. Maybe it’s a platitude. At any rate, it sounds true. (Maybe it’s a truism.) Here it is: The only fair tax is one that someone else pays.

Those are words to live by. It also seems to be the cornerstone logic behind Rep. Tony Venhuizen’s bill to lower property taxes for homeowners. The Sioux Falls Republican explained his bill for lowering property taxes on owner-occupied dwellings in an opinion piece in The Dakota Scout.

Venhuizen wants to lower property taxes for homeowners by 35%. Should his bill become law, a $300,000 house would see a tax savings of more than $1,200.

While the state doesn’t get a share of property tax funds, any attempt to cut them runs the risk of throwing school district, county and city budgets into disarray.

Venhuizen’s plan would set the levy for owner-occupied homes at $0 for general and special education. He estimates those two levies account for $4.167 per $1,000 of property value. That missing revenue would then be supplied to schools with funding from the state government.

According to Venhuizen, the state would get that extra revenue, and more, by raising the state sales tax from 4.2% to 5%. This is the same sales tax, you’ll recall, that was lowered to 4.2% from 4.5% in 2023 with a sunset in 2027. Gov. Kristi Noem admonished lawmakers during her December budget address to “make a permanent tax cut” because “our people deserve better than a temporary tax holiday.”

There’s a certain man bites dog quality about a Republican offering up any sort of tax increase. In South Dakota, most Republican politicians would rather lose a limb than risk offering any sort of tax increase. But, with that special magic that only politicians can access, Venhuizen claims that jumping the state sales tax to 5% is not really a tax increase.

His logic says that tourists pay sales taxes, so they’ll unwittingly contribute to property tax relief while homeowners see their property tax bills go down. “That makes this plan an overall tax cut for South Dakotans,” Venhuizen said.

Of course, for anyone who owns commercial property or agricultural land, the sales tax increase will be, well … an increase. No matter how many meals, hotel rooms or tanks of gas tourists buy, apartment owners, farmers and ranchers will still pay more at the cash register to knock down someone else’s property tax bill.

Those who recall the sales tax debate in 2023 will remember that cutting the sales tax from 4.5% to 4.2% was hailed as a savings for taxpayers. According to Venhuizen, jumping the state sales tax from 4.2% to 5% won’t hurt that much. He estimates the pain as 3 cents on a $4 loaf of bread or $3 on a $300 grocery bill. (Venhuizen and his legislative colleagues could do us all a favor by figuring out why a loaf of bread costs $4.)

In a city setting like District 13 in Sioux Falls that Venhuizen represents, there’s no doubt he has heard from constituents about the ever-rising cost of property taxes. To his credit, he has responded to those concerns with a plan, jerry-rigged though it may be, to cut the property taxes on their homes.

Tackling just one of the property tax problems won’t lead to tax reform so much as it will lead to tax warfare. On one side will be homeowners looking for relief. On the other side will be those property owners left out of Venhuizen’s plan as well as school districts who won’t be pleased at the prospect of the Legislature mucking about, once again, in the education funding formula.

To be successful, tax reform must include a wide-ranging study to consider every kind of property tax as well as an examination of the sales tax system and its long list of exemptions. As good as it may sound, we can’t rely on someone else to pay our taxes for us. Achieving a system that has even a semblance of fairness will take more effort than just one bill that tries to reform only one kind of property tax.