Mortenson: The Big Problem with the Rhoden Tax Plan
In each policy proposal, we must look beyond the talking points and to the real impact on South Dakotans. Nowhere is that more important than in the property tax debate that has been getting louder in the past several years. I have lent support for proposals that provide statewide property tax relief without defunding schools, roads, and law enforcement. While I have been a supporter of property tax changes, I am more interested in getting our policy right than “getting something done,” just because it is an election year.
I applaud Governor Rhoden for presenting a property tax plan that does not require schools, counties, or cities to cut their budgets. I believe there are areas of government where cuts can and should be made, but those spending cuts should be specifically identified and considered. Any plan that vaguely promises or forces cuts to pay for property tax reduction is not a plan at all – it is just political posturing. Governor Rhoden has made clear that his plan is paid for by a new tax, rather than spending cuts, and the math checks out.
The Rhoden Plan would allow the establishment of a county-by-county sales tax of up to 0.5%, which would then be used to reduce homeowner property taxes. Because it is permissive, the plan would result in different sales tax rates county-by-county, depending on whether and how much each county chooses to increase its sales tax rate. If all counties adopt the plan, it would reduce homeowner property taxes by about 20%, spread unevenly across the state.
The big problem with the Rhoden tax plan is where the real estate tax benefit falls, and who pays to provide that benefit. The Rhoden Tax Plan focuses property tax relief on the biggest houses in the biggest towns. It is hard to imagine a property tax plan that would be a more direct shift of dollars from rural South Dakota to the bigger towns, and from lower-income South Dakotans to high-net worth property owners.
The shift from rural-to-urban comes from the fact that the Rhoden Plan keeps all sales tax where it is collected. So, if you live in Lincoln County and buy your groceries, appliances, or vehicles in Minnehaha County, the sales tax you are paying would be used to cut the property taxes of property owners in Minnehaha County and the Lincoln County resident would receive none of the benefit. For folks who live outside of shopping hubs like Aberdeen, Yankton, Brookings, Pierre, Watertown, and Huron (or folks from those towns who visit Sioux Falls or Rapid City) that same trend would follow. Thus, the Rhoden Plan creates a big transfer of dollars from areas without much economic activity to places that are doing much better, economically.
Just as prominently, the Rhoden Plan allocates the bulk of the property tax benefit to the biggest houses in town. The plan calls for the property tax cut to be proportional to assessed value. So, someone owning a $5 Million house will receive twenty times the benefit of someone living in a $250,000 house. Most of the concerns raised by citizens about property taxes have focused on the middle-class, senior citizen homeowners on a fixed income. The Rhoden Plan doesn’t prioritize middle-class South Dakotans, who might only receive a cut of $200 or $300, but instead allocates the vast majority of the property tax relief to the biggest houses in town. Of course, people who do not own their home would receive no property tax benefit, but would be subjected to the additional sales tax rate. This shift persists across a number of proposals, including some I have been open to.
I do not know if Governor Rhoden intended to focus property tax relief on the biggest houses in the biggest towns, or if that was an unintended consequence. But, the facts are, that the Rhoden Plan results in massive winners and losers: the most valuable properties in bigger, richer towns would syphon dollars from renters and middle-class homeowners, as well as everyone in more-rural communities. Again, I applaud any effort to make a responsible, specific proposal on property taxes. That said, the massive shift of dollars that Rhoden’s Plan contains is a huge problem, and one that South Dakotans need to avoid.
Rep. Will Mortenson (R-Fort Pierre)
