HB 1005: Income Tax for Farmers

...so what about the rest of us?

HB 1005 is the South Dakota income tax bill I've been waiting for. The two things I don't like about it:

1. Getting rid of the 150% rule is nuts: again, why should my taxes be affected by my neighbor's ability to get an exorbitant price for his land?
2. It only applies to ag land and not everybody's property, ag, commercial, and residential.
   

Otherwise, HB 1005 rocks. It follows the intent of my old argument in favor of replacing property tax (and any other tax we can offset) with income tax. Instead of making farmers pay taxes based on how much someone else might pay to buy the land to build a strip of McMansions or an ethanol plant or who knows what else, HB 1005 bases taxes on the productive value of the land -- in other words, on the income a farmer can make on that land.

Now the bill's authors, including primary sponsor Rep. Larry Rhoden (R-29/Union Center), go through all sorts of contortions to keep this from being a straight income tax. The productivity tax would employ a raft of experts from South Dakota State University and, if necessary, the South Dakota Agricultural Statistics Service to create a database of productivity values for all the ag land in the state. The SDSU economics department would then make recommendations each year what factors to use in calculating the productive value of the land. The productivity tax would replace the conventional assessment in 2010 (for taxes payable in 2011) and be based on the data from 2001 through 2008, with two years, the years of maximum and minimum income, thrown out. The database would then be updated each year and calculations based on the eight most recent years for which data is available.

Now this formula sounds like spreadsheet heaven to me. But with all due respect to the experts at SDSU and the legal wizzes writing this bill, wouldn't it be easier (and cheaper) to just say, "How much did you make? O.K., send us 7%."

But either way, as I've argued before, this productivity formula should be the basis for everyone's taxes. If we want to be all complicated about it, fine. Car dealers: let's have the SDSU economists add up the revenue-generating capacity of all the new and used car lots in the state, factor out the outlying data points, and tax them based on how much money they could be making selling and serving cars. Homes: figure out how much folks could make raising vegetables in their garden, telecommuting, babysitting, whatever prodcutive uses their homes could be put to, and tax them accordingly. Fancy second homes on the lake: calculate how much income could be generated from renting such places out to tourists (there's a revenue booster!)

Or, let's just keep it simple. Tax our actual income.

Property tax made sense in the old days -- the really old days, when property tax was really just the most convenient form of income tax. Almost everyone's wealth came directly from the amount of land they held and the crops or livestock they raised or other goods they produced on that land. But now most people don't create anything of tangible economic value on their own property; their land is just where they eat and sleep and have fun with their kids before heading to the plant or the office. And our taxpaying ability -- our wealth -- is much more clearly, objectively defined by a single number on a tax return or bank statement than it is by one county assessor's arbitrary guess as to how much our houses might sell for.

HB 1005 is a step toward recognizing this reality. HB 1005 is an income tax. It's not a direct income tax; it's still piled with statistical wizardry that will require several eggheads to compile and explain. But HB 1005 returns us to the principle that property tax was based on in the first place, that we should pay taxes based on what we produce.