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Thursday, September 25, 2008

South Dakota: Low Taxes, Low Wages, Low Business Ranking

The South Dakota Republican Party is not getting its money's worth from its paid online propagandists. Republican Tide, the official state GOP blog, touts the fact that South Dakota has the lowest individual state tax burden in the nation (click image to enlarge):Now we don't have a state income tax, but a large part of that ranking may come from the fact that the working man doesn't have much wealth to tax in the first place. South Dakota also ranks 51st in the nation for wages1:
Break it down this way2: when a South Dakotan gets done paying Pierre, the average wages left in his pocket would be $28,373. His neighbor in Minnesota pays St. Paul and has $37,907 left.

Ah, but surely our low state taxes make us a better place to do business than those socialist republics on our borders, right? Well, according to the most recent rankings from Forbes.com:
...we're better than Wyoming, and we beat Montana, barely. Yay.

Side note: Forbes.com ranks our state regulatory climate 46th, worse than California's. So much for Governor Rounds's red carpet for business.

The South Dakota Republican Party continues to think that all they have to do to lure businesses to our state is chant "Low Taxes" over and over. But when our wages are the lowest in the nation, workers don't rush to move here. When we lack workers (see our low unemployment figures), businesses don't see opportunity for growth. Paying low taxes doesn't matter nearly as much as the opportunity to grow and make a tub of money that will help you afford whatever the taxes are (and enjoy better schools and roads to boot).
1. Sorry, 2006 wage figures were the most recent I could find, even from the U.S. Department of Labor. Readers, if you can find newer numbers, do submit them!
2. Yes, I'm mixing years. Again, I invite you to do better.


  1. You make good points. My first couple thoughts: MNs high income areas tilt the averages. Some of their rural areas look quite similar to SD (a little on the down side). And although we don't have state income tax, our real estate taxes are high. Rather than dollar for dollar, there's a somewhat subjective standard of living question. For attracting people, wages relative to local cost of living indexes would be meaningful.

  2. Gut feeling we are a good state for employment. If they would pay a living wage they would have a dedicated work force regardless of numbers.

  3. Comrade:

    Not only do we have a regressive tax system and low wages, we also have very poor infrastructure. We lack available, qualified workers to attract new businesses.

  4. Best blog yet Cori, facts, humour and truth. love it.

    Joseph G Thompson

  5. One of the main problems with long term development in south dakota is the fall harvest mentality. Most people here think of investments in terms of 6-12 months. To do anything meaningful, we need to think in terms of 6-12 YEARS. Significant payoffs will only be seen in the long term.

    Honestly, successful states put money in for a decade before they break even. Even north dakota is getting that part figured out. They have decided to invest heavily in their high tech sector by both subsidizing high tech industry and dramatically increasing support for research at their universities.

    I recently attended a south dakota conference on research and viewed a presentation on research investments by SD and our neiboring states. By comparison, for every dollar north dakota puts into research, SD only puts in $0.53. Further, north dakota has committed to further increase their state funding levels so that in 5 years, if current funding in SD remains as projected, we will only be spending $0.28 for every dollar they spend.

    I'm not saying that research is THE solution to create an economically competitive state, but it is a good example of the amount of committement that is necessary to compete in one area.

  6. Just today (Thursday), I was listening to SDPB at 11:00 a.m. The guest said that while South Dakota wages are low compared to the rest of the nation, the cost of living (including taxes) is also low. She went on to say that because of that, South Dakotans actually rank 5th in the nation when it comes to disposable income in relation to cost of living.

    One could interpret that to mean that on the whole, we are better off than 45 of the other states in the Union. She continued, saying that our unemployment rate is about half that for the rest of the country.

    The statistical battles go on and on, of course ... one can spin the numbers any old way. I suppose if I tried, I could make a case that our state ought to enact a value-added tax, a personal income tax, a corporate income tax, a gross receipts tax ... and with all of that money being taken from the pockets of the people, throngs would flock here because of the resulting economic boom. Harumph.

    People who want higher taxes and bigger government will never stop pushing for those things. And those who resist such growth of the public sector will never stop pushing back -- except for those who outsource themselves.

    As the federal government contiues to grow, and as things get tougher and tougher in the urban areas on the coasts, places like South Dakota should expect to see an influx of new workers. They may balk at the low wages at first, but they ought to be smart enough to figure out where they'll stand when all the adding and subtracting is done.

    I am biased, of course, because my situation is peculiar. My gross income will be the same wherever I choose to live, because it all comes from far-away places. The low tax structure and the low cost of living are the main reasons I came to this state. As commerce becomes more and more global and diversified, I suspect that there will be more and more people like me.

    Even Jack Billion, a noted Democrat (who ran for governor, so it is rumored), said that he wanted to attract people who can work over the Internet and by "remote control." It seems to me that we're just about as good a place for that sort of work as anywhere in the nation. One ranking a couple of years ago had us vying with Wyoming for the No. 1 favorable small-business climate in the USA. (I have conveniently forgotten the Web site, but could find it if pressed.) If that is true, there is nowhere to go for small fry like me, except down. I am in no hurry to get started in that direction.

  7. Businesses also refuse to locate here because the schools are so poor. Poor schools contribute to a poor workforce.

  8. I'll agree that some businesses might be reluctant to relocate here for various reasons, some real, some maybe not so real.

    If I were a corporate CEO (an honest one!) and was thinking about relocating, I'll bet a lot of my employees would never think of a place like South Dakota. Horrible winters, totally flat and desolate terrain, backward hick population. Of course they would be wrong.

    But the schools? Aren't they ranked among the better in the nation? Anon 5:33, what did you mean by "schools are so poor"? Poor in terms of wealth, or poor in quality of education?

    The reality of any place is almost always far different than what people in far-off places imagine. Also, living in a place is vastly different than merely visiting. For example, I'll bet a lot of readers think that the beaches in Torrance, California or Kailua-Kona, Hawaii are sunny most of the time. Ha, ha!

    I did not mean, in my previous comment, to imply that teachers don't deserve more for what they do. Our teacher pay is a disgrace, at least at the K-12 level. Surely we can improve teacher pay without breaking the state treasury or resorting to new taxes.

  9. I sure don't have the opinions our schools are low performing but thought we have quite good public schools. If larger organizations want to bring outside people, SD can be a culture shock. When City Bank first moved here, their management people were reluctant to come. We had a real harsh winter that year and for people used to NY we were so different. Our new chief of police from Maryland lasted one year or so? Businesses need to come here for much more than just the numbers.


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