Senate Republicans are rejecting a proposal to cut the state sales tax by a half a percent.
The bill would cut the sales tax from 4.5 percent down to 4 percent. The half percent tax was added in 2016 to increase teacher pay and provide property tax relief.
Some want to cut the state sales tax because of growth in the state’s economy fueled partially by billions of federal COVID-relief dollars.
Following the 2008 financial crisis, the state received a federal infusion of cash, but hit a cliff and had to reduce state spending.
Republican Rep. Chris Karr, of Sioux Falls, says this time it’s different. He says several current federal relief and infrastructure packages will prevent a cliff.
“Billions of dollars come in from the federal government, but billions have not been spent yet. We still haven’t spent all the [Coronavirus Relief Fund] dollars. Those are spread out over several years. We still haven’t spent the [American Rescue Plan Act] dollars, which are spread out over several years. We’ve got the [infrastructure] bill dollars coming in—almost $3 billion and those will be spread out over several years. Unlike what happened during Obama, when we had billions of dollars come in one shot.”
Karr says a long-term infusion of dollars will stimulate the economy for years, which would allow the state to reduce the sales tax rate. He says inflation leads to growth in sales tax collections.
However, critics say the time is not right, and they defeated Karr's bill 8-1 on Friday in a Senate committee. They’re worried the state could have trouble funding future obligations, like prison and jail infrastructure.
Republican Sen. Lee Schoenbeck, of Watertown, voted against the proposal.
“All he’s saying is there won’t be a cliff until farther out, like when he won’t be in office,” Schoenbeck says. “I think we ought to be having a little longer view to make sure we can pay our bills. Nobody got up and said how they’re going to handle those corrections facilities that have to be built. They’re pretending that these couple hundred million dollars that have to be paid aren’t going to be paid. It’s just not fiscally responsible.”
Governor Kristi Noem also pushed against the tax cut. She says she’s concerned about the state’s ag sector getting hit hard by pending drouth, which would negatively affect the state’s sales tax collections.
