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If Food Tax Is Bad for State, Isn’t It Just as Bad for Cities?

The Republican spin machine is having trouble keeping up with its prime sponsor Governor Kristi Noem’s shocking flip-flop to support the long-standing Democratic proposal to repeal the state sales tax on food. After running the Governor’s Wednesday press release on her election-season promise to stop baby food and other groceries, Pat Powers has only mustered a brief commentary on the fact that neither Noem nor her challenger in the election, Representative Jamie Smith (D-15/Sioux Falls), would prohibit municipalities from extracting their penny or two of sales tax from each local grocery dollars.

Interestingly, I had this very conversation yesterday with a State Legislator who voiced the concern that for many small towns, the sales tax on food is their main source of tax revenue. South Dakota Municipalities are likely to line up against cutting a source of revenue where everyone, property owner and renter alike have some skin in the game in funding city services. Especially in communities where they just don’t have that much. Because the alternative would be higher property taxes, or new forms of revenue [Pat Powers, “Food Taxes Probably Aren’t Going to Go Completely Away. Candidates Saying NO to Stripping Municipalities of Sales Tax on Food,” Dakota War College, 2022.09.30].

This concern about denying small towns revenue from whatever overpriced groceries people are still buying at their local grocers instead of making the hour trip to Hy-Vee or Kesslers or Safeway appears to inform the initiative Dakotans for Health is proposing for the 2024 ballot. That measure would prohibit the state from taxing food, but it would not restrict municipalities from doing so.

But the arguments Powers says he heard from some unnamed legislator—main source of revenue, everyone has skin in the game, raising other taxes—do not uniquely indict a repeal of municipal food taxes. They apply to the Democratic plan that Noem has endorsed for election points as well:

  • If the revenue shortfall at the local level makes repeal of the municipal food tax a non-starter, the revenue shortfall statewide should also give us pause. The $100 million Noem says the food tax repeal will save blows a big hole in the state budget. That’s over half of our corrections budget. That’s more than the $55 million we spend to run the courts and the $36 million we spend to run the Legislature and pay other elected officials. Can we simply do away with that money and the programs they support?
  • If we have to tax food to ensure that every local citizen has “skin in the game” supporting local services like the public library and the city park, don’t we have the same obligation to tax food to ensure every South Dakotan has “skin the game” supporting state services like our state parks and universities and Highway Patrol?
  • If we can’t talk about banning city food taxes for fear that cities would be forced to fill that budget hole by increasing other taxes, aren’t Noem and the Democrats creating the same predicament for the state? Is Noem proposing a higher sales tax rate on prepared food and non-food items? Is she proposing a new property tax? Is she coming to her senses and stabilizing South Dakota’s two-legged tax stool by adding the logical third leg, a state income tax?

Maybe quashing the idea of extending the food tax repeal to the local level is Powers’s backhanded way of signaling to his divided party (or for Noem herself?) that the Governor’s proposal to repeal food tax is just an election stunt and not a real policy that she’ll fight for come January (if she’s still on the Second Floor in Pierre). Sponsored by Noem, Powers can’t say, “Noem’s food-tax repeal is bad!” but diverting to the municipal tax issue allows him to post the exact reasons for opposing any food tax repeal without sounding like he’s arguing with his patron or undermining her new Democratic campaign position.

Supporting a repeal of the state’s food tax while leaving municipal food taxes in place is, of course, a pragmatic position, which we should expect from great pragmatist Jamie Smith. Democrats have found it tough enough to get a hearing for their food-tax repeals over the years. Putting a dent in municipal revenues would make that push even harder.

But just as the arguments against repealing municipal food tax work against repealing the state food tax, the arguments that Democrats and now Kristi-Come-Lately make for repealing the state food tax make just as much sense as arguments for repealing municipal food taxes. The food tax is an immoral tax. We are taxing the basic stuff of life: baby food, bread, milk, bottled water, apples, meat, and cheese. That “skin in the game” is a pound of flesh taken from rich and poor alike, and the poor don’t have that flesh to spare. We should not fund any government services—local, state, or federal—with an immoral tax.

Governor Noem says her promised food tax repeal is about “Saving South Dakota Families“. Representative Jamie Smith and his fellow Democrats have supported repealing this immoral tax for years. But the argument against taxing food to pay for state government applies equally against taxing food to pay for local government. Passage of the Democratic plan for the state to stop taxing groceries should prompt city governments to have the same conversation about the immorality of taxing the basic stuff of life.

Source: Dakota Free Pass