Business Incentives and Disincentives in Madison, South Dakota

Madison, South Dakota is like any mid-sized city in the state where they are desperately trying to attract business to the community to keep it vibrant and growing. I had interviewed for a position in the community a while back during "the great job hunt" and found the community pretty darn nice. I could easily see myself sitting on a porch by the lake sipping a drink during the summer evenings. Alas, it wasn't to be. Anyway, getting back to point of all of this..

In the Madison newspaper from February 7th, there is an article in noting the city commission has passed an ordinance for an "incentive fund" to offer cash incentives to businesses that move into the community. And this is in addition to any low-interest loans the city or other entity would provide. Five or more jobs? That could bring the business up to $1500 per job if the position meets salary and other requirements.

Clearly, this is a community that wants businesses to come to town. And they want them badly.

But this also begs a look at the flip side. With a city government so progressive, what are the negative forces that might be keeping business away? I'd make the argument that some of Madison's representation in the legislature isn't doing the town any good. Specifically, I'm referring to Representative Gerald Lange.

Year, after year, Representative Lange has been pushing to impose a corporate income tax on businesses in South Dakota. He's in the papers and in the media talking about how we need a corporate income tax to fund this or that. Despite the fact that South Dakota has managed to do without it for years. And whenever it's been put to a vote IT HAS GONE DOWN.

Where do I begin?

This session, Representative Lange is the prime sponsor for HJR 1004, Proposing and submitting to the electors at the next general election a new section to Article XI of the Constitution of the State of South Dakota, relating to the imposition of a corporate income tax and dedication of the revenue therefrom. This measure went down 10-3.

Just by itself, you wouldn't think that it puts a bit of a damper on how the business climate of the community is viewed by prospective businesses. The problem gets to be that there's a little more history of pushing for a corporate income tax than that.

You might recall that just recently, Senator Lange made the news (as reported in the RCJ) because he was trying to get a corporate income tax measure on the ballot through a change in the constitution, and he struck out badly when he couldn't get enough signatures.

Unfortunately, that's just the tip of the iceburg...

In 2005, he was the prime sponsor for corporate income tax meaure HJR 1002 which went down like a goose during hunting season (and about as palatable) in a 10-3 vote when it was heard in committee.

He skipped 2004, but in 2003, he primed the corporate income tax meaure HJR 1002, which went down 9-3. In 2002 he took a year off from being the prime sponsor, and was merely co-sponsor of a corporate income tax meaure, HJR 1006 which died 14-1

2001 had Representative Lange once again acting as prime sponsor for a corporate income tax measure, HJR 1005, which died in committee 11-2.

Are you starting to sense a pattern here? Unfortunately it keeps going.

The year 2000 had Representative Lange in the Senate at that point in history, where he was the sole Senate Sponsor for HJR 1002, Proposing and submitting to the electors at the next general election a new section to Article XI of the Constitution of the State of South Dakota, relating to the imposition of a corporate income tax.

And 1999 had him doing the same thing, co-sponsoring corporate income tax meaure HJR 1004 as it's sole advocate in the Senate.

In 1998, he co-sponsored a similar House taxation measure. Except this one didn't just tax corporate income, HJR 1007 also taxed personal income. This sweeping measure that went down 8-5 in committee.

1997 was way back when they didn't have to amend the constitution to put a corporate income tax in place. And with House Bill 1201, Senator Lange was only one of two Senators who was there sponsoring this measure to institute a personal and corporate income tax.

Lange was in the Senate from 1991 to 2000, but the on-line information only goes back to 1997 so I'll quit there. But my point is, for over ten years Representative Lange has been the prime sponsor or co-sponsor of at least ten measures to tax corporate income. 10 corporate income tax meaures in ten years. That's got to be a record or something.

And the dark side to all of this is that he represents a community like Madison, which is so desperate and motivated to attract business to town. Those corporations that want to come to the community and to bring jobs and development have to see that the district's longest serving legislator wants to tax the crap out of them.

And you have to wonder, How many businesses see that and are balking over coming to the area? How many existing non-corporate businesses in Madison want to expand, but put the brakes on because they don't want the corporate income tax that their elected Representative is constantly promoting?

How many people in the community are left wondering if their legislator is pouring sand in the economic engine they are trying to create?

I don't know.

But a new election year brings new hope that Republican candidates will emerge who will agressively campaign for community development and not community taxation. And if they can elect that person, it will be interesting to see where the community of Madison is a decade from now.

I'm looking forward to the possibilities.


Douglas said…
Yup, that lack of an income tax is causing manufacturing facilities to flock to SD in droves.

We have hardcore pro-business legislators here and I guess I missed all the local development that has generated. They have made use of a lot of federal grants for some good projects and also some real boondoggles however.

Good luck to Madison even if they end up with singularly ineffective Republican legislators in the future.
Anonymous said…
I would echo what Doug says.

I'm not going to fool myself and pretent that an income tax is the solution to all our problems.

But there can be no doubt that South Dakota needs some form of comprehensive tax reform. Financing state government with a sales tax, a property tax, and video lottery isn't going to sustain itself in an efficient manner forever. It's also regressive in the respect that it punishes people for spending (ie. putting money back into the economy).

And the idea that our lack of an income tax has created an economic paradise on South Dakota is probably one of the biggest myths around. The income tax isn't the bogeyman that a lot of people want to make it out to be. Think about it. Would you rather pay federal income tax based on what you make or would you rather pay a flat 15% everytime you purchase something regardless of your income -- essentially paying the same tax as Bill Gates and Donald Trump? That's the philosophy that we're running state government on.
Anonymous said…
Manufacturing is not the Holy Grail for economic development. Perhaps it was 20 years ago, but that is no longer the case.

No matter how hard you whip that dead horse, the realities of transportation, lack of a blue-collar work force, and remote location will stymie that growth.

SD has barely begun to scratch the surface of what we DO have. One need only look to ND to see examples of sustainable economic growth ideas.

Chad, we already pay a federal income tax. My sales tax averages around 6%, not the 15% you mention.

Corporations pay a federal tax rate beginning at 15% and scaling up to 35%. Federal personal income tax begins at 10% and scales up to 35% as well.

Sales tax will NOT go away. That's what funds municipalities and county government in addition to property taxes.

So, if you have someone who makes $60,000 per year as an employee, they will pay 25% fed income tax, 6% sales tax and whatever your proposing for a personal income tax? Or their salaries could be held in check while owners recoup their lost tax money.

No matter how you slice it, the average worker foots the bill. I'm opposed to adding new taxes as I'd rather deal with the devil I know than the one I don't.
Anonymous said…

Could you please let your left-leaning posters know that they should spend 15 seconds checking their facts before posting.

We can talk about how ND has a better ecodevo philosophy and an income tax, but here are the FACTS from the US Census website:

* Pop growth from 1990-2000
SD is 8.5%
ND is 0.5%

* Median income is $1,000 higher in SD

* Manufactuing shipments
SD is $12 billion annually
ND is $5 billion annually

Yeah, let's copy what ND is doing. It is also worth noting that SD is always at or toward the top of the economic growth numbers for our region. Maybe we do have a competitive advantage?
Anonymous said…
Not to disagree with anything in the posts, but, the manufacturing stats are way out of date with the (sigh) near death of Gateway. I think they accounted for something like $5b of the total. Morrell's is around $2b as well.

We did have a great run in the early 90's, though. Hopefully the Rounds 2010 iniative will compare someday to what Mickelson did a decade earlier.
Anonymous said…
I think the point that Doug and myself were making (and I can only speak for myself) is that an income tax or lack thereof isn't an indicator of the potential for economic development. If that was the case, the 45 states or so that have an income tax would have a much lower rate of economic growth.

Arguing that an income tax would stymie economic growth just isn't being truthful. Arguing that lack of an income tax spurs economic growth is just as false.

The effect on economic development isn't where the debate belongs, in my humble opinion. It should be about a fair tax system that can adequately fund government services that the populations wants. South Dakota's current system is patently unfair to those on the lowest end of the income spectrum. This part of the population may not generate the largest share of the state's revenues, but they certainly pay a larger share (as a percentage) of their income than those who earn more. That creates an unfair hardship. To me it seems not only economically regressive, but morally wrong.
Anonymous said…
Well, anonymous found the U.S. Census website and he's got statistics. He puts two statistics together finds a correlation and makes all the rest of you look pretty dumb. I want to look smart, so I went to the census website, and I found a couple of interesting things there too.

First, I learned that North Dakota isn't the only state bordering South Dakota. Apparently, there is a place to our south known as "Nebraska." It has a corporate income tax too, but, get this, it's actually higher. North Dakota's corporate tax rate ranges from 2.6% - 7.0%. Nebraska's corporate tax rate ranges from 5.58% - 7.81%.

Annonymous tells us there's a correlation between a corporate income tax and these three factors -- population growth, median income and manufacturing shipments.

Let's compare.

In terms of population growth, South Dakota grew by 58,840 people from 1990 to 2000. Nebraska grew by 132,878 during the same time period. OUCH!

The median income is $4,105 higher in Nebraska -- four times greater than the difference between North and South Dakota. OUCH!

And, in terms of manufacturing shipments, South Dakota sends out $12 billion annually. That anti-manufactuirng commune to our south has the audacity to ship $28 billion each year. HOLY OUCH!

But maybe we shouldn't focus on manufacturing, maybe we should look at who is attracting the big companies with big profits. Companies, and individual investors, that make tens of billions of dollars have an even bigger incentive to move to states without an income tax. So it makes you wonder why Warren Buffett, the second richest person in the world and CEO of Omaha based Berkshire Hathaway (14th on the Fortune 500 list - Microsoft was 47th) hasn't moved up to Madison. Numbers 84 (ConAgra) and 153 (Union Pacific) and 396 (Mutual of Omaha) and 485 (Peter Kiewet and Sons) are in that anti-capitalist hippie settlement. No South Dakota companies made the list, again.

So why hasn't Warren moved Berkshire Hathaway north? Besides Gerry Lange's presence, why wouldn't he set up across from DSU?. Thank God he didn't have his heart set on Scotland. God knows what Frank Kloucek would have done to him.

My point here isn't say that we should do what Nebraska does or doesn't do, it's to point out that putting two statistics side-by-side, assuming a correlation and calling it an argument is intellectually, well, weak. That applies to comparing manufacturing shipments between two agriculture states as much as it does a community's lack of manufacturing jobs and a state legislator's sponsoring of certain pieces of legislation.
Douglas said…
Wish I really knew what would stimulate good clean economic development in South Dakota. I am not sure, but there seems to be some evidence that lack of a corporate income tax is not necessarily part of the solution. High reliance on property taxes just means farmers and ranchers keep picking up more and more of the costs of running schools without regard to our income. Even that doesn't seem to cause corporations to flock here.

Banning abortions and supporting "intelligent design" teaching also doesn't seem to be causing productive business to flock here.

Years ago, I knew a family of about a half dozen kids. Their father was a relatively prominent productive resident of SD. As far as I could tell as a teacher all the children were intelligent hard workers. When I read his obituary, I noticed that none of the children still lived in South Dakota. I suspect that pattern is not an isolated example.

That is part of the problem. Even the children from this state aren't convinced that the tax structure here is going to make this a place they want to spend their lives or can even afford to live in.

Allowing banks to engage in a form of legalized robbery has made a few people rich and given a large number of people some jobs monitored continuously by computer and paid very little in comparison to the frustration. The same banks don't seem excited about investing in SD.

But, I am not at all sure what will help and as they say to me, "if you're so smart, why aren't you rich." I guess the same might be rephrased, "If SD Republicans who control everything are so smart, why aren't we all rich?"

Oh, and remember. Bush's oil war in Iraq means you and every member of your family already owe $1500 for that fiasco. I doubt that helps us a whole lot either.

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