Some Considerations for a South Dakota State Income Tax

Taxpayers in South Dakota can soon be expected to have to face ways more revenue can be most adequately and equitably raised to give them the services they will probably want or need. The need for additional revenue seems eminent because of the anticipated increases in (1) educational expenditures, (2) expenditures for highways, and (3) expenditures for public welfare. This additional revenue will be required, assuming that the quality of the services is not impaired and assuming that no substantial savings will occur in efficiencies in meeting, such needs. The threat of further inflation also suggests additional costs. The additional revenue that will be required for education, for example, is almost a certainty when one considers a single factor-the youth who will be in the age group to be educated. Many of those who will be attending school in the next 10 to 12 years are already born, so such estimates, at least for secondary and higher education, have a high degree of accuracy. It is conservatively estimated that enrollment in colleges and universities in South Dakota will approximately double for the period 1957 to 1970.2 The Bureau of Census estimates that population from 5 to 19 years of age (primary and secondary school age) on the national level will increase by almost 40% for the same period.1 The population for a similar age group in South Dakota will probably follow a comparable pattern, in which case greater revenue requirements can be expected. Where should additional revenue be obtained to provide the type of services which will be required? One possibility is to have a state income tax. Some 31 states and 420 or more cities and other local governments now have some form of individual income tax. The six states that put this tax to the greatest use derive from 27 to 42% of their revenue from it. This circular presents some advantages and disadvantages of the individual income tax. It also indicates what such a tax might be expected to yield under different alternatives of operation. Statistics are included to give an indication of the cost of administering an income tax. It must be pointed out that a circular of this size cannot include a detailed analysis of all aspects of the income tax. For that reason an effort was made to select those aspects which seemed to be most important in terms of the economy of South Dakota and in terms of the total tax system in the state