South Dakota: Letting the Voters Decide on Tax Policy

If you already knew about South Dakota's growing love affair with direct democracy, it's probably because you've heard about a pending ballot initiative (likely headed for a November 2006 vote) that would overturn the state's recently enacted abortion ban.

But there are a lot of other ideas headed for the November 2006 ballot-- including four tax proposals. At least two of these ideas are potentially harmful enough that it would be a shame if the national attention given to the abortion thing drowned out an informed debate on the tax issues.

The Argus Leader has an overview of what's out there, and identifies the following tax initiatives that may qualify for the ballot:

1) One proposal would follow in the footsteps of Iowa and repeal the state's video lottery. This is a big deal because proceeds from the video lottery are currently used for one purpose: to cut property taxes. Current status: gathering signatures.
2) The video lottery repeal would probably force South Dakota back toward a heavier reliance on property taxes-- but never fear. An initiative that's already qualified for the November ballot would (wait for it)... limit the allowable growth of local property taxes. Current status: already qualified.
3) South Dakota lawmakers, in a very rare tax hiking frenzy a couple of years ago, enacted a gross receipts tax on cell phone users. Another pending initiative would repeal this tax. Current status: gathering signatures.

Jeez- so if South Dakotans repeal the video lottery and the cell phone tax and limit the growth of property taxes, where can they turn to fund public services? You guessed it...

4) Hike the cigarette tax by $1 a pack, from 53 cents to $1.53 a pack. The revenues from the tax hike would be split evenly between three spending areas: property tax reduction, education, and health care. Very clever of the initiative's authors to identify not one but three fast-growing areas of public spending to match up with a declining revenue source. Current status: signatures submitted, awaiting approval.

There's plenty of time for South Dakotans to make up their mind about these specific proposals, if and when they qualify for the November ballot. But this will be a good time for state residents and lawmakers to think about the uses--and the limitations-- of direct democracy as a policy tool. It's not too hard to see a public vote on hot-button social issues as being a decent use for the initiative. You gotta respect the public's right to stake out a position on issues like abortion and gay marriage, even if you don't like the outcome.

But you can make a strong case that tax policy is, in general, simply too complicated and arcane a thing to be decided by voters. Every year there's litigation in a number of states over how to concisely, accurately and impartially describe the goals of tax-related ballot initiatives-- and there's good reason for this confusion. In almost every case, even if the proposal's direct effects are simple (repealing a tax, for example), the indirect effects are anything but. Advocates and opponents of proposed ballot initiatives fight endlessly over how to boil down a complicated proposal into few enough words to fit on a voter's punch card. Inevitably, important details are lost-- or are never even brought up.

And this seems true of this year's crop in South Dakota. Repealing taxes is a simple thing ( video lottery, cell phone tax). But if any of these repeals go through, the state would have to come up with an alternative revenue source at some point quite soon-- and voters don't have to make that tough choice this fall. All they have to do is decide whether they'd like a couple of taxes to just go away.

The property tax cap proposal has the same troubling indirect implications, but (unlike the others) isn't even simple on its face. Look to the shambling mess that is California's post-Proposition 13 tax system, or Florida's growing property tax mess, to see how disastrous and unpredictable property tax caps can be. It's simply irresponsible to ask voters to figure all this out on their own.

The cigarette tax is a simple idea-- we should make smokers pay for the costs they're imposing on society. But there are still complicated issues about where the money should go and whether the money coming in will be sufficient to fund the services it's supposed to fund. These are technical details that are simply too arcane for most voters to care about.

There's a reason why we pay state, federal and local lawmakers-- to make informed decisions about issues we don't have the time or the expertise to learn about. When lawmakers hand off the technically hard decisions onto voters, a constituent can reasonably ask "what are we paying these guys for?"