Barbara checks out at the Sunshine Grocery near downtown Sioux Falls. Her shopping habits have changed in the last year as inflation has added to her food bill.
“I watch the specials a lot more than I used to,” Barbara said. “I probably eat different because of the price of some of the meats, like eggs are unbelievable expensive.”
Barbara, who did not want to share her last name, said she supports cutting the state sales tax on food.
“It would certainly help the low-class people," she added.
Another shopper, Jerome, who also chose not to give his last name, supports Noem’s proposal to end the state’s food tax.
“That’s the only good idea she had, dude,” Jerome said. “With the sales tax with this food. Because it is too ridiculous, man, to be spending all this money at the grocery store.”
The state adds a 4.5 percent tax on food purchases. Officials estimate it generates roughly $100 million in revenue.
“Well, we’ve known for years it’s hard to put food on the table,” said Cathy Brechtelsbauer. She is the state coordinator for Bread For the World – South Dakota. She has worked for decades to end the state sales tax on food.
She said the food tax is an important element in the debate over what the government should tax.
“It certainly shouldn’t be something as essential to life as the food people eat. It’s the wrong thing to be taxing in the first place," Brechtelsbauer said. "The tax on food takes food off tables in homes where the budget for food is limited.”
For years, South Dakota Democrats have proposed eliminating the food tax as part of their legislative policy initiatives. The proposal had little momentum until last year. In an effort to reduce taxes, House lawmakers presented a last-minute bill to remove the tax on food. At the time, Noem said she was cautious about the plan.
But that all changed in September during the gubernatorial campaign. Noem said if she was reelected, she would repeal the state’s tax on food.
Noem said one in four South Dakotans struggles to pay for groceries.
Because the state has seen several years of increased sales tax collections, Noem said the money is here to stay. She wants to give a third of it back.
“We have $310 million in permanent revenue growth. And we still have $208 million even after we deliver this tax cut to the people," Noem said during December's budget address. "We have been exceeding estimates by about $25 million a month. The people of South Dakota overwhelmingly want this tax cut, and they know we can afford it.”
The governor reiterated the state’s positive economic position again last week during her State of the State address.
“Our revenues continue to grow. December revenues have us up another $10 million above legislative adopted estimates," Noem said. "Now is the time – let’s get it done.”
South Dakota is one of only seven states that taxes food purchases. Noem said the state can afford the move.
Lawmakers have introduced a bill to repeal the food tax, but many other lawmakers are cautious about the idea.
The tax cut push comes at a time when Noem is not ruling out a run for president. The CATO institute—a conservative tax policy thinktank—has given Noem a C grade for her fiscal policy. The group said her grade stems from a lack of tax cuts during a period when many other states have passed them.
The state has no corporate or personal income tax. Most of its revenue stems from sales tax collections.
“Our fear is you narrow that tax base, and it becomes less stable," said David Owen, president of the South Dakota Chamber of Commerce. The group has opposed cutting the food tax since voters rejected the idea in 2004.
Owen said his group’s concern is that once the tax is gone the state won’t be able to reinstitute it. Then, in the event additional state revenue is needed, lawmakers would have to change the definition of food, or find something else to tax.
“The South Dakota Chamber wants to make sure those revenues that she cites as increased are long term and permanent," Owen said. "We’re skeptical, but we’ll listen to the administration in the opening days of the session and see if we can be convinced that there’s a long term (solution).”
Owen said chamber members aren’t sure how stable the state’s economics will be despite the governor’s promise of permanent revenue growth.
At the same time, there are some potentially conflicting economic reports. While federal COVID dollars have boosted revenues, the state’s gross domestic product dropped in the third quarter of last year. That raises plenty of critical questions for many people about making any changes in the current tax system.
