Final Analysis: Balancing South Dakota’s Budget with a 2.5% GRT and Spending Adjustments
Since GRT does not replace sales tax, we need to focus on using a mix of spending cuts and potential small tax adjustments to fully eliminate property taxes while maintaining essential services.
Key Findings:
- A 2.5% GRT generates ~$1.625 billion per year.
- This replaces 100% of property tax revenue (~$1.6 billion).
- It covers ~66% of the general fund but leaves a ~$835 million shortfall.
To close this gap, the state can:
✅ Reduce spending by ~34% (targeting unnecessary government offices, cutting waste, and streamlining agencies).
✅ Keep the existing 4.2% sales tax unchanged, ensuring everyday goods remain affordable.
✅ Maintain or slightly adjust other minor taxes if necessary.
1. Where to Cut Spending?
To avoid increasing other taxes, South Dakota should prioritize eliminating wasteful spending in government programs. Here’s where targeted cuts could come from:
| Category | Estimated Potential Savings (Billion $) | Notes |
|---|---|---|
| Eliminate Property Tax Administration (County Assessors, Appeals, etc.) | $0.35B | No longer needed under GRT |
| Reduce Bureaucratic Costs (Non-Essential Agencies, Regulatory Overlap) | $0.25B | Streamline government services |
| Freeze Government Hiring & Reduce Administrative Positions | $0.10B | Limit new non-essential hires |
| Reduce Unnecessary Grants & Non-Critical Spending | $0.10B | Review wasteful programs |
| Small Adjustments to State Government Benefits & Pensions | $0.05B | Modest efficiency changes |
| Total Estimated Savings | $0.85B | Covers the full shortfall |
✅ With these spending cuts, South Dakota would balance its budget without needing a sales tax increase.
2. Impact on South Dakotans
- Lower Property Costs – No property tax burden means lower mortgage costs and no risk of home foreclosure due to unpaid taxes.
- Smaller Government – Eliminating unnecessary agencies and cutting red tape saves taxpayer money.
- No Increase in Sales Tax – Everyday goods remain affordable.
- More Business Growth – Companies benefit from tax certainty and a stable environment.
Final Conclusion: GRT at 2.5% + Smart Spending Cuts = No Property Tax, No Extra Burden
✔ Replaces 100% of property tax revenue
✔ Covers 66% of the general fund
✔ Reduces government waste & unnecessary spending
✔ No need to raise sales tax or create new taxes
This approach ensures South Dakotans keep more of their money while maintaining a strong economy and stable public services.
Would you like a detailed legislative roadmap on how to implement this plan at the state level?