Noem’s next move will reveal her level of tax-cut commitment

Will she or won’t she? After she signed the budget bill on Monday, that’s what South Dakota lawmakers have to be asking themselves right now as they wonder whether Gov. Kristi Noem will veto the state sales tax reduction they endorsed.

At the end of the legislative session, lawmakers compromised on a state sales tax reduction from 4.5% to 4.2%, estimated to cost the state $104 million in its first year. The sales tax reduction would sunset after four years.

All the talk about sales tax reductions was started by Noem when she announced, during her reelection campaign, the elimination of the state’s 4.5% sales tax on groceries. Her news release announcing the cut was a master class in electioneering. It read as if the governor had magically cut the tax earlier that morning. Shoppers who heard Noem’s announcement were probably surprised later in the day when they had to pay a tax on their groceries.

Nowhere in her announcement did the governor mention that her tax cut would have to survive the pesky legislative session. Maybe it’s a good thing she left that little detail out, since legislators defeated her grocery sales tax elimination bill in favor of a broader cut in the state sales tax.

Noem signs $7.4 billion budget despite previous threats

It was a surprise that Noem, a Republican, would embrace cutting the sales tax on groceries, an item that has traditionally been on the wish list of the Democratic Party. It seemed like a panicked move at the time, as if a GOP pollster had dropped a decimal point or put a comma in the wrong place making it suddenly look as if Democrat Jamie Smith actually had a chance of upsetting Noem.

What seemed out of character during the election remained a cornerstone of the governor’s legislative agenda. And she still has some compelling arguments on her side for cutting the tax on groceries.

While the tax cut that lawmakers endorsed would cost an estimated $104 million in state revenue, it would remain largely invisible to consumers except for larger purchases. Going from 4.5% to 4.2% means shaving 30 cents off every $100 of taxable purchases. Taking 4.5% off every grocery bill sure seems like a more definitive way to show taxpayers that government is on their side.

Noem also seems to have the public on her side. During the legislative session, she released polling that shows 75% of South Dakotans support eliminating the sales tax on groceries. According to the poll conducted by Front Porch Strategies, those in favor of a cut in the sales tax on groceries include 75% of Republicans, 76% of Democrats and more than 70% of all income brackets, every age bracket and both genders.

While this argument was not enough to sway the members of the House and Senate, it does add some fiscal questions to the outcome of the 2024 election. The Secretary of State’s website lists two potential ballot measures — an initiated measure and a constitutional amendment — aimed at eliminating the state sales tax on groceries. If South Dakotans do back cutting the state sales tax on groceries, like the polling shows, after the 2024 election lawmakers may be faced with figuring out a way to do without another $100 million in revenue, or raising taxes.

It’s obvious that at the moment South Dakota is awash in revenue. While it seems like a truly conservative governor or Legislature would be more cautious about rushing out to cut taxes, that’s not the case this year.

The sales tax cut passed unanimously in the House and on a 31-2 vote in the Senate. Both vote totals are above the two-thirds majority needed to sustain a veto. Noem can do the math as well as anyone. Her next move will show just how determined she is to cut the state sales tax on groceries.