South Dakota's Tax Structure Offers Economic Buffer as Mid-America Faces Headwinds
- Steve Jurrens
- 2 days ago
- 2 min read
Northeast Radio SD News – South Dakota - Recent survey data from the Mid-America region indicates the economy is navigating significant financial pressures, particularly in the agricultural sector. The Rural Mainstreet Index (RMI), which tracks the farm-dependent economy across a 10-state region, fell to its lowest level since May 2020 in October 2025. This contraction is fueled by farmland prices sinking below growth-neutral levels and a multi-year decline in farm equipment sales.
Trade policies have exacerbated the regional downturn, with agricultural and livestock exports to China plummeting by 85.7% in 2025 compared to the previous year. Meanwhile, the manufacturing sector is struggling to maintain momentum. Although the overall Mid-America Business Conditions Index is slightly above growth neutral (50.5), the industry has shed jobs for the seventh straight month. Supply managers report that tariffs have increased their input costs by an average of 7.9%.
South Dakota Stands Out by Avoiding the "Silent Tax"
Amid national and regional economic challenges, South Dakota’s tax structure offers a notable competitive advantage for its residents and businesses.
An economic analysis highlights the risk of "bracket creep"—a phenomenon where inflation pushes wages up nominally, forcing workers in states with fixed income tax brackets into higher tax rates even if their real purchasing power has not increased. This effectively creates a "silent tax increase" in the 12 states that do not index their income tax rates to inflation.
For South Dakota residents, this issue is entirely avoided. As one of the nine states with no personal income tax (Net income tax: 0%), the state is protected from this inflationary tax effect. Furthermore, data from 2019-2023 underscore South Dakota’s economic strength and low tax burden:
· GDP Growth: The state recorded a strong 34.9% GDP growth during this period, matching the median growth rate of all states with no income tax.
· Overall Tax Burden: South Dakota’s total taxes as a percentage of GDP stood at 6.9%. This figure is among the lowest in the nation and is significantly better than the median of 9.9% for states that do not index their income tax rates.
The data confirms that the lack of a personal income tax contributes to South Dakota being among the states with the lowest overall tax burdens while maintaining strong economic growth.
National Outlook: Inflation Persists as Fed Prepares Rate Cut
Nationally, the economy remains in transition. The National Association for Business Economics (NABE) forecasts the personal consumption expenditure price index—the Federal Reserve’s preferred inflation measure—will be 3.0% for 2025, which remains above the Fed’s 2% target.
The NABE panel expects the Federal Reserve to cut its short-term interest rate target by another quarter of a percentage point by year-end. Specifically, the Fed is anticipated to announce a 25 basis point (1/4%) rate cut at its December 10 decision meeting, signaling a continued effort to manage growth and inflation.
