A Tale of Two Dakotas

I always find it interesting to research the origins and histories of various states, in order to gain some insight into how they became the states we know today. The Dakota Territory, for example, was cut out of the land that was part of the Louisiana Purchase in 1803. Originally the territory of Dakota included much of what is now Montana and Wyoming. By 1868, with the creation of the two states’ own separate territories, Dakota was reduced to its present-day boundaries.

For a number of reasons, including rail line disputes, political representation in Washington, and logistical problems within the large territory, it was decided that it would be more feasible to simply split the area in half. On November 2, 1889, President Benjamin Harrison signed a law allowing the newly formed North and South Dakotas to apply for statehood separately. Because of a shuffling of the paperwork, the president couldn’t remember which set of forms he signed first, so the official order of admission into the United States as the 39th and 40th states could possibly have been decided by a coin toss.

Since then, from an economic standpoint, North and South Dakota have gone down two distinctly different paths. With the 1951 discovery of the Bakken rock formation, coupled with improvements in technologies over the years, North Dakota has accrued tremendous wealth through its booming oil industry. South Dakota, on the other hand, with minimal oil production potential, is increasing its own wealth by encouraging the migration of American businesses and incomes. South Dakota does this by enticing wealth from high-tax-burden states into its very favorable low-tax environment. Between the years of 1995 and 2010, the state gained $528 million in net adjusted gross income (AGI).

South Dakota is one of only nine states that has no personal income tax. It also has no corporate income tax, and levies only a 4% sales tax. The state ranks second in the country, led only by Alaska, in having the lowest state-local tax burdens.  By comparison, North Dakota has an individual income tax rate of 3.99%, a corporate tax rate of 5.15%, and a 5% sales tax. As you might expect, in a 2012 “State Business Tax Climate Index” survey, conducted by TaxFoundation.org, South Dakota ranked second in the country, overall, in business favorability. North Dakota ranked a distant 29th!

Only in the area of unemployment does South Dakota trail its sister state to the north. According to the Bureau of Labor Statistics, using March 2013 data, North Dakota still has the lowest unemployment in the country at 3.3%. But even without the significant job-producing oil industry, South Dakota ranks a very respectable fourth spot at 4.3%.

The State of South Dakota often finds itself standing in the shadows of its more newsworthy sibling. After all, North Dakota has become the state that the media points to when touting the economic benefits of energy production. But the state of South Dakota also stands in another shadow, a far more noble one. From their perch high atop the Black Hill mountains, four of the most famous and forward-thinking presidents keep watch over the state. With their inspiration coming directly from Mount Rushmore, residents of the State of South Dakota can always be assured of a promising future.