Tax reform zeal dying?
By Bill Davis, EditorNOV. 12, 2010 -- A final report expected next week from the Taxation Realignment Commission is meant to guide state government away from the fiscal roller coaster its been roaring on for the past three years. But it may turn out to be a toxic political football no legislator will pick up, much less run with.
For years, staffers and legislators in and around the Statehouse have said the state’s tax structure was “out of whack.” In 2000, 50 percent of all retail sales in the state were taxable; this year, that percentage is down to 38 percent.
Sales tax exemptions, more than five dozen in total, left a potential $2.7 billion on the table last year, according to revenue experts, in a time when massive state funding shortfalls loom large.
Five years ago, a push to address the sales tax exemptions, which left items like electricity untaxed on a retail level, started. Some 14 months ago, the TRAC Commission was formed to seriously address the issue.
Legislators and experts met, unpaid, multiple times over the time in small-issue committees. The full committee convened a whopping 17 times.
The overriding mantra throughout the process has been to expand the state’s tax base while lowering the overall tax rate. In short, if everyone contributes, each bite will be smaller. At the same time, the group wants the process to be “revenue neutral.” The only thing off the table was the legislature's Act 388, the law that shifted the burden of funding public K-12 education from taxes on primary, owner-occupied homes, to a 1-cent statewide sales tax.
The TRAC Commission’s final report is expected Monday. The unedited draft version weighed in this week at over 400 pages. Here’s a link to a TRAC summary.
Chances are, according to key players, that the legislature will likely ignore the thing, even though inaction could, according to the report, result in a significant sales tax hike in a few short years.
“I just don’t see anyone in the legislature that is going to put up this report as a bill, not in this political climate,” said House Ways and Means chair Dan Cooper (R-Piedmont), one of the main architects of the state’s yearly fiscal budget.
The Nov. 2 general election’s results, national and statewide may be writ large on the future of the TRAC report, according to Cooper. With the ascent of tea party Republicans, the public’s mood for any kind of tax realignment may be dour, he said.
Here’s why: The report, which will call for the elimination of hundreds of millions of dollars worth of the sales tax exemptions, might be perceived – many say wrongly – in some quarters as the creation of a new tax versus just the removal of an exemption.
The big trouble spots would be removing exemptions on a host of currently untaxed items, like electricity, unprepared foods (think: groceries), water, and a cap on car taxes.
That probably won’t sit well with the Tea Party clan, and other similar libertarian tribes calling for smaller government and lower taxes. Additionally, the pain of coming state tax revenues won’t begin to be felt for at least six months, well after federal stimulus dollars disappear in December.
The gamble has been, according to Statehouse insiders, whether it makes more sense to raise taxes before the pain of the whip is felt next spring, when federal matching dollars for Medicaid dry up, and thereby potentially annoy the GOP base.
Or to wait until 2012, when further reductions to state services, like expected cuts in vulnerable but expensive agencies like departments of Health and Human Services, or Disabilities and Special Needs, spur voters to demand change.
But the problem then is 2012 is an election year for the whole General Assembly, and no one likely will relish the idea of running after just broadening the sales tax base on a retail level, even though it might lower the overall rate.
So when will South Carolina address its tax structure if not in 2011 or 2012? “I just don’t know,” said Cooper, who once spent two months a couple of election cycles ago explaining to his constituency why he raised on tax that was offset by another cut elsewhere.
How about never?
State Sen. David Thomas (R-Greenville), who serves on the powerful Finance Committee, identified what he sees as two big problems with the TRAC recommendations, which have been available in draft form.
One, Thomas said, was the state doesn’t employ “zero-based budgeting,” a form of fiscal management where every expenditure is scrutinized and analyzed. Thomas’ position on this seems to shift the blame for the out-of-whackness not to the collections side but to how the state spends its money.
Thomas also said he doubted if the recommendations would remain “revenue-neutral” for man the first or second year.
In a nutshell, Thomas’ argument is this: Putting a series of pin holes in an inflated balloon is not the same as putting one big hole, equal to the aggregate of the small wholes, because those small holes tend to get bigger on their own.
The TRAC report, if adopted, could lead to incremental increases in smaller, more obscure, not as transparent taxes throughout the system, resulting in a de facto tax increase in the near future, Thomas agreed.
Members of the blue-ribbon TRAC commission are now faced with the Vietnam question: What if, after all they’ve done, all the hours they’ve sweated, the legislature merely shelves their report? Would that constitute retreat?
Not according to Robert Steelman, a vice president at Michelin North America who served as TRAC’s vice chair.
Steelman thinks by culling thousands of pages of information into an accessible format, and informing the legislature and governor what it thinks would best serve the state’s economic competitiveness via tax reform, the commission will have completed its mission.
“We were not asked to put together a politically popular solution,” said Steelman, who likened the commission’s efforts to a parent who works hard raising a child and then lets him or her go and find their own way in a big world.
“In the 30 to 35 states who already gone through this process, not one report in those states has been accepted in its totality,” said Steelman.
Even if no direct legislation is passed as a result of the commission’s report, Steelman thinks that the process of putting it together will indirectly benefit the state, even if it might feel like it pushed a rock up the side of a mountain, only to awake the next day and find the same rock at the bottom of the hill.
Crystal ball: What differentiates the TRAC Commission report from similar past efforts currently collecting dust on staffers’ shelves is that it provides a blueprint to changing the state’s tax structure, versus just a theoretical discourse. And combined with the state’s economic and political climates, that may ultimately doom the report’s recommendations because as with any tax reform, there will be “winners” and “losers.” If nothing substantive comes from the report other than the creation of an enormously useful analysis, then the state and its legislature will have a lost a real opportunity to right a listing ship. Additionally, word out of the Statehouse this week was that lobbyists, keenly aware that their respective industries could be impacted, have been told, “not to worry.” Grim.
Ramping up slowly
With the General Election behind them, legislators will have a few meetings over the next two weeks before the Thanksgiving holiday strikes.
One of the more intriguing will be the Tuesday meeting of a study committee looking into consolidating the Department of Corrections with the Department of Probation, Parole and Pardon Services at 10 a.m. in 209 Gressette. National and state prison officials will speak on what is being touted as a potential cost-savings maneuver.
Also on the agenda:
- Prefiling dates set. The House has announced two deadlines for representatives who want to submit pre-filed bills to the clerk's office. The first will be by noon on Dec. 7 and 14, both Tuesdays. Bills submitted to the House Clerk Office after noon of the latter date will be introduced and referred to committee on the first day of the legislative session, Jan. 11.
- TRAC report. The Taxation Realignment Commission's final report is due Monday (see news story above.) The report, a culmination of a five-year push and 17 meetings of legislators and volunteer experts over the better part of 14 months, is intended to help state government broaden the tax base, lower overall tax rates, remain revenue neutral and protect the budgeting process from wild fluctuations which have typified the last few years.
Haley’s shrewd move
Gov.-elect Nikki Haley announced this week that former House Speaker David Wilkins will chair her transition team.
Haley’s move should assure the legislature, at odds with her predecessor Gov. Mark Sanford during nearly his entire two terms in office, that she’s serious about leaving behind the enmity between the two branches of state government.
Wilkins, former ambassador to Canada, is a mainline party member, unlike Haley, who fought from the edge. He may also calm Statehouse nerves that she will be as intractable as Sanford. Haley has a real opportunity to set a more convivial tone for her administration before she’s in office, and she seems to be taking advantage of it.
Floyd not seeking reelection
Ohe one-time GOP nominee for state superintendent of education, Karen Floyd, announced this week that after two years as chair of the S.C. Republican Party, she would not be seeking reelection to her job.
During Floyd’s tenure, there seemed to be no office her party couldn’t win, including sweeping all the statewide offices in this year’s General Election, as well as unseating 28-year veteran Democratic Congressman John Spratt.
SC media need to rethink election coverage
By Andy Brack, Publisher
NOV. 12, 2010 - - The biggest disappointment in the whole 2010 election cycle in South Carolina wasn’t with the candidates, who could have been better, or with what they were saying, which was pretty dull.
The biggest disappointment was with our free press. In short, it failed. Sound bite journalism won in South Carolina in 2010, the most issueless and passionless election ever.
Instead of insightful coverage that provided votes with deep information about the array of candidates seeking office, South Carolina’s media covered the easy stories – the horse race of political polls or obligatory candidate profiles in October. Reporters just didn’t dig.
If reporters had done their job early and throughout the election season, Alvin Greene probably wouldn’t have become the Democratic Party’s candidate for U.S. Senate.
“That stands as an in-your-face example about what has happened with the media,” said one former top daily newspaper editor, who asked for anonymity like all of the people interviewed for this column. “Nobody looked at him as a candidate to find out who he was. Nobody did basic reporting. When he won, it was ‘Who the heck is this guy?’”
Had reporters exposed his campaign of nothingness for what it was early, South Carolina wouldn’t have suffered another installment on the late-night TV joke circuit.
"Today’s media covering government and politics is a shadow of its former self. State agencies are operating with little outside media oversight. You don’t see as many headlines about what’s happening in local schools or in small towns."
But the noncoverage of Greene was just one example. Reporters seemed to accept whatever was fed them on the campaign trail doing little, for example, to question how GOP gubernatorial candidate Nikki Haley generally avoided the state media. Twenty years ago, it would have been unthinkable for the media to have put up with a candidate who had fewer formal press conferences between the primary and general election than there are fingers on a hand.
And therein is the root of the problem: Staffing. Even though media outlets continue to make money, they keep cutting their staff.
In 1990, 61 print, radio and television reporters had credentials to cover the General Assembly. Now there are just 30 – 13 print journalists, and 17 radio and TV reporters. Only two or three TV stations now do routine Statehouse coverage. The Greenville News used to have three Columbia-based reporters; now it has one. The State newspaper used to have a half dozen – or more – reporters who darted in and out of the government beat. Now it has half as many.
“Experienced journalists are being replaced with kids straight out of college who don't cost as much to employ, and the skeletal staffs of daily newspapers are exhausted,” another former editor said. “Young journalists don't have the depth or the memory to understand why some issues matter so much -- they can't put it in perspective with their limited experience of history. And older journalists -- those who survived round after round of layoffs -- they're too tired to chase much more than the sexual allegations or the sound bites.”
Today’s media covering government and politics is a shadow of its former self. State agencies are operating with little outside media oversight. You don’t see as many headlines about what’s happening in local schools or in small towns.
“Is the malfeasance that inevitably will take place where there is lots of money being spent going to be detected as soon or at all with this diminished level of coverage?” one former Statehouse reporter wondered. “Those are important questions for our society.”
More than 60 years ago, a special commission concluded the media had a special responsibility – a social responsibility – to cover the drivers of democracy adroitly so citizens had good and enough information to make informed decisions to keep the democracy healthy. What the Hutchins Commission wrote in 1947 applies now more than ever:
“Civilized society is a working system of ideas. It lives and changes by the consumption of ideas. Therefore it must make sure that as many as possible of the ideas which its members have are available for examination.”
South Carolina’s media generally failed voters in 2010. Let’s hope they can examine their role so it doesn’t happen again.
Andy Brack is publisher of Statehouse Report. He can be reached at: email@example.com.
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Up for Haley; down for jobs, more
Haley. Gov.-elect Nikki Haley selected ultimate state parliamentarian, former state Speaker of the House and U.S. Ambassador to Canada David Wilkins, as her transition team chairman. More.
Foreclosures. Rates are down 24 percent across the state in October, compared to the month before. More.
Boeing. Bad news, the state’s tech college system has already spent its Boeing training program money. Good news, Boeing’s still coming and the state will probably kick in close to $3 million in training costs. More.
Economy. The state Board of Economic Advisors said this week that state revenues would climb more than a half-billion dollars more than first projected over the next two years; but the rise won't cover a $700 million-deficit in next year’s budget. More.
Payday heyday. TheNerve.org, an Internet publication arm of the conservative anti-tax S.C. Policy Council has raised questions about the sense of certain Senate staffers receiving raises during the Great Recession. We're not getting all hot and bothered about it. Somebody's got to mind the store and we'd rather them be highly qualified and paid well than just some kid off the street. More.
DHHS. The state’s largest health care agency and purveyors of Medicaid admitted to expected deficit of $228 million, with federal matching dollars drying up as soon as March of next year. More.
SRS. The feds have approved of a plan to layoff 1,400 workers at the Aiken-area former nuclear weapons facility, thanks in part to federal stimulus money drying up. Hopefully, those workers didn’t do anything important. More.
Lottery. State lottery officials will close two offices to cut costs. You know an economy is bad when people don’t have enough money to buy desperation lottery tickets instead of food. Or diapers. More.