S.C. Statehouse Report
Sunday, June 19, 2005
VIEW: http://www.statehousereport.com/columns/05.0619.taxmodern.htm

COMMENTARY
Tax modernization should be on front burner
By Andy Brack
SC Statehouse Report

JUNE 19, 2005 - - Almost as constant as the rising sun every morning, people complain about paying taxes.

It's easy to do. But without taxes, we wouldn't be able to live in a civilized society. As much as people hate taxes, they provide the foundation that civilizes America. By paying taxes, we provide funds for government to provide needed services, such as military protection, garbage pickup, road construction, schools and more. By having taxes fund services, we share the burden to get a better quality of life.

Imagine, for example, if you had to pay a toll for every road that was built. It would drive you more nuts than the few cents extra you pay at the pump for roads.

Beyond the constant political rhetoric about taxes, it's time for the state to take a long look at modernizing our tax system. Over the summer, lawmakers are planning big pow-wows on the property tax. But instead of a small fix here or a minor tweak there, lawmakers need to look at equity and fairness to make sure the whole structure is as balanced as possible.

As Columbia economist Harry Miley relates, if you try to tweak one tax, it likely will have unforeseen consequences on the other taxes. It's kind of like poking a finger in balloon, he says. The more you poke it, the more it will expand in another direction. If you poke it too much, it will burst.

"There's no tax that's perfect," Miley says. "The only reason we have taxes is we have no other way to provide the public services we all demand. That's why most economists say if you start tinkering with one tax, you've got to look at all of them."

Currently, our tax structure is antiquated. It's built on three major foundations - - taxes on the sale of goods, taxes on income and taxes on property. A growing fourth foundation is the use of fees for services provided.

Taxing property has been the most enduring way for government to generate revenues. As states provided more services, they looked to broaden taxation. Income tax didn't really get started in earnest across the country until after 1913 when a national income tax was approved with the 16th Amendment. Across the South, sales taxes didn't become a big deal until the 1950s when they were passed mostly to improve education.

In other words, we're operating in the 21st century with a system of taxation that stretches back for generations. The last big update was almost 50 years ago.

As they tinker with property taxes, lawmakers should recall:

ALSO THIS WEEK

McLEMORE'S WORLD: A little tsunami

KEEPING TRACK: Right on Sanford election

SCORECARD: Thumbs up and down

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Sales tax. Over the last 50 years, the country has changed from an economy based on sales of goods into a computer-driven economy that has an increasing mix of services. According to a 1997 report, South Carolina only taxes 32 of 164 services. And since the 1970s, the sales tax rate has increased 49 percent across the nation, but the sales tax base has increased only 20 percent, which indicates a shrinking base.

Meanwhile, the state has more than 60 sales tax exemptions that cause it to lose $1 billion a year in revenue. Also, it's losing up to $395 million a year in sales taxes on Internet and catalog sales.

Income tax. The state offers six income brackets for income tax. The top bracket is $12,000, which means that almost everyone pays income taxes at the top bracket. The brackets haven't been altered in years. If lawmakers stretched brackets some, income tax would become more progressive (to balance the regressive nature of sales taxes). Additionally, by adding a new top bracket with a slightly higher rate, they could generate some new revenue and broaden the state tax base - - or give credits to low-income earners to make the system fairer.

Other taxes. To generate more revenue - - or to decrease reliance on income and sales taxes - - lawmakers also could consider updating the cigarette tax to the national average, which would bring in more than $150 million a year to fund things like school improvements and health care increases. They could consider hiking the gas tax, which could pay for much-needed maintenance on state highways. They also could consider means-testing some tax breaks for seniors to level the taxpayer playing field.

Bottom line: There are lots of options to make the system fairer and more balanced. As lawmakers talk about property taxes this summer, they should also consider limiting sales tax exemptions, dealing with lost taxes from online and catalog sales and broadening the sales tax base to include more services. Additionally, they should consider revising income tax brackets to make them less flat and more connected to reality.


RECENT COMMENTARY


McLEMORE'S WORLD
6/19: A little tsunami

Another great cartoon from Bill McLemore:


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FEEDBACK
6/13: Minibottles won't go away

To the editor:

Your reference this week to mini-bottles (Commentary, 6/5) probably is aimed toward a speculation that free-pour will quickly outdistance mini-bottles. I have conducted a consumers' survey that suggests quite the opposite, although the end result will mostly be based on pricing (from the liquor stores and the wholesalers, including delivery charges) and on competition.

If, say a minibottle bar keeps its pricing as it is, while, as expected, the free-pour bar sells the customer less liquor at the same old price as the mini-bottles', it is quite possible that the mini-bottles will not die a sudden death. I also hear that some smaller bar owners in particular will keep mini-bottles because they are easier to count for inventory than the vagaries of the free-pour bottle.

And it costs $30,000 to install a drink gun system that would measure out the liquor and the mix in free-pour, so that the possibility of underpouring or of subbing bad liquor into good bottles becomes a matter of constant investigation by SLED. I'm not sure at all that free-pour will come in like a lion, but may well go out like a lamb.

-- Jerry C. Ausband, Garden City Beach, S.C.

Here's some other recent feedback to Statehouse Report:

KEEPING TRACK
Ahead on Sanford election

This section tracks past forecasts by Statehouse Report with other media reports:

In Statehouse Report:

5/8/05: Sanford more vulnerable than you think: "Unless the Democrats do the work to make themselves competitive, it's a good bet that Sanford will win re-election in November 2006."

In The State:

6/12/05: Bandy: Sanford will be tough to beat. "Whoever wins the party’s nomination next June will face a difficult task trying to unseat Republican Gov. Mark Sanford."


SOUTH CAROLINA SCORECARD

Here's a "thumbs up" and "thumbs down" related to various political events from the past week:

Thumbs up

Cooper. Kudos to Rep. Dan Cooper, R-Anderson, the new chair of the House Ways and Means Committee. Let's hope he brings more sunshine into the budget process. More.

Thumbs down

Fair. Thumbs down to Sen. Mike Fair, R-Greenville, for continuing to push the teaching of creationism in the schools. More.

Highways. The state has the highest number of speed-related traffic deaths....Doesn't this tell us we need to do more about our highways .. and dieways?


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