S.C. Statehouse Report
Sunday, Aug. 21, 2005
VIEW: http://www.statehousereport.com/columns/05.0821.prop.htm


COMMENTARY
Irony of success driving property tax debate
By Andy Brack
SC Statehouse Report

AUG. 21, 2005 - - Talk about irony: the very folks who have benefited from South Carolina's surging real estate market seem to be the ones griping most about property taxes.

Earth to taxpayers: That's how property investment and the market are supposed to work! If your property increases in value, you have an asset worth a lot more, which means you pay more taxes. And because everybody in a county pays essentially the same rate, the system is inherently fair.

In other words, paying more in property taxes is an indicator that you're worth a whole lot more. So why all the moaning? As an investor, you're succeeding.

But most people don't look at things like that. Instead when they open their assessment or tax bill and see a whopping increase, they react emotionally. They look at the bottom line - - the amount due instead of the bigger, long-term picture that their asset is increasing in value.

"It's a psychological response," said University of Tennessee economist William Fox. "It's not a rational, thought-out response that I'm better off because my asset is better off."

While taxpayers across the state are balking at property taxes and trying to get them changed, economists like Fox see property taxes as relatively fair. While somewhat regressive, property taxes are based on the principle that rates are standardized and property is valued realistically. Because everyone is operating from the same baseline, the tax is distributed fairly.

Over the long run, property taxes tend to be less volatile than sales or income taxes because the latter two respond more to economic fluctuations. If the economy is souring, people buy less stuff, which means they pay less in sales taxes. Similarly in bad times, rises in income drop off, which generates less income tax revenue.

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But property, as many in real estate say, is a good investment. It keeps its value.

Over the summer, state lawmakers have been holding hearings on property taxes to find out what they should do about higher bills, particularly in coastal and tourism areas where land values have increased more than normal. Predictably, few people are shouting to keep property taxes. Instead they want an alternative, such as an increase in sales tax by 2 percent to replace most property tax revenues.

But economists warn that putting more of the burden on sales taxes could destabilize the state budget. Additionally it could have three major effects:

  • Business disincentive. Higher sales taxes could steer business relocation and development away from South Carolina. If a business buys a lot of goods, for example, it immediately would face higher costs here. A state with lower sales tax rates would be more attractive than South Carolina.

  • Hurt S.C. merchants. Consumers would start shopping around more. Instead of buying from South Carolina merchants, they'd head toward the Internet or go to other states where taxes are lower. In turn, the state would lose sales tax revenues.

  • Shift burden. If those who are complaining the most about property taxes get relief, somebody else will have to make up for lost revenues. It's generally accepted that such a move would shift the tax burden from higher-income people to those in the middle and bottom end of the income scale.

PROPERTY TAX HEARINGS

The state Senate is conducting five August public hearings on property taxes. Remaining hearings are planned for:

Aug. 23, 6 p.m. -- Strom Thurmond High School, Edgefield, S.C.

Aug. 24, 6 p.m. -- Greenville Technical College, J. Verne Smith Technical Resource Center, Greenville, S.C.

Aug. 30, 6 p.m. -- Joyner Auditorium, Marion, S.C.

Aug. 31, 6 p.m. -- USC-Lancaster, Bundy Auditorium, Lancaster, S.C.

One way or another, it's highly likely the General Assembly will try to control property taxes on a statewide basis because too many squeaky wheels are clamoring. Instead of creating a higher sales tax rate, two options might cause less volatility for the state:

  • Tax modernization. The state could do away with some or all of the $1 billion in sales tax exemptions it provides. This could allow the state to generate more revenue, which could offset reductions in property taxes.

  • Property tax cap. A Charleston County 15 percent property tax cap got thrown out of the state Supreme Court last year because it treated residential property differently than commercial and agricultural property. But if state lawmakers were to send a constitutional amendment to voters to cap property tax assessments annually at a reasonable percentage increase, there would be some relief for people who have seen huge fluctuations in their bills.

Gov. Mark Sanford has warned that the legislature should be careful about fiddling with property taxes without considering long-term implications on the majority of what they fund: education.

He's right. Instead of getting caught up in a public frenzy, lawmakers should take a measured approach on property taxes.

RECENT COMMENTARY


McLEMORE'S WORLD
8/21: Moonwalking

Another great cartoon from Bill McLemore:


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FEEDBACK
8/17: Market-based Medicaid approach is hocus-pocus

To the editor:

Why do we let these folks try to sell this Medicaid waiver on the basis that it is a "market-based" approach? (See Statehouse Report, 8/14) There is NO MARKET for Medicaid patients. Selling this on the basis of a marketplace approach is reminiscent of the old story about the businessman who realized it cost him 10 cents more to make each WONKIE than he was charging but said not to worry because he'd make it up on volume. That Governor Sanford has other priorities for the use of state funds is understandable -- debatable, but at least understandable. That he is such a poor businessman that he would try to sell this in the private marketplace is simply not believable.

The largest Medicaid expenditures are for elderly and disabled individuals in nursing homes. We have traditionally had very low reimbursement rates for nursing homes and have reduced those already low rates to the point that it is extremely difficult to find a Medicaid bed (we pay nursing homes about half of what a decent motel room would cost). Who is going to compete for these Medicaid patients?

The Medicaid expansion for pregnant women and infants was started because Governor Riley recognized that too many families couldn't afford prenatal and well-child care and that was contributing to our state's dismal infant mortality rates. Do we really want to start dumping these costs back on low-income families who don't have the resources so we have to pay more for neonatal intensive care, disabled care, etc.? Where is the market for these Medicaid patients?

The rest of the Medicaid population is eligible for the program either because they are poor or disabled or some combination. Generally, this population requires the highest level of services and, because of factors frequently beyond their control, is the least compliant with treatment directives if they are able to find a healthcare provider. There is a terrible problem getting providers for this population because reimbursement rarely covers the cost of providing service, no-show rates for medical appointments is astronomical, paperwork is overwhelming, etc.. Where is the market for these Medicaid patients?

If there is any market, it's for a new group of "middlemen" who will go after some kind of per/head administration fee that will add to program costs without increasing the provision of healthcare one whit. No good businessman would propose this Medicaid waiver. If we were really looking at market forces, we'd be putting more State dollars into Medicaid and DHEC health education programs, not less. Where else can you get $3 for every dollar invested?

-- Laura Morris, Mount Pleasant, S.C.

Recent feedback:

KEEPING TRACK
Ahead on Medicaid

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

In Statehouse Report:

8/14/05: Medicaid plan looks risky, costly: "Some may admire the Sanford administration for trying to do something about Medicaid, but at this point, the proposal seems like it has too much of a chance of hurting the poor, elderly and children. They shouldn't be experimental subjects to test a Republican political theory...Go back to the drawing board. "

In The State:

8/18/05: State to submit new Medicaid proposal: "South Carolina will present to the federal government a new plan to overhaul Medicaid, officials said Wednesday, after the state’s original proposal met stiff public resistance."


SOUTH CAROLINA SCORECARD

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

Thumbs up

Medicaid proposal. It's good news that the Sanford administration is going to revisit its draconian proposal to reform Medicaid. We just hope the revision doesn't turn out worse than the original.

Hodges. Hats off to Kenneth Hodges for being elected to fill the state House seat of the late Walter Lloyd of Walterboro. A GOP runoff between Bruce Bannister and William Herlong is scheduled for the vacant seat of former House Speaker David Wilkins.

Thumbs down

Southern Strategy Group. It doesn't smell right that this lobbying firm is promising "unparalleled access" to decision-makers, especially when you realize one of its employees is the brother to SC's House Speaker. Company site.

Gas prices. Something's got to be done. Gas at $2.80 a gallon? Who would have ever thought?

Wilson. You've got to question U.S. Rep. Joe Wilson's judgment for bringing in embattled U.S. Rep. Tom DeLay to SC for a fundraiser.

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