S.C. Statehouse Report
Sunday, Oct. 21, 2007
VIEW: http://www.statehousereport.com/columns/07.1021.money.htm

State is tax-cutting itself to death
By Andy Brack, Publisher

OCT. 21, 2007 - - If the plan for South Carolina politicians is to shrink state government by starving it, then it's working.

Yes, this year's budget was larger than ever before - - some $7 billion in state tax funds alone. But the huge influx of $1.4 billion in new revenue isn't lasting. Next year, an economic downturn highlighted by higher interest rates and slow housing sales will force the state into a shortfall that could approach $430 million. (Experts say the real shortfall probably will be $250 million off what's been projected, but that's still not chicken feed.)

If you step back a little, what becomes clear is that the state is starting to cycle wildly from fiscal surplus to shortfall and then back again. Why? Because politicians are responding to political whims by offering the dessert of tax cuts before partaking of the meal of good budgeting practices.

For all the caterwauling about South Carolinians being taxed too much, the state will take in almost $600 million less in the coming year because of recent tax cuts:

  • Estate taxes. Because South Carolina tied its estate tax to a federal cut, the state phased out so-called "death taxes" from 2002 to 2004. In the coming year, it won't collect $60 million that it would have received without the cut.

  • Small business income taxes. In 2005, lawmakers passed an income tax cut targeted to small businesses that caused the rate to drop from 7 percent to 5 percent over four years. In the coming year, the state won't collect $54.5 million it otherwise would have received.

  • Venture capital fund. Because insurance companies now can contribute monies that once were taxes into a special venture capital fund and get a juicy tax break at the same time, the general fund isn't getting about $50 million in taxes from insurance companies that it once got.

  • Grocery taxes. Next week, consumers no longer will have to pay the state sales tax on groceries. The benefit came as the result of two laws - - a 2006 measure that cut the rate from 5 percent to 3 percent as part of a property tax swap and a 2007 law that eliminated the remaining 3 percent completely as part of an income tax cut. Combined, the average family of four will save about $225 per year in taxes. The state will lose $235 million in revenue in the coming year.

  • Personal income taxes. The state in 2007 eliminated the 2.5 percent personal income tax bracket for all filers - - a measure that will keep the state from realizing $86.4 million in the coming year.


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If you add all of the tax cuts, the state won't bring in some $585.9 million in 2008 than it would have if the tax cuts had not occurred. In other words, without the tax cuts, the coming year's budget likely wouldn't face a shortfall of up to $430 million. Instead, it would have a surplus of about $150 million.

Now while all of these numbers are interesting, the practice of incessant tax cuts means something really deeper: Instead of having a surplus next year and being able to improve education, health care, prisons, the environment and a host of programs, state leaders are facing another annual funding crisis.

By cutting in good times, lawmakers create a rhythmic dynamic that they don't have enough in lean times. In turn, that means they'll cut more government services. In the end, government becomes smaller by default, not by design.

But some would argue that it's by design anyway because the long-term purpose of cuts is to serve as tools to starve government - to drown it in a bathtub, as one famous budget-cutting devotee has opined.

In our book, this strategy is wholly disingenuous. If leaders want to cut government, they should cut programs outright and face the music offered by voters. They shouldn't stand by and wait for lean times to cut programs because they don't have money.

So why do they do it this way? First, South Carolina politicians just won't raise taxes when they need money because of the fear of political backlash. And they're scared of another kind of backlash if they cut programs directly - that a disaffected constituent might run against them.

Andy Brack, publisher of Statehouse Report, can be reached at: brack@statehousereport.com.

Recent commentary

She-crab soup helped put state on culinary road map

She-crab soup is uniquely Charlestonian-a silky, seafood chowder with a European heritage. The dish helped put Charleston on the regional culinary road map, as surely as Philadelphia's cheese steaks or Chicago's deep-dish pizzas. Shrimp and grits are perhaps the only items appearing more often on the menus of Charleston restaurants than this elegant appetizer.

"There's nothing quite like it on this side of the Atlantic," says John Martin Taylor, cookbook author and the notorious arbiter of Lowcountry cuisine known as "Hoppin' John." Although some Charleston area restaurateurs bemoan it as nothing more than a novelty item slurped by the gallon by gullible tourists, Taylor maintains it's an example of a delightfully distinct regional cuisine being bred into mediocrity by taking shortcuts such as thickening it with flour ("wallpaper paste" he says with disgust).


S.C. Statehouse Report has partnered with USC Press to provide readers with an interesting weekly historical excerpt about the state. Each excerpt, which is used with permission and not for republication, is taken from The South Carolina Encyclopedia, a 1,077-page book published in 2006 with entries by almost 600 contributors and edited by noted historian Walter Edgar. We hope you enjoy this new feature.

Food historians believe she-crab soup is based on the Scottish seafood bisque partan bree which was brought by settlers to the New World in the early 1700s where it was localized in Charleston with the addition of boiled and pureed long grain rice and the roe of blue crabs. During a 1909 visit to Charleston, President William Howard Taft supped on she-crab soup at the home of Mayor R. Goodwyn Rhett. It is made with the meat of a dozen female crabs, fish stock, milk, spices, and heavy cream. Finishing touches include a sprinkling of the orange crab eggs across the surface of the thick soup, followed by a dollop of a fine, dry sherry like Amontillado. The soup is a blending of the New and Old worlds, served up hot on a Charleston verandah.

-- Entry by Dan Huntley, The South Carolina Encyclopedia

lighter side
Persuasive kid logic

Another great cartoon by Bill McLemore:

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Recent feedback

10/9: Solar power makes sense, Barbara Measter, Seabrook Island, SC
Not for tax breaks, Bob Logan, Little River, SC
State needs affordable medical help, birth control, Roxanne Walker, Greenville, SC
Some good points in sex Ed column, Anne Badgley, Charleston, SC
Why insurance companies want to cancel policies, Dan Norfleet, Summerville, SC
Australia is tip of iceberg, John P. Ford, Sumter, S.C.
8/13: Americans have grown apathetic, David Whetsell, Lexington, S.C.


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Cigarette tax hike waits
By Bill Davis, editor
Exclusive from the paid-subscriber issue of Statehouse Report

OCT. 19, 2007 -- It's hard to tell, some 10 weeks out from the next legislative session, whether a possible cigarette tax increase is a lit fuse or just a squashed butt.

The issue has been snuffed out in the last few sessions even with the House passing a 37-cent per-pack increase resolution over to the Senate this year. But that measure stalled in the Senate's Finance Committee, where it is smoldering, waiting to be revisited once the next session begins in January.

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  • NEWS: Cigarette tax issues burn slowly
  • AGENDA: Meeting breather
  • RADAR SCREEN: Targeter may get targeted
  • PALMETTO POLITICS: Colbert gets mom's support
  • BLOGROLL: Shot at
  • SCORECARD: Who's up and down for the last week
  • MEGAPHONE: A new candidate

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Excerpts from The South Carolina Encyclopedia are published with permission and copyrighted 2006 by the Humanities Council SC. Excerpts were edited by Walter Edgar and published by the University of South Carolina Press. No republication is allowed.