S.C. Statehouse Report
Dec. 7, 2003
VIEW: http://www.statehousereport.com/columns/03.1207.tax.htm

Look behind the rhetoric of tax reform
By Andy Brack
SC Statehouse Report

DEC. 7, 2003 - - For all of you who think you pay too much in taxes in South Carolina, let's get this straight: You don't, compared to other states.

Just ask a retiree who has just moved here from tax-high states like Connecticut, New York or Massachusetts. Or look at how the non-partisan Tax Foundation (http://www.taxfoundation.org/) rates the tax burden faced by South Carolinians.

According to the Foundation's 2003 study, South Carolinians rank 38th nationally when state and local taxes are compared across states. Residents pay 9 percent of income in state and local taxes - - $2,428 per capita on average per capita income of $24,911. Compare that to Maine (#1), where residents pay 12.2 percent of income to state and local governments - - $3,519 per capita on average per capital income of $28,960.

You might argue that when you add federal taxes to the mix, South Carolinians pay more. Nope. With those added, the state's rank drops to 41st in the nation.

South Carolina economists, in fact, say the state's current tax structure is something of a model for many in the nation because it is balanced. It relies on three major taxes - - income, property and sales - - in approximately equal proportions. The advantage in having the tax load spread in three balanced revenue streams is that it provides stability and allows the negative aspects of one tax to be balanced by the upsides of other taxes.



McLEMORE'S WORLD: A real holiday treat


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"When you push a particular tax really hard (use it to make up more of the burden), it magnifies its negative attributes," Clemson economist Holley Ulbrich said.

If, for example, the state were to decrease income taxes and make up the difference with property taxes, a higher burden would be put on people who own property - - they'd pay more, which could hurt older people with assets and retirees moving into the state, according to Randy Martin, chairman of the economics department at USC's Moore School of Business. Also, pushing the property tax could discourage business investment and improvements.

Or if the state were to decrease income or property taxes and make up the difference with sales taxes, retail businesses and tourism could be impacted negatively, Ulbrich said. Martin added that moving to more of a sales-tax based system would also put more of the burden on people who spend a higher percentage of their income - - poorer people - - to the advantage of those with more money who can save.

"You kind of get bit in the rear end any way you go, except with a mixed tax structure," Martin said.

So the economics lesson for South Carolina is its current three-legged stool of taxation is balanced. Interfering with it may cause it to teeter with negative impacts, including some people paying more in taxes.

Unfortunately, the coming session of the General Assembly will be filled with politicians hailing the holy mantra of tax reform to "fix" the system.

Gov. Mark Sanford proposes increasing the cigarette tax to lower the income tax on richer people. Over time, his plan calls for growth to fund the differences in revenues stemming from the lower income taxes.

House Majority Leader Rick Quinn, R-Columbia, and the conservative SC Policy Council have been barnstorming the state with a plan to raise the sales tax by two cents for education, reduce school property taxes and cut millions in sales tax exemptions. In general, this plan would take funding of schools away from local governments and move it to the state.

State Sen. David Thomas, R-Greenville, wants to boost the sales tax by two cents to reduce property taxes on homes and cars.

Over the next few months, just about everywhere you look politicians will have plans to reform taxes. And while no one really likes paying taxes, fiddling with a system that's balanced could create serious inequities for many and erode the relative stability the state enjoys with its taxing structure.

A real holiday treat

This week's cartoon by our Bill McLemore:



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