Friday, December 4, 2009

Rendering a more balanced state tax structure

By Andy Brack

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With a quarter of the state’s population jobless, underemployed or fed up looking for work, a pretty good case can be made that if the state of South Carolina wants to move past the recession, it needs to seriously rethink its priorities.
Instead of continuing to do things the same ways they’ve always been done, now might be the best time to shake things up a little.  Perhaps it is time to focus more on underfunded areas that, if funded better, could generate real rewards.

Those in power, state lawmakers included, have a special responsibility to look out for those without much.  As we’re reminded in Verse 48 of Chapter 12 of the Book of Luke, “Everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.”

Is that a Biblical call for wealthy people to relax a little about tax cuts and not get bent out of shape about pragmatic tax hikes?  You be the judge.  Certainly people can “render unto Caesar” what is Caesar’s, but isn’t there a duty among the state and the wealthy to do more for the “least of these brothers of mine,” as Jesus described in a story about the sheep and goats in the Book of Matthew, Chapter 25?

With it likely that the state will have little real revenue growth in the coming year, here are some pragmatic ideas that could rebalance the state’s revenue structure and allow it to have some flexibility to try some new initiatives to curb poverty, improve education and better health care:

Increase the cigarette tax. By raising our 7-cent, lowest-in-the-nation tax to $1 per pack, South Carolina could generate $150 million in new revenue that could be matched with $450 million in new federal money to improve health care.

Eliminate the corporate income tax. Most businesses try to avoid this and say it makes the state less competitive in attracting business.  So let’s get rid of it.  The loss:  $130 million.

Add a new tax bracket. To increase progressivity of the state income tax, lawmakers should consider a new top bracket for people with high incomes.  Such a move would impact the relatively few people who make more than $250,000 a year and raise up to $150 million that could offset the loss from eliminating corporate income taxes.

Cut sales tax exemptions. The state currently has more than 70 special-interest sales tax exemptions that keep it from collecting $2.5 billion in sales tax.  Many of the exemptions were approved decades ago when the state lured manufacturers here.  Today in a knowledge economy, tax breaks on newspaper sales ($6 million a year) or coal and fuel sales to electricity manufacturers ($103 million) might not be the fairest  system.  If the state could remove just half of outdated exemptions which may not fit the modern economy, it could reap $1.2 billion in revenues.

Cut the sales tax rate: Instead of taking the $1.2 billion in new money and spending it, the state could cut two cents from the six cent sales tax rate and, in turn, lower taxes on everyone, increase progressivity and make the state more competitive.  (A penny in sales tax reaps about $600 million a year.)

Economists routinely say that it is better for a state to have a broader base for taxes, which suggest removing exemptions, than it is for a narrower base.  A broader base helps create a lower tax rate – which would be helpful for all South Carolinians now at the expense of a few who have more.

State lawmakers need to be bold leaders in the coming session to grapple with generational problems.  They should keep a few appropriate Bible verses in their minds as they’re moving around the shekels – and not just remember verses when they’re pushing a social agenda.

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

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