Scoppe: On old tricks, tax hikes and straw men

Associate EditorApril 25, 2012 

WHEN SENATE Finance Chairman Hugh Leatherman proposed letting the state borrow up to $120 million in case the federal government doesn’t pick up its share of the cost of deepening the Charleston Harbor, Sen. Kevin Bryant denounced the idea of more borrowing, using arguments and numbers that are debatable.

But rather than simply letting that debate proceed, he threw in this doozie: “Here’s the oldest trick in the book that politicians play: Raise taxes for a very popular project while they fund all the fluff and pork that you can’t see. I’m going to expose the public to this trick.”

That’s not the only trick that needs exposing. If it’s the oldest trick, then Mr. Bryant is employing the second-oldest: Set up a straw man, create a false choice, rather than arguing against the actual proposal you want to defeat. In South Carolina, that means pretending that tax increases are even theoretically possible.

On the same day that Mr. Bryant’s comments appeared in our newspaper, the S.C. Realtors Association ran a full-page ad deploring state taxes for “holding back The American Dream,” praising House Speaker Bobby Harrell’s “tax reform efforts” and declaring that “Unlike those who believe we can tax our way to prosperity, Realtors understand that tax relief is key to improving lives and increasing individual wealth.”

Like Mr. Bryant’s numbers and arguments against borrowing, the idea that tax relief improves lives is a good one for debate — with its validity depending, among other things, on how many lives get counted, how high taxes are to begin with, and whether they’re sufficient to pay for the foundational elements of civilization without which everybody’s individual wealth would plummet.

Also like Mr. Bryant’s assertion, the Realtors’ take-away message is that the choice is between their preferred course of action and higher taxes.

It’s not. Not with the House’s tax-cut package, whose alternative is to leave taxes as they are. Not with Sen. Leatherman’s borrowing bill, which the state would pay for, as it always does, by spending less on other programs. And practically never in our Legislature. The choice isn’t between foregoing borrowing and raising taxes. It isn’t between cutting taxes and increasing taxes. It’s between cutting taxes even more and leaving them where they are.

That’s a pretty stark choice. You’d think it’d be stark enough that people wouldn’t feel the need to resort to misleading innuendo to make it seem even starker than it is. But they do.

I moved to South Carolina in the fall of 1987, a few months after the Legislature raised the gas tax by 3 cents per gallon. It didn’t raise taxes again the next year. Or the next. Or the next 17 after that.

The Legislature didn’t raise taxes again until 2006, and then only as part of a swap that reduced taxes even more, increasing the sales tax by a penny in order to eliminate homeowner property taxes for school operations. And the extra penny hasn’t generated as much money as lawmakers projected, so next year they’ll have to send an extra $118 million in general tax revenues to the schools to make up for the shortfall. That is, they’ll divert $118 million from other spending in order to pay for the tax cut that was supposed to have been offset by a tax increase.

Lawmakers also have increased various fees and raised court fines — all of which take more money out of taxpayers’ pockets but can be avoided by not breaking the law or using fee-based services.

In 2010, the Legislature increased unemployment-insurance assessments by $150 million a year, to support a program that is by law supposed to be self-sustaining. It wasn’t self-sustaining — the state had borrowed nearly $1 billion to pay out unemployment claims — in large part because the Legislature had slashed businesses’ assessments before the recession. (In 2011, the Legislature appropriated $146 million to essentially pay the businesses’ higher assessments for them; this year the House has appropriated $77 million for the same purpose.)

Also in 2010, the Legislature increased the cigarette tax from 7 cents to 57 cents per pack. This $115 million tax increase came after a decade-long campaign by public-health advocates such as myself who wanted to decrease teen smoking. Even with the increase, the tax remains the ninth-lowest in the nation. Still, this was a real, honest-to-goodness, raise-more-money tax increase.

The only one our Legislature has passed in the past quarter century.

Over those same 25 years, the Legislature has eliminated the sales tax on groceries, a $400 million-a-year tax cut.

It has eliminated homeowners’ school property taxes. That’s worth about $970 million per year, but the sales tax brings in $550 million a year, so the net tax cut is $420 million per year.

It has increased the homestead exemption for senior citizens’ local government property taxes from $20,000 to $50,000. Another $100 million per year.

It has indexed income tax brackets to inflation, saving taxpayers $390 million per year.

It has eliminated the bottom income tax bracket, reducing individual income taxes for everyone and eliminating them for many. That’s worth $90 million per year.

It has reduced the top income tax rate for most small businesses from 7 percent to 5 percent, saving $130 million per year.

And it has handed out at least 39 more sales tax exemptions — ranging in size from $4,000 to $47 million. And more income tax breaks.

According to the Board of Economic Advisors, the tax cuts enacted just since 1991 were worth $2.3 billion in 2009. The tax increases over that same period totaled either $665 million or $815 million, depending on whether you count the unemployment-insurance increase that businesses haven’t had to pay. That’s a net tax cut of at least $1.5 billion per year.

As a result of all these changes, the portion of our income that South Carolinians pay in sales taxes has dropped from about 2.8 percent when I moved here in 1987 to 2.2 percent today. Even as the sales tax rate was increased from 5 percent to 6 percent. Going from 2.8 percent to 2.2 percent might not sound like much, but it’s a 21 percent reduction.

The portion of our income that we pay in state income taxes has dropped from 2.5 percent to 1.8 percent over that same period. That’s a 28 percent reduction.

The choice is not between higher taxes and lower taxes. At the least, it’s between the status quo and lower taxes. More often, it’s between lower taxes and much lower taxes.

Ms. Scoppe can be reached at (803) 771-8571 or cscoppe@thestate.com.

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