Columbia, SC — CRITICS complain that House Republicans’ plan to divert automobile sales tax revenues to road repairs will steal money from schools and other crucial state services that already are struggling to keep up with a growing population and the Legislature’s annual fit of new tax cuts. And that is incontrovertibly true.
But while there’s room to debate whether that’s a good thing or a bad thing — and I think it’s a bad thing — there’s a much larger problem with the tax-diversion plan. That problem was underscored by the way Republicans rolled out their proposal last month: as part of a “comprehensive tax reform.”
Now, there’s no question that we need a comprehensive reform of our taxes. Some taxes are too high, some are too low, and many — the sales tax chief among them — are so full of loopholes that the holes are literally larger than the sum of the parts. We desperately need to cull the exemptions, cut the taxes that are too high, raise the taxes that are too low and change the way we calculate lots of them, so we end up with a tax system that generates the revenue we need to provide necessary state services without unfairly burdening any classifications of taxpayers or unduly hindering our economic growth.
Unfortunately, what House Republicans have proposed is not comprehensive tax reform. Their package is composed of five bills: three to cut taxes; one to eliminate a few small sales tax exemptions and lower the tax rate in order to keep those changes revenue neutral (that, by the way, is actual reform; it’s just too pathetically small to make much difference); and the automobile-tax shift.
Even if this were really a tax- reform package, the bill dealing with the sales tax on cars, boats, planes and other motor vehicles would be a sore thumb, because it doesn’t have to anything to do with taxation. It’s a plan to change the way those taxes are spent once they’re collected, an entirely different thing.
And the logic used to sell that spending change — House Speaker Bobby Harrell said that it “makes sense to me that money spent on cars ought to go to roads” — is nonsensical.
It’s sort of like saying that taxes from the sale of kitchen appliances and restaurant meals should go straight to the Agriculture Department, rather than having the Legislature decide where the money is most needed, as it does now. Or that taxes from gun sales should go straight to police and prisons. Or taxes from books should go to the schools. Or from our cleaning supplies to DHEC.
But I digress. The over-the-top, you’ve-got-to-be-kidding-me absurdity of this revenue shifter isn’t that it takes money away from essential services. It isn’t that it’s based on faulty logic. It isn’t even that supporters want to include a bill in their faux tax-reform package that has nothing to do with taxation. It’s that they want to include this bill.
This bill that deals with the $300 cap on the sales tax on automobiles.
Which is the sorest thumb in our entire mangled, misaligned, special-interest-driven tax code.
An exemption that serves absolutely no compelling state interest. That in fact works against the state’s interests, by making our tax code even more regressive. An exemption that can only be explained by the power of special interests.
And our “comprehensive tax reformers” don’t want to do a thing to fix it.
They don’t want to eliminate the cap, which forces someone who buys a $5,000 clunker to pay the same $300 sales tax as someone who buys a $250,000 Bentley.
They don’t even want to modify the tax cap, to make it a little less ridiculous.
They just want to take the $100 million a year it generates (which is a little more than a third of what we’d collect if there were no cap) and give it to the Transportation Department, which makes such wonderful decisions about how to spend our tax money.
Perhaps there was some logic to the tax cap when it was passed, back in 1984, as part of the legislation that increased the state sales tax from 4 percent to 5 percent. At the time, automobile dealers insisted that raising the sales tax would be the end of their livelihoods, because S.C. car buyers would race across the state line to North Carolina or Georgia, both of which had caps on the car sales tax.
They also insisted, I’m told reliably, that they would support lifting the cap if North Carolina and Georgia ever did the same. Which both states have since done. But S.C. automobile dealers have developed collective amnesia. And so our Legislature has not eliminated the cap, or even modified it. Even though there is absolutely no justification for maintaining it.
And there’s no justification for calling anything that deals with the sales tax “reform” if it doesn’t eliminate the cap.
That doesn’t mean we have to tax the full sales price of automobiles, although that shouldn’t be ruled out, as part of a wholesale elimination of tax exemptions that also lowers the sales tax rate, so it’s no longer one of the highest in the nation.
If we aren’t going to overhaul the whole sales tax — and clearly, there is no appetite for that in the Legislature, despite all the rhetoric to the contrary — we could raise the same $100 million a year from motor vehicle sales if we eliminated the cap and taxed the sales at 2.25 percent instead of the 6 percent that we tax other purchases.
Or, here’s a fun idea: Flip the exemption upside down. Instead of exempting everything above $6,000, we could exempt everything below $19,000. That would generate the same amount of money, but it would make the sales tax, and thus our entire tax code, a little less regressive.
None of those changes would make the idea of stealing money from other government services any more palatable. And they wouldn’t make the idea of spending tax money only on services that are directly related to the product any more logical. But they’d sure improve our tax system. Which is what everybody claims to want to do.
Ms. Scoppe can be reached at email@example.com or at (803) 771-8571.