Scoppe: Is restaurant tax the solution to SC road problems? No, but …

Associate EditorFebruary 17, 2014 

— THE PROBLEM with the prepared-meals sales tax that the Legislature allows local governments to collect is that, like most everything else that involves local governments, the Legislature restricts how the money can be used. In this case, for “tourism-related” expenditures. That pushes local governments to either spend more than they should on parks and festivals and museums, while essentials go begging, or else stretch the definition of “tourism-related” beyond all reasonable recognition.

The problem with South Carolina’s tax system is that state and local governments rely far too heavily on the sales tax, and there are far too many loopholes in the sales tax. Well, that’s one problem with the system, but it’s a major one, and it has occurred because of decisions made by the Legislature, not by local governments. The results are that we have an unbalanced and unstable tax system, and the sales tax is so high that it drives shoppers even faster to untaxed internet purchases or, on major purchases, across state lines, both of which hurt merchants and our state’s overall economy.

The problem with the way we pay for roads is that … we don’t; we rely primarily on a flat, per-gallon gasoline tax that has not been allowed to keep pace with inflation. Hence, our $29 billion maintenance backlog. Well, that and the fact that our state government has the fourth-largest road system in the country. Not the fourth-largest per capita. The fourth-largest in total miles. It’s not that we have too many roads; it’s that we have a Legislature that insists on controlling everything — including local roads. Roads that in any other state would be the responsibility of cities and counties.

The thing that brings these three problems to mind at once is a bill up for debate this afternoon in the Senate Finance Committee. The bill, S.912 by Senate Republican Leader Harvey Peeler, would allow local governments to use revenue from the prepared-meal tax — also called the hospitality tax or the restaurant tax — to pay for road repairs.

There shouldn’t be any restrictions on how cities and counties spend money from that tax, which they take the political heat for authorizing. So pretty much anything that gives local governments more leeway in spending that money is a good idea. Indeed, there shouldn’t be restrictions on how cities and counties spend any of the money they collect. Or on how much money they can collect. City and county council members are elected just like legislators are, and the City Council in Charleston has a better grasp on how people in Charleston want their taxes spent than do the legislators in Greenville. Just as the members of the Town Council in Lexington have a better idea than legislators from Columbia about how people in Lexington want their taxes spent.

But while giving cities and counties a little bit of flexibility for spending the restaurant-tax revenue is a good idea, and devolving some responsibilities for local roads would be a good idea, it’s important to keep in mind what this legislation is not: It is not the answer to our road problems, and it is not the answer to local governments’ needs, and encouraging even more cities and counties to tack on an additional 2 percent to the cost of restaurant meals and convenience foods at the grocery store is not going to improve our tax system.

What we need is for the Legislature to turn city and county roads over to cities and counties — along with a menu of funding options, perhaps including a local sales tax on gasoline and an inflation-adjusted gasoline excise tax, since the Legislature seems determined not to impose either.

What we need is for the Legislature to give cities and counties more options for raising the money needed to pay for the services that the citizens of those cities and counties demand. What we need is for the Legislature to stop telling cities and counties how much they can — and can’t — raise taxes, and let them sort that out with voters. The same way the Legislature does when it comes to state taxes and the state budget.

If the Legislature did all that, then maybe it would have time to do some of the things that only the Legislature can do. Like modernizing our sales tax, which now applies to less than half of every consumer dollar spent in South Carolina. Which means that for every consumer dollar that we tax, there’s more than a dollar spent that’s not taxed. Which means that if we taxed services and eliminated all the sales tax exemptions, we could cut our 6 percent sales tax to less than 3 percent and collect the same amount of money.

Well, not quite, since some of the exemptions make sense, and there are some cases where taxing a service would drive business to other states, the same way our too-high sales tax drives some purchases of tangible goods out of state.

But we could expand our tax base a lot, which would make our tax system more stable, and we could lower our rate a good bit, which would make people more inclined to buy stuff in our state. And if one of the exemptions we got rid of was the one on gasoline, we’d have a good start on dealing with our road-repair problem.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571. Follow her on Twitter @CindiScoppe.

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