Editorial: The problem with Haley’s tax-by-tax fixation

01/24/2013 12:00 AM

01/24/2013 12:04 AM

GOV. NIKKI Haley says we have to keep lowering our income taxes because other states are doing that. They’ve “seen the successes we’ve had in South Carolina and are nipping at our heels,” she said in her State of the State address. They’re slashing or eliminating their income taxes, and “We have to keep up.”

But even if you believe that being the lowest-taxed state is a good thing — and it’s not unless you’re providing the education and infrastructure and health care that even the governor acknowledges are essential — competing tax by tax is a game we’ll never win.

Sure, income tax rates are important to some businesses that might move to our state. But for others, property taxes are key. For others, it’s getting a special sales-tax exemption or lower excise taxes.

So we slash our income taxes to undercut the states with no income tax but high property taxes, and we slash our property taxes to undercut the states with low property taxes but a high sales tax, and we slash our sales tax to undercut the states with a low sales tax but high excise taxes, and we slash our excise taxes to undercut the states with low excise taxes but high income taxes, and where does that leave us?

Everybody’s happy that they don’t have to pay taxes. But not so happy that we’ve shuttered our schools and courthouses and there’s no more police or fire service or garbage collection, and we’ve freed the prisoners because we don’t have any money run the prisons.

Of course it would never come to that, you say. And you’re right. But where’s the line? As far as the governor and House Republicans are concerned, we’re nowhere near it, since they keep demanding more tax cuts.

Already, the level of service we provide in many vital areas is far below what other states provide. Far below what a lot of South Carolinians consider adequate. Already our overcrowded roads are crumbling and our bridges becoming ever-more-dangerously unsound.

If we want to compete with other states on taxes — and certainly we don’t want to be among the highest-taxed — we need to look at the entire tax system. When we do that, we see that we’re among the lowest — sometimes even the lowest, depending on which of several measures we use.

Once we’ve acknowledged those numbers, then we can look at individual taxes. What we’ll see is that some of them are too high. Others could easily be increased without hurting our economy, because they’re extraordinarily low or there’s no competitive advantage to keeping them low, or both (cigarette taxes, for instance). Others could be tweaked to make us more competitive while still bringing in the same amount of revenue.

When you’re a low-tax state that can’t provide the services you need, you don’t just slash taxes more. You reform taxes. You raise some taxes and lower others and eliminate some loopholes and perhaps, if there’s a really good reason, add some others. You change the rules for some taxes.

We’re not convinced that South Carolina needs to eliminate its 6 percent income tax bracket, as the governor proposes — a move that would save the average tax filer $29 a year while cutting state revenue by $26 million. Flattening our income tax might make sense if we relied entirely on the income tax, but as long as we have a regressive sales tax, we need a slightly progressive income tax for balance.

Beyond that, the percent of our income that we pay in income taxes is actually lower than most states. It seems high because the portion of income that we consider “taxable” is much higher than in other states. That calls for a reworking of the rules, not another tax cut.

In fact, everything about our tax and spending system calls for an overhaul rather than the usual solution of still more tax cuts.

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