Scoppe: Is South Carolinians’ love affair with sales tax waning?

08/27/2014 9:00 PM

08/27/2014 6:26 PM

Columbia, SC

IT’S BEEN AN article of faith among politicians for as long as I’ve been writing about government in South Carolina: The tax that the public finds least objectionable is the sales tax. And indeed, polling pretty consistently finds that.

So if taxes must be raised — something the Legislature is loathe to do — it’s the sales tax that must be raised. That’s why the tax that the Legislature turned to in 2006 when it had to make up all that money schools would lose when it eliminated homeowners’ school operating taxes was the sales tax. It’s why the one tax lawmakers have allowed local governments to keep increasing — for necessary spending as well as for frivolous spending — is the sales tax.

That’s why we need to spend a few minutes with a largely overlooked poll that was conducted this summer for Charleston’s Post and Courier.

The poll looked at three of the four issues that the political parties had asked voters about during the primary elections: eliminating income taxes and legalizing medical marijuana and online gambling. (You can probably guess which political party was behind each question if I tell you each got a “yes” vote from the primary voters.)

The results of the poll are markedly different, for three reasons: The poll questioned everybody, not just the 5 percent of voters who voted in the Democratic primary or the 11 percent of voters who voted in the Republican primary; the questions were not slanted toward the answer the sponsor preferred; and, wording aside, the poll posed slightly different options than the ballot questions.

The difference was most significant for income taxes: The Republican question that littered primary ballots asked simply if voters wanted to phase out the income tax, and of course they did. The question on the poll asked if they wanted to eliminate the income tax by increasing the sales tax. That is, it included that dirty little secret that most people don’t like to acknowledge: You can’t get something for nothing; if you get rid of one of the two major sources of funding for state government, you’re going to have make it up somehow.

Still, it’s surprising, and encouraging, that when asked if they wanted to make the trade that conventional wisdom says they will always, always want to make, given how much they hate the income tax, they said … meh.

Specifically, 40 percent endorsed the swap, 34 percent opposed it, and 26 percent were undecided. That is not a rousing endorsement. It’s not even a tepid endorsement.

What’s particularly surprising, and encouraging, is that pollsters didn’t get that un-endorsement after explaining the pros and the cons of the swap.

The pros, of course, are pretty straightforward: You hate income taxes; you don’t mind so much paying sales taxes.

The cons are more complicated, but oh so much weightier: The sales tax already is about as high as we can safely put it without seriously damaging our retail economy, whereas the income tax — at least the income tax that people actually pay — is not. The sales tax is becoming a less reliable source of revenue because a smaller and smaller portion of our consumer spending is subject to the sales tax, as the Legislature keeps carving out more and more loopholes and we keep buying more and more untaxed services instead of taxed goods and as we keep buying more and more stuff over the Internet and refusing to pay the tax that we owe but that the merchants don’t collect and the state doesn’t have the resources to track down.

And there certainly was no mention of the eyes-glaze-over explanation about the most important reason increasing the sales tax and eliminating the income tax is a bad idea: State and local governments in South Carolina rely on what’s called the three-legged stool approach to taxation, with roughly a third of revenue coming from the sales tax, a third from the income tax and a third from the property tax.

Like a balanced portfolio, this arrangement provides diversification, so revenue doesn’t fluctuate wildly through the business cycle. It taxes different parts of the economy, rather than overburdening any single sector or type of activity. It ensures that everyone pays taxes — from those with wealth and little income to those with income and little wealth to those with little or lots of either. It also helps balance the tax burden across income classes.

It’s a good system to maintain, because when one leg gets too long or too short, you’re in danger of tipping over. Eliminating the income tax wouldn’t just make the legs uneven; it would cut one completely off.

But respondents weren’t told any of that, and still they weren’t interested in paying a little more at the cash register in return for eliminating the hated income tax.

That might explain why independent gubernatorial candidate Tom Ervin is just talking on his TV spots about eliminating the income tax — a la Gov. Nikki Haley — and not mentioning that he wants to “replace the lost revenue by repealing most of the sales and use tax exemptions as recommended by the TRAC study.” That replacement idea is buried deep in the bowels of his website.

I’m glad he’s endorsing the repeal of most sales tax exemptions, but to be clear: The 2010 study by the bipartisan Taxation Realignment Commission didn’t suggest that we eliminate those exemptions in order to eliminate the income tax. It much more smartly suggested that if we eliminated some of those exemptions, we could lower the sales tax rate.

Democratic candidate Sen. Vincent Sheheen does endorse the actual TRAC idea, saying on his web site that the state “should broaden its sales tax base by repealing or revising loopholes and consider using the savings to lower the sales tax rate.”

Mr. Sheheen’s suggestion about the income tax is to “adjust income tax brackets for the 21st century, enact a refundable earned income tax credit to give low-income people a reward for working, eliminate millions of special-interest income tax giveaways and get rid of corporate income tax loopholes that keep eight of nine corporate filers from paying corporate income tax,” at least three of which are good ideas.

Oh, and those other poll questions? Fifty-three percent of respondents favored legalizing medical marijuana, while 36 percent opposed it. And 68 percent opposed legalizing online gambling, while just 17 percent supported it.

Those numbers probably aren’t dramatic enough to affect the legislative debate that Democrats want to force on marijuana next year, but they certainly ought to be sufficient to kill their efforts to expand gambling yet again. Which is also encouraging news.

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

About Cindi Ross Scoppe

Cindi Ross Scoppe

@cindiscoppe

Cindi Ross Scoppe has covered state government and the General Assembly since 1988, first as a reporter and now as an editorial writer. She focuses on tax policy, public education, election and campaign finance law, the relationship between state and local government, the relationship between the people and their government, the judiciary and the executive branch of government. Cindi has received numerous awards from the S.C. Press Association, including being named S.C. Journalist of the Year, editorial writer of the year and columnist of the year. She also has been honored by “Governing” magazine, the Inland Press Association, the American Bar Association, the National Commission Against Drunk Driving, the Humane Society of the United States and the S.C. chapters of Common Cause, the American Civil Liberties Union and Mothers Against Drunk Driving. Cindi is a member and serves on the Stewardship Committee and the Altar Guild and as strategic visioning coordinator of Columbia’s Church of the Good Shepherd, the Anglo-Catholic parish in the Episcopal Diocese of Upper South Carolina. She is a lover of cats and a baker of cakes and volunteers with the parish's annual mission work trip to Appalachia. She grew up on a tobacco farm just outside Burlington, N.C., and graduated in 1985 from the University of North Carolina at Chapel Hill, with a degree in journalism and political science. Before joining The State in 1986, Cindi worked for The Fayetteville Observer and The (Raleigh) News and Observer. Email Cindi at cscoppe@thestate.com or call her at (803) 771-8571.

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