I CANNOT BELIEVE my bad manners: I failed to wish all my fellow South Carolinians a happy Tax Freedom Day. It was Tuesday, and I guess it just snuck up on me — what with it arriving so early in the year. Well, there was also the distraction of Holy Week.
In most states, Tax Freedom Day comes later — as late as May 24, but on average two weeks after ours. But here in South Carolina, we earn enough money to pay all our local, state and federal taxes sooner than residents in all but seven states, according to the anti-tax Tax Foundation.
That’s not because we earn so much money, It’s because our taxes are relatively low.
Of course “relatively” is the key word, because “too high” is subjective. What’s not subjective is how we compare to other states.
Since Tax Freedom Day coincides with the legislative battle over whether to raise one of our lowest taxes and, if so, whether to simultaneously lower one of our lowish taxes, it seems like a good time to take a look at some of those objective realities.
There’s no perfect way to compare taxes across states — as most anyone who doesn’t like the results of a particular comparison will be quick to point out. But Tax Freedom Day and the Tax Foundation’s related ranking of state and local tax burdens are probably the best measures you’ll find, because they compare the total income reported in each state with total taxes paid.
On average, according to the Tax Foundation, South Carolinians pay 8.4 percent of our income in state and local taxes. That compares to a low of 6.5 percent in Alaska, a high of 12.7 percent in New York and a national average of 9.9 percent. (Please forgive a brief technical interruption: The state-and-local numbers are from 2012; the Tax Freedom Day figures are from last year and also include federal taxes. Our rank is nearly identical by both measures: eighth-lowest for Tax Freedom Day and ninth for state and local tax burden.)
If it doesn’t feel to you like our tax burden is among the lowest in the nation, perhaps you’ve been paying too much attention to what politicians say instead of what they do. What many say is that our taxes are going up, up, up. What they keep doing is cutting taxes.
The Legislature did raise the cigarette tax in 2010, by about $135 million a year. It also raised the statewide sales tax to 6 percent in 2007. But that increase, now bringing in about $600 million a year, was supposed to make up for eliminating all school operations property taxes on owner-occupied homes, which now saves homeowners more than $700 million a year. So that has been a net tax cut.
Otherwise, lawmakers have been on a tax-cutting spree since 1995, when they approved an earlier school property tax cut — worth $195 million a year at the time, now more than $250 million a year. Additional tax cuts over the past two decades are worth about $2 billion a year — mostly in income tax cuts, exemptions and deductions. That is to say: Taxes have been increased by $735 million a year and cut by $2.9 billion a year.
Raising gas and vehicle fees by $800 million a year — as the Senate Finance Committee proposes — would leave us with a net tax cut of only (only!) about $1.4 billion a year.
The gas tax is one of the most straightforward to compare because it’s a per-unit tax: Our 16.75-cents-per-gallon tax is the second-lowest in the nation.
We also pay the seventh-highest tax on beer, 17th-highest wine tax and 27th-highest liquor tax — but still the sixth-lowest cigarette tax.
We pay the 16th-highest state sales tax rate, at 6 percent, and the 18th-highest combined state and local sales tax, at an average of 7.22 percent, although it’s a lot higher in some areas. But this isn’t as straightforward as it seems, because states tax different things. Several tax candy and soda, for example, and many tax far more services than we do.
Property taxes are trickier to compare, although our homeowner property taxes tend to be on the low side and manufacturing taxes look to be on the high side. But the granddaddy of tricky is income taxes.
Politicians complain that our 7 percent top income tax rate is too high; they don’t often mention that we use a lower starting point than most states (“federal taxable income” instead of “adjusted gross income”) for subtracting out all of our credits and deductions. According to South Carolina’s chief economist, those differences mean the tax that South Carolinians actually pay is on average just 3.1 percent of our income, which is lower than what people pay in 32 states.
Want to see how that works? Grab your income tax returns — they ought to be handy, since tax day is Tuesday — and divide your total S.C. taxes due by your total federal income (not adjusted income, not taxable income; income). It’ll be higher than 3.1 percent for some, but probably nowhere near 7 percent. That’s a big reason we’ve already passed the big Tax Freedom Day celebration.
Ms. Scoppe writes editorials and columns for The State. Reach her at email@example.com or (803) 771-8571 or follow her on Twitter or like her on Facebook @CindiScoppe.