THE MOST ridiculous, regressive and offensive sales tax exemption in the history of the world has to be South Carolina’s $300 cap on cars and airplanes and yachts and RVs and other vehicles. That’s the exemption that makes someone who buys a $5,000 clunker pay the same $300 sales tax as someone who buys a $300,000 Cessna.
It’s an exemption that is condemned and derided even by people who benefit from it, an exemption that nobody could ever defend except a car, boat or plane dealer — or a legislator who’s afraid to anger said dealers, which is to say pretty much everybody who has served in the S.C. General Assembly since the auto dealers wrote that exemption for themselves back in 1984.
So I had been pretty psyched about the fact that the House passed a road-funding bill that raised the cap from $300 to $500, and the Senate Finance Committee voted to take it up to $600.
This was the first time anyone has ever summoned up enough courage to defy the auto dealers and get even that little bit of reform through a committee, much less a whole House. This, I thought, was real progress.
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Then a lady at the State House discretely handed me a note saying how disappointed she was that the cap would remain so low. “That really only hurt people who can hardly afford to buy a car!” she wrote.
And I suddenly felt embarrassed by how happy I had been about a change that only a policy wonk could love. Yes, on paper, in an incremental sort of way, it is progress to make people who buy more expensive vehicles pay their taxes on a larger percentage of those purchases.
But the reality is that if you raise the sales tax cap from $300 to $600, people who buy Lamborghinis — or even BMWs — still won’t even notice the tax. But people who cobble together $8,000 to buy a decent used car will notice that they’re paying $480 instead of $300.
Truth be told, any sales tax is regressive, because, by and large, the more money you make, the smaller portion of it you spend on purchases that our state taxes. That’s why we balance the regressive sales tax with the progressive income tax. But what the lady was telling me was this: People are willing to pay their fair share, but they do want it to be fair. And asking someone to pay a tax of just 1 percent on a new BMW while I pay the full 6 percent on my third-hand Honda isn’t fair.
It’s particularly not fair when you look at it in context.
The context is legislation that also would raise the state’s gasoline tax, which is also regressive: The less you make, the larger portion of your income you have to spend on gasoline, and thus on the gas tax.
Now, the hard truth is that if you’re going to raise taxes to improve our roads, there is no way around raising the gas tax. Ours is not only low but among the lowest in the nation, so we have room to raise it. There is no one who pays that tax who would not benefit from improved roads. And — the best part — a third of the gas taxes collected in South Carolina are paid by people who do not live in South Carolina.
And at this point, it doesn’t look much like the Legislature is going get anything done this year on roads, but looks can be terribly deceiving, particularly when the S.C. Senate is involved. And if we are going to raise the regressive gas tax, we don’t have to compound the pain it causes people at the lower end of the economic scale by piling on gratuitous doses of extra pain.
Like raising the sales tax cap just enough to hurt those who are struggling, while still giving a generous tax break to everyone else.
Or, for that matter, doubling the cost of a driver’s license and nearly doubling the cost of a license plate, as the Senate Finance Committee and now the Senate Republican Caucus have proposed.
By all means, deal with the sales tax cap, because it’s indefensible. But don’t just raise it. Eliminate it, and charge everyone 6 percent — or 3 percent, or whatever — on the full purchase price. Or else turn it into a floor: No tax on the first $10,000, or whatever amount you choose.
And as smart as it is most of the time to diversify our tax base, this isn’t one of those times. Increasing the fee for a license and a license plate makes the package even more regressive. Whatever amount of money legislators want to get from those fees would be better raised through the car sales tax, or by making the gas tax a little higher than planned, since, again, a third of that money would come from people who use our roads but don’t pay our other taxes and fees.
Finally, if lawmakers are going to collect more taxes for gasoline purchases, they need to do it in a smart way. That means sticking with the House’s much more convoluted mechanism, which essentially removes the sales tax exemption from gasoline. That way you get an automatic inflation adjustor, not an artificial one like senators support, so revenue can rise as the costs of repairing roads rises.
No one likes to pay higher taxes, but people would be a lot more likely to accept a plan that eliminated the sorest thumb of our entire tax code. And there’s simply no good reason for a road-funding plan not to do that.
Ms. Scoppe can be reached at email@example.com or at (803) 771-8571. Follow her on Twitter @CindiScoppe.