Thursday, Jul. 17, 2008

Think you pay more than your share for schools? Don’t be so sure

WHEN PARENTS tell me they shouldn’t have to pay taxes to educate children they’re already paying tuition to send to private school, I ask if they think I deserve a pass as well. I don’t have children, but I pay school taxes. I pay them for the same reason private-school parents do: School taxes pay to educate the children of South Carolina, not the children of the individual taxpayer. It’s much the same as the taxes we pay for fire service, which we hope we never need.

To emphasize my point that they have no legitimate reason to complain, I usually add that I pay more to run the schools than the vast majority of South Carolinians.

But during a recent conversation, I realized mid-sentence that this probably isn’t true anymore. The main thing that pushed my share of school taxes well above the average was my residential property tax bill, which I no longer pay. Instead, I pay a higher sales tax.

I knew about this shift; I’ve denounced it numerous times since the Legislature approved it two years ago. But that was all about policy. I had never stopped to think about the very real impact it has, not only on my finances, but on the ownership of the schools. I doubt I’m alone.

The last time homeowners paid school taxes, my bill was $1,581.75. Since that bill was replaced with an additional 1 percent sales tax, I would have to spend $158,175 on taxable goods in order to contribute as much toward the schools as I used to.

Now, I do have more discretionary income than most people, but I don’t buy a lot of stuff. There are those seven-dress weekends from time to time, but I’m not into electronic gadgets or jewelry or designer chocolates, and I don’t eat out much since I figured out the link between that and obesity. The food I do eat is almost all tax-free now, and the other growing consumer of my income — gasoline — is exempt from the sales tax.

The IRS says that if I wanted to deduct sales instead of state income taxes, I could put down $700 for myself, or $1,300 for my husband and me. But those estimates are for the entire 7 percent sales tax; the property tax replacement fund would receive just $100, or $185. By that estimate, the tax swap reduced our school tax bill by almost $1,400 a year.

Lawmakers argued that they needed to switch from property taxes to the sales tax because 1) the public demanded it, 2) it was a fairer way to fund the schools and 3) it would ensure that everybody paid for the schools.

Nobody likes to pay any sort of taxes, but I’ve never bought the argument that The Public was clamoring to eliminate property taxes. It always looked to me like a very small, but vocal, group behind the movement.

But let’s grant the public-demand argument and go on to the second. Fair, of course, is in the eyes of the beholder: If you think it’s fair that people who can’t afford their own homes pay a much higher portion of their income — and in some cases more actual dollars — to run the schools than those with pricey South of Broad mansions, then it is fairer. If you think it’s fair for me to get a four-figure tax break, then it’s fairer.

The most ridiculous argument for the swap was to “make everybody pay.” The clear implication — that those who do not own their homes did not pay taxes to support the schools — might have been the biggest lie of the entire debate. If anything, they paid school taxes at a higher level than the rest of us.

No, renters don’t write a check to the county for their property taxes. But unless their landlords are running a charity, the property taxes — like the insurance and the mortgage — come out of their monthly rent checks. And taxes have always been higher on rental property than owner-occupied housing: Rental property is taxed on 6 percent of its value, 50 percent more than the 4 percent assessment ratio for owner-occupied houses, and it doesn’t qualify for any of the tax exemptions that homeowners always took for granted.

The tax swap turned that gap into a chasm, because school taxes are still collected on rental property. If someone else owned my home, and I was renting it, the school tax bill in 2006 would have been about $3,000, instead of the $1,581.75 I paid. And in 2007, rather than the tax bill being a big fat zero, it would have been a little more than $3,200.

There is no question that property taxes had become too large a part of the government revenue stream before the tax swap. But lawmakers chose the wrong fix, and then took it too far: Instead of creating circuit-breakers like most states have to keep property taxes from getting out of reach for individual homeowners, they slashed the bills for those who could well afford them. Instead of eliminating some of the exemptions on goods and services that make our sales tax code look like Swiss cheese, they added more exemptions and raised the tax rate, so it’s now among the highest in the nation.

Compounding the error, they didn’t even use the state’s increased role in school funding to distribute the money in the smartest way — to reflect the fact that it’s more expensive to educate poor kids in poor districts than middle-class kids in middle-class districts.

The wrong-headed policy changes reflected in that last tax swap are not the reason our state desperately needs an overhaul of our tax code. They’re simply the latest in a long string of reasons.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.

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