Opinion Extra

McMaster: Cigarettes and higher taxes: Two bad habits

A quick review of the facts dramatically reveals just how badly South Carolina needs comprehensive tax reform.

We have the lowest cigarette tax in the nation. And yet we have one of the highest tax rates on income and one of the highest assessment ratios on corporate property, which damage our ability to create new jobs. And the per capita cost of local government in our state is outrageously high and growing faster than inflation.

For some people, the only answer to this bloated, antiquated revenue system is more taxes and more spending. When will we learn?

Surely, the first year of President Obama's administration made one lesson very clear. Spending trillions of dollars on bailouts and bigger government is not the way to rescue our nation from the grip of a recession. In fact it makes matters worse.

Sadly, even here in South Carolina, many Democrats continue to suffer from their addiction to taxes and spending. Education Superintendent Jim Rex is a good example.

Dr. Rex has proposed raising taxes on cigarettes to generate more funds for more spending. This piecemeal approach to the tax code is the root of our economic problems.

Of course, we all agree that our priorities are out of whack when taxes on income and business are higher than the cigarette tax. What we must do is engineer fundamental changes in the way the government of South Carolina conducts the public's business.

We need comprehensive tax reform from top to bottom in a way that serves the public interest, not the special interests. To get our state back on the path to prosperity, we need a new revenue system that makes the tax code flatter, fairer and friendlier to economic development.

As Ronald Reagan proved, and John Kennedy before him, reducing the overall tax burden stimulates investment, creates jobs and unleashes the entrepreneurial spirit of the American people. And when the private economy prospers, more revenue is generated to support the essential services of government, such as education, health and public safety.

In South Carolina, our next governor needs to have the courage to fight for fundamental reform. Our personal income tax rate is the highest in the Southeast. The assessment ratio on manufacturing property is the highest in the nation, and it's the seventh highest for commercial property taxes. Only comprehensive tax reform can address these flaws in our revenue system and get our state back on the path to prosperity.

That's why I reject the plan offered by Jim Rex to raise the cigarette tax. The time has come to say no to all the piecemeal proposals to raise one tax or lower some other tax or to swap this tax for that tax. To give the people of South Carolina the quality of life they deserve and the opportunities future generations deserve, we should insist on comprehensive tax reform now.

Raising taxes on cigarettes to cover deficits in state government is a bad idea for another reason. It won't work.

States that have raised cigarette taxes to pay for government programs have experienced a rapid decline in projected revenues. Maryland, for example, doubled its cigarette tax, and within eight months, according to The Wall Street Journal, revenues were 25 percent lower than had been expected.

Similar shortfalls were reported in North Carolina. And last year, Ohio reported a $129 million budget shortfall because projected revenues from higher cigarette taxes never materialized.

Addicting government services to shrinking tobacco revenues will make a bad situation worse. Fortunately, tobacco use seems to be in decline. Most Americans are now well aware that it's a very bad habit. Now, if we can persuade Jim Rex and some of his friends in the Democratic Party to give up their addiction to higher taxes, we can put together a bipartisan plan to achieve comprehensive tax reform.

I am very optimistic. We have all the assets we need to achieve unprecedented levels of prosperity. Some of the most innovative businesses and some of the most talented people in the world are already here. If we can work together to lift the burden of taxation on the businesses, industries and families of the Palmetto State, there is no limit to what we can achieve now and in the future.