HOUSE LEADERS promised, back in 2012, that they were ready to overhaul our loophole-ridden, special-interest-driven tax system — a system that results in higher rates than we should have to pay, a system that encourages behaviors we want to discourage and discourages behaviors we want to encourage, a system that is based on an economy that no longer exists and that crashes when the actual economy crashes.
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But their proposal was actually just a massive tax cut, with a few minor reforms thrown in as window dressing.
Two years earlier, the Taxation Realignment Commission compiled an impressive report about the problems with our tax code and sent it to a Legislature that had ordered the study but made clear that it had no intention of acting on the findings. And it didn’t.
Before that … oh, they’re all running together now, but there was a reform effort that got perverted into the now-infamous Act 388 that eliminated residential property taxes for schools and replaced them with a sales tax increase that brought in less money, and one before that that got hijacked in the GOP takeover of the House and turned into the state’s first big property tax cut. And a couple more in between.
So it would be reasonable to expect that the latest tax reform effort would yield more of the same: that is to say, nothing, or — worse than nothing — bad policy.
How messed up is our tax system? Consider …For every $3 you spend in South Carolina, you pay taxes on just $1. For every 3 South Carolinians who pay income taxes, 2 don’t. SC businesses pay some of the highest school property taxes in the nation — while homeowners pay none. What looks like a 7 percent income tax rate acts like it’s 3 percent — on average. But some pay more, some less, thanks to a convoluted collection of exemptions and exclusions.
Sort of out of nowhere, House Speaker Jay Lucas announced last month that he had created a committee to study the tax code. And before you could say “comprehensive tax reform,” the panel had already met to hear Mr. Lucas’ call to arms, and met a second time to hear from state officials who cut through the fiction that we pay high income taxes. It’s set to meet again today, with hopes of having a proposal by January, and, well, I’m numb from watching all these tax studies become less than themselves and then wither away, or metastasize into awful anti-reforms.
But at the risk of looking like Charlie Brown charging toward the football … I believe this time could be different.
First, Mr. Lucas seems genuinely committed to reform, and more able (or at least more willing) than previous leaders of making the case for it. He made it clear at that first meeting that he was not using “reform” as code for either “tax cut” or “tax increase,” but that he was looking for actual reform, as in: eliminate exemptions, raise some rates, lower some rates, change when and how those rates kick in, and try to tax the things you want less of (teen smoking, for instance) and reduce taxes on the things you want more of (job creation, for instance).
As he told me last week, the economy has changed so much even since the doomed TRAC study demonstrated that our tax system was unsustainable that an overhaul is now inevitable. “It’s not a question of are we going to do it,” he said. “It’s a question of when are we going to do it, because we’re going to have to do it.”
I haven’t talked to the members of the committee, but to hear Mr. Lucas tell it, they all understand that. “All these folks volunteered,” he said. “I didn’t draft anybody. They came to me, and they wanted to do this. You’d be shocked by the number of people I talk to on a daily basis that realize this is a problem and it’s going to be a big problem if we don’t do something about it.”
Unlike 2012, those committee members aren’t all Republicans; Mr. Lucas made a point of creating a group that resembles “a cross-section of this state more closely than any group I can remember.”
Equally important is the difference in the House itself: If you reform the tax code — that is, change the rules under which all taxes are assessed — everybody will pay more of some taxes, and less of others. Even if the package is revenue-neutral, some people will pay more than they do now.
So real reform is a non-starter in a House whose members have signed blood oaths to never, ever raise any tax so help them God, and who live in constant fear of losing a Republican primary. But in a House whose members voted overwhelmingly last year to raise the gas tax, who believed they could go home and defend that vote to their constituents, there’s room to talk about raising some taxes while lowering others, in order to make our tax system broader and flatter and fairer and more sustainable.
Of course, there’s no guarantee that the governor would sign a real tax-reform package. No guarantee that the Senate would pass one. For that matter, there’s no guarantee that the House would pass one, or that Mr. Lucas’ panel will actually deliver a workable proposal. After all, I’ve only seen one serious reform effort make it to the floor of either body in three decades — as a floor amendment, which was rejected.
So it’s not saying a lot to call this the best shot I’ve ever seen at reform. At the same time, it’s everything.
Ms. Scoppe writes editorials and columns for The State. Reach her at email@example.com or (803) 771-8571 or follow her on Twitter @CindiScoppe.