Cindi Ross Scoppe

Scoppe: A tax lesson from the first gubernatorial debate

THE HEADLINES out of the first Republican gubernatorial debate were dominated by the not-terribly surprising news that all five participants support school vouchers and oppose crawling back into the Confederate flag debate, and the even-less-surprising observation that they were in general agreement on everything else.

General elections get us so accustomed to candidates who would argue over whether the sun rises in the east that we're ill-prepared for the homogeneity when primaries roll back around. If the strategy in general elections is to distinguish yourself from your opponent, the strategy in primaries is to play to the base. As Attorney General Henry McMaster quipped when the moderator remarked on the candidates' unanimity on two consecutive yes-no questions, "We're all Republicans."

That's not to say there are no differences beyond style, experience and the all-important emphasis. You just have to listen more closely to notice them. Doing that yielded several in Wednesday's debate, the most telling of which involved taxes.

There's a general perception that the only approaches to taxes are to raise them or lower them. But in fact, you can raise or lower taxes, or leave the overall level of taxation alone, in a smart way or in a stupid way (we usually pick stupid in South Carolina, no matter which direction we go) - as the only two candidates who addressed tax policy more than in passing demonstrated.

Both Mr. McMaster and Sen. Larry Grooms are on the lower-taxes side, so their comments might have sounded similar, but they were nearly 180 degrees apart.

I am generally impressed by Mr. McMaster, but still I was surprised by the way he handled the topic, since about all Republican audiences want to hear is that all taxes are evil. His prescription for tax policy was straight out of the "Economists' Guide to Smart Tax Policy" text book: broad and low.

While the "low" part is no surprise, it's not often you hear a Republican candidate advocating "broad," as in: I'll give you lower tax rates, but I'll also raise taxes for some people who aren't paying their share now. But that's what Mr. McMaster did, as he explained his plan to grow the economy - to "turn our attention away from managing scarcity into creating abundance," as he put it. "If we have ... comprehensive tax reform, that makes taxes low and broad, then we'll be able to compete with not only the Southeast but the rest of the country, and we'll be able to have these things that we need."

And a moment later: "If we broaden the tax structure, if you broaden it enough, get rid of the exemptions and make it low, you can have a renaissance."

Now, I don't want to make it sound like Mr. McMaster has morphed into an apolitical tax policy wonk. He hauled out those Sanfordesque numbers that exaggerate our tax burden, claiming we have the highest manufacturing taxes and the 7th highest commercial taxes in the country. A subtle but essential difference between those claims and the truth is that we tax manufacturing property based on 10.5 percent of its value, which is the highest assessment ratio in the country, but higher tax rates in other states mean manufacturers there pay higher taxes. Ditto commercial real estate taxes.

Still, it is all too rare that candidates understand and will advocate the basic principles of smart tax policy - and one of the most important is to make your major taxes as broad-based as possible in order to keep the tax rates as low as possible, both to be fair and to avoid chasing people or business away. Democratic Sen. Vincent Sheheen and Education Superintendent Jim Rex have advocated for that principle in their current jobs, although we'll have to see whether they maintain that as they campaign for governor.

There's no guarantee, as Mr. Grooms demonstrated. Mr. Grooms, you may recall, teamed up in 2006 with Mr. Sheheen to propose the only serious attempt at comprehensive tax and spending reform that has ever made it to debate on the floor of either chamber. Their plan eliminated the residential property taxes that pay for schools and cut the rest in half, in return for raising the sales tax by 2 cents, eliminating several sales tax exemptions, instituting a modest statewide property tax and much higher taxes on cigarettes, alcohol and property sales and changing (in a smart way) the way money is distributed to schools. It was by no means perfect, but it was a well-thought-out, serious attempt to handle tax policy.

Mr. Grooms made reference to that plan Wednesday, but he mentioned only the crowd-pleasing part about slashing property taxes with a higher sales tax, and he did that as an introduction to his red-meat line: "We should not tax income. We should not tax property." Then over and over, the promise to lower taxes dramatically - which hammers home the idea that he's going to eliminate income taxes and property taxes.

Even if you agree with that as a statement of principle, it is absurd from a practical standpoint. There are three primary levies that fund state and local governments, the nation over: sales, income and property taxes. Most economists agree you should draw roughly equally on the three, because they balance each other out in terms of how they behave through the economic cycle and how they distribute the tax burden. It would be destabilizing enough to eliminate either income or property taxes. To eliminate both would not only result in wild fluctuations in tax collections and a massive shift of the tax burden to the poor and middle class; it also would require a huge sales tax increase - large enough to drive consumer purchases onto the Web and across state lines in numbers that would devastate tax collections, and force countless businesses to close.

Just a few comments by just two of the candidates, but they illustrate the difference between politicking and governing, tax pandering and tax policy - and they should serve as a lesson about how much we can learn if we don't allow ourselves to get distracted by the predictable platitudes from the campaign trail.

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