SEN. GREG Hembree sees two strands of yarn the Senate could use to try to thread a really tiny gas tax needle: Pass a tax-increase-only bill (or, for all he cares, tax-plus reform), with no hope of getting enough votes to override Gov. Henry McMaster’s veto. Or pass a bill that raises the gas tax while also cutting income taxes, which would, at least in theory, require only a majority vote.
Even if you set aside the fact that there’s no more of a majority for the tax cut than there is a two-thirds vote for the increase-only idea, there’s still the problem of the House, whose leaders have wisely decided they will not steal any more money from the general fund — which is what cutting taxes would do. But Mr. Hembree still thinks the tax-cut idea is more likely to succeed, because the governor might be able to lean on the House — which certainly would not have done any good with the last governor, but with this one … well, who knows?
It was in that vein that Mr. Hembree introduced a bill late last month to raise the gas tax and related fees by $712 million a year and cut income taxes by $635 million a year. He calls that a net tax cut because out-of-state drivers would pay $171 million of the $712 million a year in extra taxes.
That way of looking at taxes is one of two parts of his plan that have the potential to create a way past what looks like yet another stalemate.
Mr. Hembree is playing up the fact that his plan would focus tax cuts on middle- and low-income people, because he doesn’t change the top tax rate. But the way our income tax system works makes that less significant than he imagines. Besides, it’s the concepts, not the details, that are promising.
The other important concept in S.600 is the reverse raid. In the past few years, the Legislature has diverted $131 million in annual funding to the Transportation Department from the general fund, where the money had paid for . . . well, for everything except roads. Mr. Hembree’s bill would move that money back into the general fund. That means that instead of cutting funding for everything except for roads by $635 million a year, he would be cutting it by $504 million a year.
He says tax revenues are growing enough that there would never be an actual revenue cut — just slower growth. And that is probably true.
It might even make sense to do such a thing … if our population wasn’t growing and inflation wasn’t diminishing the value of each tax dollar and if our taxes were high compared to other states. And if we didn’t have kids dying while they’re under state protection because we can’t afford to hire enough social workers, and riots at our youth prison and murders in our adult prisons because we can’t afford to hire enough guards, and dams breaching because we couldn’t afford to inspect them regularly, and kids in poor schools getting stuck with less-than-adequate teachers because we can’t afford to hire good ones.
Of course, we do have a growing population and inflation, which means we need virtually all of the revenue growth just to keep essential state services operating at the current level. And our taxes are not high compared to other states; well, our sales and alcohol taxes are high, but overall we’re middling to low. And of course, we have all of those failures of government to provide for public health and safety, because our primary aim for a quarter century has been to cut property taxes and income taxes, even when that cripples our ability to provide the most basic of public services.
So Mr. Hembree’s plan still cuts taxes by more than any reasonable person could justify. Given our circumstances (or maybe any circumstances), there is no logic in turning a road-funding bill into a net tax cut. Even a tax-reform bill shouldn’t be less than tax-neutral, and this plan shouldn’t pass as tax reform because it doesn’t make significant improvements to our tax code.
But let’s not end the conversation there.
If you trim his tax cut to $131 million, you’re left with four things: a net tax increase for South Carolinians of $410 million a year, a not-insignificant income tax cut (the holy grail of many Republicans), no reduction in revenue to the state’s general fund, and $581 million in additional funding for the Transportation Department.
Granted, that’s less than the House wants — and a lot less than the Transportation Department wants. And it’s not something I’d like because it changes taxes without reforming the tax system.
But compromise has to go both ways. When tax supporters ask more than a third of the Senate and the governor to accept a tax increase they don’t want, it’s reasonable to expect the tax supporters to accept less money than they want. And it certainly wouldn’t hurt to include the House’s badly needed reform.
Ms. Scoppe writes editorials and columns for The State. Reach her at email@example.com or (803) 771-8571 or follow her on Twitter or like her on Facebook @CindiScoppe.