LAST WEEK, budget prognosticators projected that the state would have what politicians are calling an “extra” $1.2 billion to spend next year.
That prompted Gov. Nikki Haley to declare, despite new and mounting financial obligations, that she will continue insisting on an already-unaffordable $1.4 billion-per-year income tax cut “until they give me reason to go below that.”
Some Republican legislators said they’d keep pushing for a higher gas tax and a lower income tax. Others vowed to keep pushing for no tax increase and lower income taxes.
And Senate Democratic Leader Nikki Setzler rolled out a plan to borrow up to $500 million to help pay for flood damage.
$1.2 billion added to S.C. budget
I don’t mean to imply that the politicians’ proposals have any rational connection to the projections. Oh, they want you to think there is a relationship, but in fact what they are saying is wholly unhinged from the amount of money South Carolina might collect. Or the amount of money needed for those things the state needs to pay for. Or how high or low our taxes are.
In that sense, last week was like pretty much any other week in South Carolina: Politicians decide what our taxing and spending policies should be without regard to what they actually are.
Gov. Haley, for instance, has already been given more than enough reasons that we can’t afford to slash the top income tax rate to 5 percent from 7 percent. The biggest one: We’re not meeting the obligations we already have — much less new ones we might have no choice but to add. Slashing income taxes by $1.4 billion a year is a particularly bad idea when you pair it with a $400 million-per-year increase in the gas tax and try to sell it as a plan to fix our roads. It’s not. It’s a plan to slash our taxes.
Where is 7% less than 5%? Hint: It’s related to SC taxes
Contrary to what the governor implies, our income taxes are not high: Once you factor in the different starting points and exemptions, South Carolinians who pay those taxes actually pay on average just 3.1 percent of our income in state income taxes; that’s lower than what people pay in 32 states. Overall, according to the anti-tax Tax Foundation, South Carolinians pay 8.3 percent of our total income in state and local taxes, the ninth lowest rate in the nation.
Now, let’s talk about that $1.2 billion in new money. What legislators would have us believe is that it’s a windfall. That if our revenue goes up $1.2 billion next year, then of course we can afford the governor’s tax cut, which would be phased in over two decades. That if our revenue goes up $1.2 billion next year, then of course we can afford the $1 billion a year needed to fix our roads.
The problem is that there’s no reason to believe tax revenues will go up $1.2 billion every year. In fact, there is every reason to believe that they will not. In fact, there’s not really $1.2 billion in new revenue projected; there’s about $600 million more to spend next year than the $7.5 billion legislators spent this year.
What the budget prognosticators said was that the amount of money the state collects in taxes will go up by $560 million next year. That’s a lot of money, but it’s just half of the $1.2 billion that isn’t really $1.2 billion.
Latest SC roads plan still doesn’t add up
Another $460 million in projected new revenue is one-time money, mostly the result of those same prognosticators underestimating how much money the state would collect last year and this year. That’s a lot of money too, but here’s the important point: It simply replaces the $460 million in one-time money the state is spending this year. And it is money that no responsible person would spend to pay for ongoing obligations — like tax cuts or pay raises or new employees.
There is another $210 million in new recurring revenue, but for tedious-to-explain reasons, it can’t be used in guessing how much we can expect revenue to grow each year.
What the budget prognosticators did not say — because it’s not their job to say this — is that legislators would have to use all $560 million of that new revenue, plus much of the other $210 million in recurring funds, just to meet the obligations they already have made.
The biggest obligation is to public education, where they need to increase spending $500 million just to close the gap between what state law requires them to spend on teacher salaries and other school operational costs and what they are spending this year. Now, no one expects them to close that gap; they have refused for years, while also refusing to change the law. But they will have to spend some of that amount — perhaps as much as half — just to maintain the status quo as the student population grows.
And that doesn’t include any additional funding to comply with a state Supreme Court order that legislators meet their constitutional duty to provide a decent education to all students, which legislative leaders consider one of their top priorities.
Dear Gov. Haley: There’s no free lunch, easy road fix or massive tax cut without pain
The other big obligation is $129 million to keep providing the current level of Medicaid benefits. The cost is actually higher, but the state Medicaid agency says cost-saving measures will offset part of it.
State law also requires lawmakers to give cities and counties an additional $82 million to help pay for those services that state law requires them to provide — another law everyone expects lawmakers to keep breaking.
In the not-required-but-promised category is $33 million that the Department of Social Services says it needs to hire 157 more employees to protect vulnerable children and adults. And the money the Department of Health and Environmental Control says it needs so it can maybe inspect all those earthen dams and keep them from breaching and flooding our communities.
For his part, Mr. Setzler showed no signs of letting up on borrowing to pay for flood costs, despite the fact that projections showed we would have that $460 million in one-time money — which is precisely the sort of money you ought to use to pay for one-time expenses … such as those created by historic flooding.
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.