EDITOR’S NOTE: Today’s news analysis is part one of a two-part series on South Carolina’s tax structure. The next installment is in two weeks.

SEPT. 5, 2014 -- Almost four years after the state’s vaunted Taxation Realignment Commission (TRAC) delivered its comprehensive tax-reform report to the General Assembly, it’s hard to see whether state legislators really learned any lessons.

“Widen the base, lower the rate.”

Key to the mantra was the realization that the state had sales tax exemptions totaling close to $2.7 billion.

Lauded upon its release by many for its thoroughness and criticized by others as yet another smokescreen for tax increases, the TRAC report argued, in part, that the state could drop its sales tax rate by cutting $1 billion in exemptions and better protect the state’s government budget from economic vicissitudes.

Any lessons learned from TRAC?

A look at some telling statistics, according to experts in the field, draws doubt if the state has learned any of the lessons contained in the TRAC report.

“They didn’t pay much attention,” said Maybank of the report he shepherded that now gathers dust.

Consider that, according to state documents, the tax base in South Carolina is continuing to shrink – according to Maybank, who keeps a watch on state tax policy from his law practice with Nexsen Pruet, “significantly.”

In the 2000 fiscal year, the state had $94.4 billion in gross sales of which 47.9 percent ($45.2 billion) was subject to taxes, according to state Department of Revenue figures.  (The chart at right shows FY 2000 compared to FY 2012.)

But by the 2013 fiscal year, the percentage of sales subject to taxes dropped to 34.5 percent of $164 billion in gross sales. So despite a huge increase in gross sales -- some $70 billion -- the amount that the state could tax rose only slightly -- from $45.2 billion to $56.7 billion.

In other words, the number of sales that could be taxed in South Carolina has dropped from close to 1-in-2 dollars in 2000 sales to closer to 1-in-3 dollars now -- a span of a little more than a dozen years.  (State documents suggest that the rate of decline seems to be slowing, increasing only tenths of a percentage point between the 2012 and 2013 fiscal years.)

The net result then is that now nearly two-thirds of all retail sales in South Carolina are outside of the tax base.  

In the recent fiscal year, sales tax exemptions cost the state more than $3.1 billion in lost sales tax revenue. That’s $400 million more than just four years ago. By comparison, compare this unrealized sales tax revenue due to exemptions to what the state actually took in --  $3.6 billion. 

South Carolina ranks low on taxes

Ellen Saltzman, a senior research associate at the Strom Thurmond Institute at Clemson, added the following statistics:

• South Carolina ranks 41st out of 47 states that have state and local general sales tax revenues on a per capita basis, according to the Urban-Brookings Tax Policy Center. Compared to the national per capita average of state and general local sales taxes is $925, South Carolina only takes in $673, or roughly 73 percent as much as the national average.    
  
  
• South Carolina takes in roughly the same per capita percentage in personal income tax -- nearly 75 percent of the national average -- ranking the state 36th out of the 41 states that tax personal income, according to the Tax Foundation and the U.S. Census Bureau.
  
  
• But when it comes to state corporate income tax revenue, South Carolina’s rate is, for better or worse, far below the curve. In the 2011 fiscal year, the state taxed at 35.7 percent of the national average of the 46 states that have corporate income tax, according to the same sources. The national average of corporate income tax collected on a per capita average was $129; South Carolina collected $46 per capita, leaving only three states that collected less.     

Part of the explanation for the disparities is the fact is that South Carolina is a smaller, poorer state with no real major cities – like an Atlanta or a Charlotte – to drive larger scale commerce, according to several experts. And at times, it has relied on exemptions to spur growth.   

Critics have decried many of the exemptions as the result of good lobbying and not good governance. The last time that the legislature tackled exemptions, a Republican-led committee in the House came up with a list of less than $20 million in exemptions to be removed. Compare that to, for example, the TRAC report, which urged the General Assembly to get rid of $1 billion in sales tax exemptions.

Saltzman said the disparities would continue to grow and bedevil South Carolina as the state’s economy evolved from its retail and manufacturing base to a service-based economy. The state does not tax many services, such as attorney fees or dog grooming costs. 

Tax reform needed, groups say

South Carolina now faces the daunting task of paying for more with less. Currently there is a list of close to $30 billion in roads projects that need funding. The legislature continued this year its usual practice of writing a temporary one-year law, called a proviso, that relieves the state from fully funding public K-12 education on a per-pupil basis by nearly one-third of what is required in law.       

So, considering this partial list of the state’s economic ratings and challenges, it may come as no surprise that many constituent groups across the state are calling for comprehensive tax reforms.  

Education advocates are continuing to call for the dissolution of Act 388, which switched the primary source for public K-12 education revenues from local taxes on primary owner-occupied homes, to a statewide one-cent sales tax.     

The end results of Act 388 don’t sit well with Otis Rawl, president of the S.C. Chamber, who sees the business community now having to shoulder more than its share.   

Even smaller lobbying groups, such as the South Carolina Realtors, led by Nick Kremydas, are in the process of making tax reform part of their economic development agenda packages for the coming legislative session. Kremydas said the state is a few tax policy changes away from making South Carolina a haven for retirees. 

Keely Yates, executive director of the S.C. Economic Developers’ Association, said that her organization is currently distributing a tax policy survey among its membership as it develops an agenda for the 2015 legislative session.  

Next installment:  What could happen, what should happen, and what will probably happen when it comes to tax reform next year.

Bill Davis is senior editor of Statehouse Report.  He can be reached at:  billdavis@statehousereport.com.

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While there are no major meetings next week in the S.C. House, the Senate has two that may be of interest:

• Expungement. A special study committee will meet 9 a.m. Sept. 9 in 105 Gressette Building. More: 803.212.6634.
  
  
• Education. A special study commission on public school teachers will meet 9:15 a.m. Sept. 9 in 209 Gressette. More: 803.212.6250.
  
  

The Statehouse website -- www.SCStatehouse.gov (you can try to click; it may not work) -- continued to experience problems today since going down Thursday because of a server software problem that occurred in the wee hours of the morning.

Senate Clerk Jeff Gossett said the problem clearly was not the result of a computer attack. And most of the legislature’s internal computer systems were working. Today, email was working just fine.

“Some of our lawyers had to pull out books,” Gossett said Thursday afternoon. “Luckily, it’s a day in September, not a day in May.”

Ervin may -- or may not -- be Perot this year

Political observers across the state have been keeping a keen eye trained on the campaign of gubernatorial candidate Tom Ervin, a conservative independent many consider a deep thorn in the side of Gov. Nikki Haley’s reelection campaign.

Observers have wondered whether there could be a “Perot effect” in the coming governor’s race in which Ervin could draw off enough votes from Haley to hand the election to state Sen. Vincent Sheheen, whom Haley narrowly defeated four years ago.

But some consider Ervin’s presence to be a wash, drawing equally from disenchanted Republicans disgusted by Haley’s management miscues and from Democratic groups that have warmed to Ervin, especially the LGBT community, which praises Ervin over Sheheen for the former’s more libertarian stances on issues close to their hearts and bedrooms.

Political scientist Scott Huffmon, who heads up the influential polling center at Winthrop, said the question was better answered by data than anecdotes. He said it was a fallacy to say that Perot “handed” the 1992 presidential election to George H.W. Bush because there was no way of saying that those who voted for Perot would have shown up at the polls in the first place had he not been on the ballot.

Huffmon said “conventional wisdom” favored Ervin drawing more from Haley’s voting bloc, and that he will have an impact, but it was too early with not enough data in to see the impact clearly.

Huffmon is including a question in a coming round of surveys for the center that asks respondents who’d they vote for if their candidate was not on the ballot.

The center will report its finding October 1, but even that won’t present a perfect answer, said Huffmon, hinting that the final answer won’t be revealed until the actual November election.

Just look at what’s been happening at the state Department of Social Services, an agency that almost no news story can discuss without using the adjective “embattled.”

For months, DSS has been the moth flitting in the scrutiny of a state Senate oversight committee’s light after reports of more than 300 deaths of children under the agency’s supervision in recent years. The department’s director, a political appointment from Hawaii by Gov. Nikki Haley, eventually started talking with Senate overseers earlier this year. On the eve of a possible no confidence vote, she resigned, leaving the agency in complete meltdown.

Now comes word that DSS has been working with an outside consulting firm from Alabama that it’s not having to pay. The firm’s job? To improve communications inside the agency as well as with its partners. DSS, which did not reply to information requests by Statehouse Report, has emphasized the firm’s work isn’t to overhaul the agency’s image -- despite a media report that the firm will help the agency “tell Social Services’ success stories more effectively.” Translation: The agency is desperately looking for any good news that it can get to (guess what?) rebuild its image with the public.

“You can only put so much lipstick on a pig,” said state Sen. Joel Lourie, the Columbia Democrat who chairs the special Senate oversight committee. “They shouldn’t be worrying about how to tell their story. They should be worrying about doing their job.”

Lexington retiree Sam Griswold, once a state director of DSS and the Department of Health and Human Services, has harsh words for what’s been happening. 

The late Gov. Carroll Campbell first appointed a cabinet in South Carolina, Griswold recalled. But Campbell appointed professionals who had been in the top jobs. Since then, the qualities of professionalism and leadership have been deteriorating at state cabinet agencies, he noted. And that has created a difficult position for people working at state agencies -- lower morale, retirements of people frustrated with what’s happening, tougher recruitment to state jobs and more.

“Now, these are pure political appointments,” said Griswold, a former president of the State Retirees Association of South Carolina. “The appointment is made by the governor and the mandate is , ‘Make me look good; don’t give me any trouble and, by the way, do the job if you can.’ DSS is a good example of this.”

Carlton Washington, head of the S.C. State Employees Association, said political cronyism runs deeper than just the top level at agencies. It infects key directors and managers two and three levels down from the top.

“They have run off all of the people who have institutional knowledge, experience and competency,” he said. 

Haley’s gubernatorial challengers are taking notice of what they call “leadership issues.” 

Democratic gubernatorial challenger Vincent Sheheen of Camden has said he’d “clean house” at DSS. Independent Republican Tom Ervin of Greenville takes it a step further.

“What you’re seeing at DSS is symptomatic of a lack of leadership at the governor’s office,” Ervin said. “It goes all of the way across all of the agencies that the governor is responsible for. That concerns me greatly. We need to have a government that the people can believe in.”

Ervin said he would order an entire review of every cabinet agency, such as the state Department of Health and Environmental Control, the Department of Insurance and the Department of Employment and Workplace.

“All of those agencies are in crisis mode and it’s going to take a long time to dig out of that hole, but it can be done,” he said. 

The hole at DSS likely will get deeper, despite anything the agency does to remake itself. Why? On the horizon is the imminent release of a state Legislative Audit Council report on DSS.

All indications are that the report will be brutal. And in the spirit of accountability and transparency, that’s as it should be.

Andy Brack is editor and publisher of Statehouse Report.  He can be reached at:  brack@statehousereport.com.

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By former U.S. Sen. Ernest F. Hollings
Special to Statehouse Report

SEPT. 5, 2014 -- Politicos always follow the polls, results and never the cause or solution. 

For example, politicos never tell how Republicans and Democrats in the U.S. Senate partied together, travelled together and even limited spending in campaigns. But when the Supreme Court in Buckley vs. Valeo reversed the law, unlimited spending took over, Senators started raising money against each other, campaign committees took over fundraising and partisanship set in. Then, Mitch McConnell, the Minority Leader, filibustered everything the  Democrats proposed, so Democrats couldn’t’ get a vote and Harry Reid, the Majority leader, filled up every bill called for consideration with amendments so Republicans couldn’t get a vote on their issues. Gridlock! What sustains gridlock? Money. 

Wall Street, the big banks and corporate America want to keep the offshore profits flowing so they contribute to the President and Congress to avoid making it profitable for corporate America to invest and produce in America -- to do nothing. We can’t live on imports. The duty of the President and Congress is to build and protect the economy. 

Chris Matthews announces on Morning Joe (9/3/14): “We can protect our workers and still have free trade.” Chris keeps quoting President Kennedy. As in JFK’s Profile in Courage, Henry Clay said in 1836 about free trade: “It never existed. It never will exist.” Today, David Ricardo’s comparative advantage is Japan and China’s controlled capitalism with closed markets and predatory practices. We’re buying helicopters from Russia and importing uniforms for G.I’s (The New York Times, 12/20/13). Chris never mentions Kennedy’s enforcing the Defense Production Act of 1950 to protect textiles in 1961.    

The U.S. protects the health, safety and environment of its workers – their minimum wage. The economy is what is not protected. Globalization is a trade war with production looking for a country cheaper to produce. Corporate America locates from country to country to be competitive. In December 2006, the Princeton economist Alan Blinder estimated that in 10 years the U.S. would offshore 30 million to 40 million jobs. 

Economists estimate that for every for every $1 billion of deficit in the balance of trade, it costs 9,000 jobs. With the 2013 deficit of $471 billion, the U.S. lost 4,239,000 jobs. We are losing jobs as fast as we can create them. In the beginning the U.S. was in a trade war (Boston Tea Party) and the Founding Fathers, two years before the Constitution and four years before Madison’s First Amendment rights, enacted the Tariff Act of 1787 to protect the economy. Chris never mentions protecting the economy. 

Politicos like Chris Mathews, Rachel Maddow, Lawrence O’Donnell, Bill O’Reilly and Joe Scarborough constantly mention Reagan but they never mention that Reagan, in 1984, protected steel, motor vehicles, computers and machine tools vital to our economy. Politicos constantly mention President Nixon but never mention that Nixon, in 1971, leveled a 10 percent surcharge on imports to repair the deficit in the balance of trade. Politicos constantly mention President Clinton but never mention that, in 1993, Clinton cut spending $250 billion, increased taxes $250 billion to give President Bush a balanced budget in 2001. Politicos never mention that the U.S. paid for all its wars, depressions, recessions, etc. and it took 200 for the nation to reach a debt of $1 trillion in 1981. Since 2001, Presidents Bush and Obama have borrowed and spent, increasing the debt $12 trillion in 14 years. 

Politicos never mention that the U.S. is not competing in globalization; that the President and Congress fail to make it attractive for corporate America to invest in America; fail to replace the corporate tax with a value-added tax (VAT) that is rebated on exports, closes all loopholes, giving instant tax reform; that is used by 160 countries; against enforcing our trade laws. Politicos fail to mention protecting production vital to defense and a strong economy; that we can jumpstart the economy and create millions of jobs by replacing the 35 percent corporate tax with the 7 percent VAT. Politicos never mention that we can break gridlock by amending the Constitution to empower Congress to limit or control spending in campaigns as Congress did in the early 1970s. 

The best off-Broadway show is the President and Congress acting like they are performing their duty but really are engaged in one grand fraud by taking the contributions and doing nothing. 

Why don’t politicos expose the fraud? Why don’t politicos tell it like it is? 

Hollings served as governor of South Carolina from 1959 to 1963 and as United States senator from 1966 to 2005.  You can read more of his recent commentaries at FritzHollings.com.

To the editor:

Libraries have library rules of conduct that are adopted by the library boards. We use these to provide an environment that is conducive to library use and to provide a safe environment for the public and for our staff.  

Since libraries are public buildings and considered a limited public forum and based on a former state Attorney General’s opinion, it is very difficult in South Carolina to effectively remove people who consistently violate the adopted code of conduct.

The purpose of the legislation is to codify the ability to remove these people and to provide law enforcement with a tool to do so. It is unfortunate that the House did not have time to act during session but it appears the House leadership felt it was important enough to take the action.

-- Douglas A Henderson, executive director, Charleston County Public Library

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Campaign season. The state’s fall campaign season officially got off with bangs this week with new charges and countercharges on TV and in press conferences. Watch out. The next two months may be nasty.