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HOT ISSUE
1.13: Tax cuts sound good, but
planning best
(Week of April 2, 2002)
MARCH 29, 2002 - - Republican candidates for governor
seem to be trying to outdo each other on the tax-cut bandwagon.
But in a budget year that, at best, is a mess, all of this tax-cut
talk seems out of synch with how the General Assembly is struggling
to make up a $350 million shortfall.
To date, here's what the four leading Republican
candidates have devised:
- First came solemn Mark Sanford who wants to
kill the state's personal income tax over 18 years and replace
revenues with a 5-cent gas sales tax hike.
- Then there was aggressive Charlie Condon who
is campaigning for a constitutional amendment to eliminate local
real and personal property taxes. He proposes making up the difference
by closing $1.3 billion in sales tax loopholes and using a combination
of savings, more sales tax or new "service fees."
- Next to arrive was grave Jim Miles, who pledged
to abolish property taxes. According to The State, he had
no real plan on how to make up revenue reductions, but said cuts
in government's size, caps on spending and economic growth would
make up the difference. One Republican economics expert said relying
on growth to replace the lost revenue was "borderline irresponsible."
- And on Thursday came demure Bob Peeler, who
said a Peeler administration would cut taxes and clean up the
state's budget problems. How? Through economic development.
While tax cuts have a nice ring for voters, a few
people around the Statehouse quietly are questioning whether politically-expedient
tax cuts are really a good idea. House Ways and Means Chairman Bobby
Harrell and Senate Finance Committee Chairman Hugh Leatherman have
committed to a joint tax review process after this legislative session
that would take a long look at the state's tax structure. Separately,
they have said a comprehensive approach is more important than myriad
narrow attempts to cut taxes without an overall state strategy.
That approach makes sense, according to economists.
Because of South Carolina's mix of property, income, sales and corporate
taxes, the state's revenue base is pretty solid.
"Of all tax dollars collected at the state
and local level in South Carolina, sales taxes account for 36 percent,
individual and corporate income taxes together account for 28 percent,
while property taxes make up 27 percent," economists Doug Woodward
and Donald Schunk wrote in The State earlier this month.
"These contributions to total revenue are almost identical
to national averages."
The diverse taxing mechanisms employed by government
make it more stable and resistant to general economic downturns.
For example, if the state got rid of property taxes - - which are
considered extremely stable - - in favor of added sales taxes, it
would be harder for the state to generate revenues it needed to
provide needed government services if the economy took a downturn.
Why? Because taxpayers tend to save money in lean times, which means
they're not spending as much money and, in turn, providing less
in sales tax to the state.
"There's no tax that is perfect," another
economist told Statehouse Report. "But we have a very
well-balanced system in South Carolina. You have to be careful about
tax cuts. They are politically appetizing, but they shift the burden
to another portion of the population."
If the state's lawmakers move forward with a joint
tax review commission that looks at the big picture and provides
a meaningful roadmap for real changes into the state's tax structure,
South Carolina could build a balanced 21st Century tax system that
will be the envy of every state. Over the next two months, you'll
be able to tell how serious the Legislature is about real tax reform
by looking at whether they pass legislation to appoint such a commission.
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