What is the most procrastinated, most reviled, and, unfortunately, the most required honey-do in America? The April 15 tax chore, of course. Unless you are packing some serious civil-disobedience cojones you pay the piper annually. Despite an aversion to performing the tax task, any opportunity to bitch about or debate the tax code is greatly anticipated. This is true whether you are rich or poor, black or white — everyone feels screwed by the tax man.
But all of the bellyaching may be uncalled for. According to a recent study produced by Andy Brack's Charleston-based think tank The Center for a Better South, this state has one of the most il-liberal tax systems in the country — meaning you pay less, and you get what you pay for.
Titled Doing Better: Progressive Tax Reform for the American South, the study, written by Sarah Beth Coffey, evaluates 11 policy ideas that would bring the Southern tax system into the 21st century. The Southern states — Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, and Virginia — are given a report card to measure just how progressive their tax systems are based on the 11 suggestions. South Carolina brought up the rear, as we are wont to do, with only Louisiana behind us.
The study argues that the South's economy has undergone a dramatic transformation since the 1930s and '40s — South Carolina is no longer the textile mill to the world, having shifted from manufacturing to service industries. Incomes have also changed, growing along with the prices of goods. But the tax policies haven't adapted to these changes. To bring things up to date, the Center for a Better South recommends taxing internet sales and cutting back on tax breaks for those who can afford to pay — like corporations and the wealthy.
"This isn't about raising taxes. This is about balancing the tax burden, about making it fairer for everyone," says Andy Brack, president of the progressive think tank.
The study could not have been released at a more opportune time. Knowing the vote-rallying power of a good tax cut, politicians are among the most eager to engage in the tax debate. This is never more true than in an election year. Constituents have been bombarded with tax-centric news since the General Assembly convened in January. Sales tax, property tax, income tax, for roads, for schools, for public services — it has become a blur of numbers and percentages, half-cents and tax holidays.
In an attempt to provide some clarity to the tax debate, here are the 11 tax areas the Center sees as having room for improvement, and where South Carolina currently stands on them:
Broaden the Sales Tax Base
Translation: Get rid of tax holidays. It would be a heavy cross to bear — who doesn't love an excuse to shop with abandon? Even if you aren't really getting much of a deal, it feels like you are, and it is a holiday. Unfortunately, this holiday costs South Carolina an estimated $5.2 million a year.
Modernize Sales Tax for the New Economy
Translation: Tax more services. There are 168 possible services that can be taxed. In 2004, South Carolina only taxed 34. The Center for a Better South's study calls this the "Swiss cheese" approach to taxation. Some of the services that could be taxed, and aren't, include mini-storage, pet grooming, dating services, and golf lessons. A big disappointment for all you pack-rat, pet-owning, single golfers, but every little bit helps. In 2001, if South Carolina had taxed more services it would have generated an additional $669 million.
Raise Cigarette Taxes to Promote Public Health
Translation: Cancer sticks should cost more. South Carolina has the lowest-in-the-nation cigarette tax at a measly seven cents a pack. In North Carolina — where they actually grow tobacco — you are charged 35 cents a pack, which is still well below the national average of 92 cents. Research indicates if the tax were raised, 30,600 smokers would quit and long-term health savings would total $1.1 billion.
Enact a State-Earned Income Tax Credit
Translation: Working-class families can rise above the poverty level because they would receive a tax break. The federal government already has a program, and in 2003, 414,707 South Carolinians were able to take advantage of this option, saving them $779 million. Nineteen states and the District of Columbia offer the same break on state taxes. South Carolina does not.
Modernize State Income Brackets
Translation: Tax brackets are based on incomes from the 1940s. It's time for an upgrade. Do you remember Steve Forbes and his crazy "flat tax?" That is basically what we've got for an income tax. It didn't get Forbes a presidential candidacy, and it doesn't work for South Carolinians either. South Carolina's top tax bracket is seven percent for $12,650 and above. So the working college student making $12,651 dollars a year will pay the same in state taxes as Thomas "Rhymin'" Ravenel and his brethren.
Account for Inflation
Translation: Get with the times, man. South Carolina is actually one of the few Southern states that does take inflation into account — gold star for us in this category.
Rethink Senior Tax Preferences
Translation: Taxes for seniors should be based on ability to pay instead of age. The baby boomer generation is getting older and represents a huge tax base. By 2030, 22 percent of South Carolina's population will be seniors — and that doesn't account for a continued influx of retirees to S.C.'s beautiful places. Currently this piggy bank of a demographic is given full exemptions for Social Security income, a private pension exemption, additional deductions, and property tax allowances.
Eliminate Corporate Tax Loopholes
Translation: Don't let big business weasel out of their civic duty to pay taxes. The estimated tax revenue lost in Southern states because of corporate tax loopholes is $72 million a year. The Center for a Better South suggests requiring corporations to include the profits of their subsidiaries in their income tax returns; this takes away their ability to hide profits.
Connect Property Taxes and Ability to Pay
Translation: This would establish an income limit, or other "circuit breaker" for determining what a person owes in property taxes. Property taxes have been a huge issue this year. The S.C. Senate subcommittee proposed a property tax circuit breaker during this year's debate on property reform, but the measure failed. Instead, the General Assembly passed a sales tax increase. Property tax is the tax most often complained about. To offer a little perspective, South Carolina's property taxes are extremely low compared to the national average, and if you have any concerns about the state of education in South Carolina, suck it up and pay the increased property tax. Future — literate — generations will thank you.
Translation: Make an annual list of all the special tax breaks the state allows and allow the Legislature and the voting public to review it every year. There are reasons South Carolina's tax structure is still operating like it is the 1940s. One of them is that no one bothers to review it for years at a time. Really, who would want to? Tax code is not the most stimulating reading, but this is our money we're messing with. We publish annual budgets. Why not tax expenditures? The list would make it clear where tax revenue is coming from — and where it isn't.
Review the Performance of Government
Translation: We end on a high note. In the last five years a volunteer review board has conducted a performance evaluation of South Carolina government in an effort to boost efficiency, save money, and improve customer service. New Mexico, having instituted a permanent and government-sponsored review system, will save more than $54 million as a result of their efforts.
To find out more about The Center for a Better South or about the "Doing Better" tax study, visit www.bettersouth.org.