Use more than one tool to fix the state’s budget

By Andy Brack, Publisher

JAN. 21, 2011 – When you go into battle, you want to go in with a full complement of tools: a gun, bullets, knife, grenade and whatever else you need to get the job done.

You don’t want, for example, to have only a knife. 

Unfortunately, South Carolina officials are approaching the coming state budget with one main strategy – budget cuts. Just like they’ve always done.

And that’s a shame. It means agencies and programs that significantly help South Carolina – from the Arts Commission and SCETV to hospice care and more face an ignoble end due to the budget knife.

It doesn’t have to be this way. We could, for example, use more tools than just the knife as done in our sister state, North Carolina.

Over the last 20 years, North Carolina has taken a more blended approach to South Carolina’s basic budget strategy of slashing government spending. In general in times of shortfalls, North Carolina has combined cuts with temporary tax increases on income and sales. It raised taxes on alcohol and cigarettes.  It also decreased the corporate income tax, phased out the state sales tax on food, got rid of a sales tax holiday and removed some sales tax exemptions.

Contrast this more balanced approach to South Carolina, which has reduced taxes by $600 million over the last five years. Since 2006-07, tax collections in the Palmetto State have dropped $1.42 billion, or 21.3 percent, according to Statehouse sources. About the only tax that has been raised is a 50-cent per pack increase on cigarettes. An appropriately maligned tax swap called Act. 388 took away school operating property taxes for an extra two cents in sales taxes. Instead of being revenue neutral, it has started costing the state in a big way.

What South Carolina officials fail to see is that there are other tools out there – temporary or permanent tax increases, consolidation, short-term borrowing and finding efficiencies.

While Gov. Nikki Haley should be lauded for pushing appropriate consolidations to save money and reduce duplication, her wail and cry at her first State of the State address was more of the same: cut to make the budget work. Among the comments in the rhetoric-laced speech were these:

“I believe that in order for the public to trust us, as we make decisions that may be seen by some as unfair or even callous, we must be honest with them: this budget year is going to hurt.” Translation: Things that I don’t like may get chopped out of existence.

State legislators would be wise to reread the long report offered by the Tax Realignment Commission, which suggested removing $600 million in sales tax exemptions, partial restoration of the grocery sales tax and increasing the gas tax by five cents. The folks who produced this solid report on the state’s antiquated tax structures are no liberal ninnies. Instead, they are as conservative as they get – former state Department of Revenue director Burnie Maybank, former GOP gubernatorial candidate Ken Wingate and South Carolina Association of Taxpayers President Don Weaver.

All, including Weaver whose group has called in the past for no new taxes, agreed that the state’s taxing system needed to be reformed, as noted in comments at the end of the TRAC report. 

Wingate: “Eliminating the patchwork of sales tax exemptions, applying the sales tax to certain services and reducing the sales tax rate to make the changes tax-neutral are all appropriate.”

Weaver: “This report should also serve as a road map for the General Assembly to consider tax changes in future legislative sessions, including our recommendations on taxing Internet sales, the large reduction in sales tax exemptions, and the possible shift to begin taxing some services.”

So here’s an idea for lawmakers looking at an $800 million hole this year: Remove the $600 million in special-interest sales tax exemptions. Just this year, keep the revenue to fill the gap. And then over five years, wean the state from the exemption revenue by slowly reducing the sales tax rate. In the end, the state would have a temporary source of unrealized revenue and a more balanced method of dealing with the budget crisis by using more than one tool.