Tread Lightly But Deliberately On Tax Reform
Mar 06, 2018 11:13AM ● Published by Emily Stevenson
Senior Vice President, Greenville Chamber
March begins filing for state and local offices for the 2018 elections, and you’re about to hear many plans for fixing our tax system. Slashing taxes is always good politics in a red state.
The Upstate Chamber Coalition long supported comprehensive tax reform as a state legislative priority. We urged Congress to take on tax reform last year, and while the Federal tax overhaul was imperfect, we championed a number of the reforms which we believe will grow the economy and support businesses of all sizes long into the future.
Closer to home, a number of forward-thinking legislators have fought for tax reform and are starting to beat the drum for a state reform package to mirror the Federal plan. This was recently kicked off by Rep. Tommy Stringer of Greer, who has long worked to streamline our tax code. (In full disclosure, I staffed a study committee that Rep. Stringer chaired in 2010 to examine tax reform and assisted Rep. Stringer with the final report – which was never enacted by the General Assembly.)
Filing for office kicks off in a few weeks and tax-cutting proposals are starting to pile up. Governor McMaster called for a $2.2 billion income tax cut in January. But before we slash taxes in the name of securing votes, our coalition urges caution and asks our legislators to heed the lessons of our fellow red states Kansas and Oklahoma before proceeding.
Kansas was widely praised in conservative circles for a raft of tax reforms enacted in 2012 championed by Gov. Sam Brownback. It was supposed to be a “march to zero” on income taxes. However, an overwhelming majority in the still GOP-controlled legislature reversed the tax cuts last year in the face of a tsunami of red ink. Even through the national economy is booming and Kansas experienced job growth, Kansas struggled to close a $900 million deficit and meet a court order to increase education funding.
Oklahoma cut taxes in response to the oil boom early this decade and, though not to the same extent as Kansas, Gov. Mary Fallin wanted to eliminate the income tax to be “more competitive” (the same refrain being used in our state). Oklahoma is now using non-recurring money to close budget deficits nearing $1 billion, an unsustainable practice that South Carolina leaned on in the first decade of the 2000s. Some Oklahoma school districts are going to four-day weeks in an effort to save money and provide teachers a perk since they can’t raise teacher pay. Like South Carolina, Oklahoma has constitutional restrictions on how local governments and school boards can raise property taxes to offset state revenue shortfalls.
These laboratories of democracy did not find experimental success with their theories.
Some groups criticized Kansas for slashing revenue and then not slashing spending. It’s a fair criticism. But it is politically difficult to take votes that slash funding for health care and education for children – particularly when the overall economy is expanding.
These examples should not scare South Carolina lawmakers. Success in state tax reform is certainly not impossible, but there is a different calculus when crafting state budgets. South Carolina’s General Assembly must pass a balanced budget, yet the lion’s share of state spending, notably Medicaid and school funding, run on formulas based on enrollment.
We already face shortfalls in K-12 education funding and higher education funding. South Carolina has critical needs in corrections and the Department of Social Services. The unfunded liability of our pension system continues to grow.
To be certain, our 7 percent top income tax bracket is not a good headline when trying to recruit new industry. Our small businesses struggle to meet the growing needs of the 6 percent property tax assessments. We exempt billions in sales taxes (some of the exemptions are worthy and necessary). There are clear ways we must reform South Carolina’s tax system to become more competitive – as Congress finally decided to do last December.
We urge our state leaders to begin work on this issue, though we ask them to tread softly and deliberately to ensure we don’t find ourselves as another red state awash in red ink.