WHILE THE House worked late last Tuesday to pass income tax cuts that we can’t afford, the Senate Finance Committee stayed into the evening to get schooled on why we don’t need them.

Moments after the House voted 104-3 to give most taxpayers an $84-per-year break on their individual income taxes, the state’s chief economist, Frank Rainwater, displayed a slide on the giant screen in the packed Senate meeting room showing that the portion of our income that South Carolinians pay in state income taxes has been on a fairly steady decline, falling from about 2.6 percent in 1990 to about 1.8 percent in 2009. (For the math-averse, that’s a 31 percent reduction.)

Another slide showed that 40 states charge higher corporate income tax rates than we do. House Republicans have wisely stalled their plan to phase out the corporate income tax, but Gov. Nikki Haley is still insisting that we have to do that if we’re to keep attracting big manufacturers to the state, so it’s still quite relevant to know that 40th doesn’t present a full picture of how low those taxes are.

How those rates get applied varies by state, and South Carolina is one of just 13 that define corporate income based on how much a company sells in the state. That means, for instance, that Boeing won’t pay any S.C. income taxes unless it sells a Dreamliner to me or someone else who lives in South Carolina.

Mr. Rainwater never said we don’t need any more tax cuts — that’s not his call — but Senate President Pro Tem John Courson, who had fretted earlier in the meeting about how much worse Medicaid spending is going to squeeze out public-education spending in coming years, noted that South Carolina has the nation’s fifth-lowest tax burden (it’s actually second- or seventh-lowest, depending on what you measure, but that’s a fair average). Which prompted Sen. Greg Ryberg to argue that we could have the lowest corporate income taxes if we took that $77 million that the House wants to use to pay the unemployment-insurance taxes for companies that bilked the system in recent years and instead applied it to the corporate income tax phase-out that’s stuck in a House committee.

At least Mr. Ryberg was using real numbers. Mr. Courson’s announcement prompted Sen. David Thomas to pipe up that he recalled seeing some kind of report somewhere that showed South Carolina has some of the highest individual income taxes in the nation.

I’m guessing he’s been hallucinating about Mark Sanford’s old charts, which famously peddled that particular fiction, and which House members must have been consulting as well as they crafted their plan to cut income taxes even more.

The other committee members and even Mr. Rainwater brushed him off like an impertinent 3-year-old, rather than telling him that he just didn’t know what he was talking about. They left that to economist Gordon Shuford, who presented the latest biennial analysis he and Mr. Rainwater just completed of the 50 states’ effective individual income tax rates — that is, what we actually pay, once the exemptions and deductions are applied. It’s essentially a 50-state version of Mr. Rainwater’s falling-taxes chart, based on federal adjusted gross income instead of total personal income.

Our top income tax rate, 7 percent, is the 12th-highest in the nation. But nobody pays that. In fact, as Mr. Shuford explained, the residents of 19 of the 27 states that have a lower top rate actually pay more of their income in state income taxes. Our effective tax rate for 2009 was 3.1 percent. That was lower than 33 other states, which Mr. Shuford said was consistent with the earlier studies.

The big reason there’s such a stark difference between our tax rates and what we actually pay is that we hand out huge exclusions. A married couple with two children pays no taxes on the first $29,160 of their adjusted gross income. That’s the highest exclusion in the nation, and nearly double the national average.

Over at the State House, Speaker Bobby Harrell sent out a news release bragging about making individual income taxes “flatter and fair.” Those sound like great goals, but at least in our state they’re mutually exclusive.

One of Mr. Rainwater’s charts showed that the 4 percent of taxpayers who reported taxable income of more than $100,000 paid 38 percent of the state’s income taxes last year, while the 38 percent who reported between $1 and $25,000 paid just 10 percent of the taxes. That sounds like we’re socking it to the rich, as Mr. Courson pointed out.

But those top 4 percent also earned 34 percent of the taxable income, and those bottom 38 percent earned just 16 percent of the income. That’s a slightly progressive tax — one in which the percent of our income that we pay in taxes increases as our income increases.

If that were our only tax, one could reasonably argue that it would be fairer to make it flatter. But of course that’s not our only tax. The sales tax is notoriously regressive — that is, people with lower incomes pay a higher percent of their income in taxes, because they have to spend more of their income just to get by.

The funny thing is that the House bill doesn’t actually make the income tax flatter; the more people pay in taxes, the less that $84-per-year tax cut would drop their effective tax rate. But it makes it look flatter. Which bolsters my theory that House leaders have been having flashbacks to the Sanford era, with its fixation on appearance over reality.

http://www.thestate.com/2012/05/01/2256983/scoppe-when-tax-cut-fever-collides.html

When Senate Finance Chairman Hugh Leatherman proposed letting the state borrow up to $120 million in case the federal government doesn’t pick up its share of the cost of deepening the Charleston Harbor, Sen. Kevin Bryant denounced the idea of more borrowing, using arguments and numbers that are debatable.

But rather than simply letting that debate proceed, he threw in this doozie: “Here’s the oldest trick in the book that politicians play: Raise taxes for a very popular project while they fund all the fluff and pork that you can’t see. I’m going to expose the public to this trick.”

That’s not the only trick that needs exposing. If it’s the oldest trick, then Mr. Bryant is employing the second-oldest: Set up a straw man, create a false choice, rather than arguing against the actual proposal you want to defeat. In South Carolina, that means pretending that tax increases are even theoretically possible.

On the same day that Mr. Bryant’s comments appeared in our newspaper, the S.C. Realtors Association ran a full-page ad deploring state taxes for “holding back The American Dream,” praising House Speaker Bobby Harrell’s “tax reform efforts” and declaring that “Unlike those who believe we can tax our way to prosperity, Realtors understand that tax relief is key to improving lives and increasing individual wealth.”

Like Mr. Bryant’s numbers and arguments against borrowing, the idea that tax relief improves lives is a good one for debate — with its validity depending, among other things, on how many lives get counted, how high taxes are to begin with, and whether they’re sufficient to pay for the foundational elements of civilization without which everybody’s individual wealth would plummet.

Also like Mr. Bryant’s assertion, the Realtors’ take-away message is that the choice is between their preferred course of action and higher taxes.

It’s not. Not with the House’s tax-cut package, whose alternative is to leave taxes as they are. Not with Sen. Leatherman’s borrowing bill, which the state would pay for, as it always does, by spending less on other programs. And practically never in our Legislature. The choice isn’t between foregoing borrowing and raising taxes. It isn’t between cutting taxes and increasing taxes. It’s between cutting taxes even more and leaving them where they are.

That’s a pretty stark choice. You’d think it’d be stark enough that people wouldn’t feel the need to resort to misleading innuendo to make it seem even starker than it is. But they do.

I moved to South Carolina in the fall of 1987, a few months after the Legislature raised the gas tax by 3 cents per gallon. It didn’t raise taxes again the next year. Or the next. Or the next 17 after that.

The Legislature didn’t raise taxes again until 2006, and then only as part of a swap that reduced taxes even more, increasing the sales tax by a penny in order to eliminate homeowner property taxes for school operations. And the extra penny hasn’t generated as much money as lawmakers projected, so next year they’ll have to send an extra $118 million in general tax revenues to the schools to make up for the shortfall. That is, they’ll divert $118 million from other spending in order to pay for the tax cut that was supposed to have been offset by a tax increase.

Lawmakers also have increased various fees and raised court fines — all of which take more money out of taxpayers’ pockets but can be avoided by not breaking the law or using fee-based services.

In 2010, the Legislature increased unemployment-insurance assessments by $150 million a year, to support a program that is by law supposed to be self-sustaining. It wasn’t self-sustaining — the state had borrowed nearly $1 billion to pay out unemployment claims — in large part because the Legislature had slashed businesses’ assessments before the recession. (In 2011, the Legislature appropriated $146 million to essentially pay the businesses’ higher assessments for them; this year the House has appropriated $77 million for the same purpose.)

Also in 2010, the Legislature increased the cigarette tax from 7 cents to 57 cents per pack. This $115 million tax increase came after a decade-long campaign by public-health advocates such as myself who wanted to decrease teen smoking. Even with the increase, the tax remains the ninth-lowest in the nation. Still, this was a real, honest-to-goodness, raise-more-money tax increase.

The only one our Legislature has passed in the past quarter century.

Over those same 25 years, the Legislature has eliminated the sales tax on groceries, a $400 million-a-year tax cut.

It has eliminated homeowners’ school property taxes. That’s worth about $970 million per year, but the sales tax brings in $550 million a year, so the net tax cut is $420 million per year.

It has increased the homestead exemption for senior citizens’ local government property taxes from $20,000 to $50,000. Another $100 million per year.

It has indexed income tax brackets to inflation, saving taxpayers $390 million per year.

It has eliminated the bottom income tax bracket, reducing individual income taxes for everyone and eliminating them for many. That’s worth $90 million per year.

It has reduced the top income tax rate for most small businesses from 7 percent to 5 percent, saving $130 million per year.

And it has handed out at least 39 more sales tax exemptions — ranging in size from $4,000 to $47 million. And more income tax breaks.

According to the Board of Economic Advisors, the tax cuts enacted just since 1991 were worth $2.3 billion in 2009. The tax increases over that same period totaled either $665 million or $815 million, depending on whether you count the unemployment-insurance increase that businesses haven’t had to pay. That’s a net tax cut of at least $1.5 billion per year.

As a result of all these changes, the portion of our income that South Carolinians pay in sales taxes has dropped from about 2.8 percent when I moved here in 1987 to 2.2 percent today. Even as the sales tax rate was increased from 5 percent to 6 percent. Going from 2.8 percent to 2.2 percent might not sound like much, but it’s a 21 percent reduction.

The portion of our income that we pay in state income taxes has dropped from 2.5 percent to 1.8 percent over that same period. That’s a 28 percent reduction.

The choice is not between higher taxes and lower taxes. At the least, it’s between the status quo and lower taxes. More often, it’s between lower taxes and much lower taxes.

http://www.thestate.com/2012/04/25/2247961/scoppe-on-old-tricks-tax-hikes.html

Those are among the bills that face certain death for the year if they don’t advance to the other chamber by the April 30 crossover deadline.

Any bill advanced after that date can’t even be discussed in the other chamber without a two-thirds vote, a nearly impossible hurdle for bills that are at all controversial. And because this is the second year of the two-year session, bills not approved before the session ends in June must be reintroduced next year and start all over, no matter where they sit in the committee or floor debate process.

House Speaker Bobby Harrell said the tax bills are his priority, with the sales tax exemption bill topping the list. He warned House members Thursday that they should expect some long hours this week.

Last month, the House Republican Caucus introduced seven tax-cutting bills after months of work by a committee led by Rep. Tommy Stringer, R-Greenville. Four are stuck in committee and face no chance this year. The three up for debate on the House floor would cut personal income taxes, cut income taxes small businesses pay on profits and eliminate 22 sales tax exemptions worth roughly $15 million.

The sales tax bill is pared down from its original version, as legislators put more than a dozen back on the exemption list after hearing from affected businesses. What remains in the bill includes adding sales taxes to sweetgrass baskets, zoo animals, portable toilets and dry cleaners’ equipment. Republicans said the measure’s point was accomplished, as they re-evaluated exemptions and forced groups to justify their worth. Others scoffed at the remaining bill as laughable.

Stringer said he expected a multiyear process on the tax package. He noted his two top priorities — the bills on sales tax exemptions and small business’ income taxes — made it to the floor.

“I think we’re seeing how difficult tax reform truly is,” he said. “But we’re making progress.”

The push for the sales tax bill comes as legislators await the outcome of a lawsuit before the state Supreme Court, backed by state Democratic Party Chairman Dick Harpootlian, which argues the state’s 78 sales tax exemptions passed haphazardly over decades are unconstitutional and should be thrown out.

Harrell adamantly opposes the lawsuit, saying what should and shouldn’t be taxed is an issue for the Legislature, not the courts. How, or even whether, the sales tax exemption bill would affect the high court’s decision is unknown.

But Harrell said the House’s vote this week sends a clear message that whatever exemptions remain after the vote should stand.

“It will be the House of Representatives speaking affirmatively, regardless of the vote,” said Harrell, R-Charleston. “It represents the completion of the House review of exemptions.”

Of the other tax bills on the floor for debate, one would collapse South Carolina’s personal income tax brackets, giving all tax filers who pay taxes a modest break and reducing state revenue by $78 million. The other would reduce the income taxes paid by small businesses from 5 percent to 3 percent over four years. Budget advisers estimate the cut would reduce state revenue by $65 million annually when fully implemented. The breaks go to businesses organized as limited liability companies, S-corporations and sole proprietorships.

The House GOP tax bills dead for the year include two property-tax-cutting bills that Democrats and local officials complained would blow holes in local governments’ budgets, forcing them to raise taxes on other forms of property or drastically cut services.

Budget advisers expect the measures reducing the tax rates on manufacturing, commercial and rental properties would reduce revenue to cities, counties and school districts by more than $1 billion when both are fully implemented. That’s because property taxes pay for local services. As written, the measures would not send local governments any money to offset the loss. Republicans agreed the bills need more work.

Also stuck in committee is a bill eliminating corporate income taxes over four years, an idea that Gov. Nikki Haley has made a priority. The Republican governor toured the state lambasting the House for not including the cut in its 2012-13 budget proposal, just as the GOP Caucus was preparing to file the tax bills.

Advocates of public education hope their stalling allows for a truly comprehensive look at taxes next year that includes an overhaul of South Carolina’s complicated, decades-old education funding system. Last week, a bipartisan group of 23 House members introduced a bill meant to jumpstart that process for next year, with the hope of creating a uniform tax system statewide while reducing business property taxes.

“Finally somebody’s talking about comprehensive education finance reform with tax relief,” said Scott Price with the state School Boards Association.

http://www.thestate.com/2012/04/23/v-print/2246084/critical-deadline-nears-for-south.html

A pared-down bill eliminating less than one-third of South Carolina’s sales tax exemptions is heading to the House floor, while bills reducing property taxes on businesses appear stuck in committee.

The House Ways and Means Committee on Wednesday approved a bill eliminating 22 exemptions, after putting about a dozen back on the exemption list. The bill initially eliminated exemptions worth more than $250 million. The amended bill reduces that to roughly $15 million.

Legislators said the amended bill may not be the reform many expected, but the purpose was to evaluate the hodge-podge of exemptions. They said the bill accomplishes that by making those affected by each exemption defend its purpose.

Items put back on the exemption list Wednesday included lottery tickets, gold and silver, motion picture companies’ supplies, and the penny-on-the-dollar sales tax discount for residents 85 and older.

“We don’t want to tax senior citizens any more than they already are,” said House Majority Leader Kenny Bingham, explaining the amendment worked out between him and House Minority Leader Harry Ott. “If you’ve made it that far you, you deserve it.”

Bingham, R-Cayce, noted legislators don’t have time for a protracted debate on the bill, with just one more week before the crossover deadline for bills moving from one chamber to the other.

The committee also reinstated two sales-tax-free weekends: gun sales on Thanksgiving weekend, and back-to-school supplies the first weekend of August.

That adds to several items restored Tuesday in subcommittee, such as packaging used by manufacturers, newsprint and electricity used by television broadcasters.

Rep. Gary Simrill said legislators need to ensure they don’t kill jobs by tacking on sales taxes.

“We need to move this bill forward, but in the same light in everything we do, we need to have that litmus test of job creation,” said Simrill, R-Rock Hill. “We have to be careful in how we construct this. … We’re on our way to getting things done. I think it’s a step forward.”

Ott, D-St. Matthews, said the items left in the bill are there because no one spoke up to keep those exemptions.

The sales tax bill is among seven introduced by the House Republican Caucus as a tax reform package, following months of study by a committee led by Rep. Tommy Stringer, R-Landrum.

Stringer said an essential piece of the bill remains. Requiring sales tax exemptions to be re-evaluated every five years helps ensure outdated exemptions don’t stay on the books.

The committee postponed debate on two bills that would reduce revenue to local governments by an estimated $1 billion yearly when their phase-in is complete, saying more work is needed.

One bill would reduce the tax rate on commercial and rental property from 6 percent to 5 percent over eight years. The other would reduce the tax rate on manufacturing property from 10.5 percent to 6 percent over four years. Property taxes pay go into the coffers of local governments and schools. Critics said the bills took money from local governments without any offset from the state, which would likely force local taxes to rise elsewhere.

“These are terrible bills, and they don’t want to pay the consequences,” Ott said.

Those bills are likely dead for the year. Bills moved to the other chamber after April 30 require a two-thirds vote just to be considered.

http://www.thestate.com/2012/04/18/2240428/amended-sc-bill-on-sales-tax-exemptions.html

The House Ways and Means Committee finished crafting a bill Wednesday reforming the state’s sales tax law, which accounts for $2.2 billion – or 40 percent – of the state’s general fund budget. They decided to eliminate 22 sales tax exemptions – worth about $15 million.

How they decided which exemptions to keep, according to House Minority Leader Harry Ott, was simple: If you asked for your exemption, you got it.

“The only reason any (sales tax exemptions are eliminated) is because the people they affect didn’t come and ask for them,” he said.

That’s why the committee spared exemptions for things like newsprint, books sold to libraries and building materials for housing poultry or livestock.

Republicans had a different view: They said the sales tax exemption bill forced businesses to justify why their exemption benefited the state’s economy. The bill, if it is enacted, would require the state to review all of its sales tax exemptions every five years – which they said is a good thing.

“We’ve heard for years that someone put this exemption in for their brother-in-law or someone did this for their constituent and we’ve got all these hodgepodge exemptions that don’t make sense,” said Rep. Murrell Smith, R-Sumter. “But when it comes down to brass tax and you start looking at these exemptions, there are reasons behind them. And we heard them.”

South Carolina has had a sales tax since 1951 when it was just 3 percent and had only 19 exemptions. But since then, lawmakers have increased the sales tax to 6 percent while adding dozens more exemptions.

Some say those exemptions, and the way lawmakers went about enacting those exemptions, are unfair.

In November, a Columbia attorney asked the state Supreme Court to throw out the state’s sales tax exemptions because they are unconstitutional. House Speaker Bobby Harrell has filed a brief with the court opposing the lawsuit, arguing it would amount to a multi-billion tax increase for South Carolina shoppers.

The sales tax exemption bill was one of five tax reform bills pushed by House Republicans this year. Two of those bills are awaiting a vote on the House floor:

An $84-a-year income tax cut for most S.C. residents

• A $59 million tax cut for small businesses

But Wednesday, the House Ways and Means Committee delayed two bills that would have cut business property taxes by $1 billion over nine years – at the same time stripping local governments of $1 billion in taxes. Critics said the bill, if approved, would lead to local tax increases.

Delaying those bills means they most likely will not pass the legislature this year. The House has until May 1 to send bills to the Senate in order for them to have a chance to pass this year.

All of those tax reform bills were the result of a House Republican Caucus tax committee, lead by Rep. Tommy Stringer, R-Greer.

“I think what you are seeing here, both with this bill land the other bills, is how difficult tax reform truly is. I mean, that’s why it fails in almost every state that attempts it,” Stringer said. “This makes the third reform bill passed out to the full house, so we are making progress.”