Brack: 7th cent in sales tax would cripple S.C.’s growth

JAN. 19, 2015 | If a bill being pushed to add a seventh penny of state sales tax to fix roads ends up making it through the legislature, the state would suffer mightily.

Simply put, it’s a dumb idea. Not only would it make the Palmetto State less competitive, but it would catapult South Carolina into having the highest sales tax rate in the Southeast and the second highest in the nation! Imagine an economic recruiter trying to explain that to a prospect who wants to locate here.

The headlines are full of stories about how South Carolina’s road and bridge infrastructure is beyond crumbling and needs an infusion of $1.5 billion of new money every year for three decades to keep up with what we have and deal with traffic. Why? Because we’ve been mostly ignoring the roadways and underfunding them for the past three decades. Now is time for the bill to be paid.

A plan getting significant attention is being pushed by Rep. Gary Simrill, R-Rock Hill, and colleagues on a special House committee. It would restructure the state Department of Transportation, cut the state’s 16.75-cent per gallon user fee on gas, charge sales tax on gas and boost the state sales tax by a penny. Simrill has said the plan would raise about $400 million a year.

But adding an extra penny in a state that prides itself on a competitive platform for business and relatively low taxes overall would send a terrible message to companies looking to move to South Carolina. And it would be more ammunition for retirees to skip South Carolina and head to Florida.

Currently, South Carolina has the nation’s 16th highest sales tax rate nationally and third highest in the Southeast at six pennies out of every dollar, according to the Tax Foundation. Increasing it by a penny would make it second highest nationally and first in the Southeast.

Yikes! Fortunately, there are some good ideas out there competing to be a solution for South Carolina’s road infrastructure crisis.

If lawmakers want to anchor road money to sales tax, a smarter way is to focus on the billions of dollars of special-interest sales tax exemptions that currently are law. Today, the state takes in less money from sales taxes — about $2.7 billion overall — than it does in what it exempts from sales taxes — more than 80 types of products and services, such as the tax on phones and electricity.

If legislators simply reviewed sales tax exemptions and targeted things that really shouldn’t be exempted, they should easily find $600 million a year in lost revenue. That’s what the Taxation Realignment Commission found in its 2010 report. And a bonus — lawmakers wouldn’t have to “raise” taxes. Instead, they’d just cut a tax break they shouldn’t have been giving all along.

State Sen. Larry Grooms, R-Charleston, says the House plan pushed by Simrill and his colleagues is unconstitutional because it calls for voters to decide whether to add an extra penny. That, he said, is a duty reserved to the General Assembly.

Grooms is pushing what he calls a “2-by-2” plan that would raise the gasoline user fee by two cents a gallon every year for 10 years while reducing the individual income tax by 0.2 percent a year during the decade. Such a plan eventually would generate $600 million in new road monies every year, but would reduce General Fund revenues by about $1 billion from the gradual income tax cut. Over time, however, he said he thought the income tax cut could be absorbed by general growth so it wasn’t an immediate hit to the budget.

“I think every plan needs to be on the table,” Grooms said. “If we’re talking about all of them, through the process of elimination, there probably is one of them that will get enough votes to pass.

“I don’t want the roads to continue to crumble. Now it becomes what is politically possible.”

Let’s just hope we look at a blend of solutions, not just a new penny tax that will tar and feather us as the place not to go to retire or start up a new business.