BRACK: Don’t play verbal shell games with tax reform

By Andy Brack, editor and publisher  | Two people can look at a painting or watch the same football game and see two completely different things.

One person, for example, might see little more than an abstracted bull, horse and people in Picasso’s Guernica.  Another might be moved to tears over human suffering.

A fan of one team on the gridiron might see a team experiencing a crushing loss.  A supporter of the opposing team might tell friends he’d witnessed the best football game ever.

How one views an event or a painting or an issue of public policy is often a matter of perspective.

With this in mind, let’s look to an issue sure to rear its head throughout the coming session of the South Carolina General Assembly:  Tax reform.

When people start talking about tax reform, most think it’s a good idea.  They generally don’t like taxes, or the cost that one pays to fuel government services that most people want.  But they do want to reform that system so that they feel like they’re getting more for their money or making a better investment with their tax dollars.

Real tax reform is more complicated because it’s a matter of perspective.

The state Chamber of Commerce Foundation, which commissioned a big report on how to overhaul South Carolina’s complicated tax structure, is pushing for reform that essentially will broaden the tax base and lower rates – a concept that economists roundly endorse as making good fiscal and structural sense.

The phrase “broadening the base,” however, means more things could be taxed.  In South Carolina, for example, few professional services, such as legal fees, are subject to sales tax.  A “reform” of how these services are taxed could make people who use lawyers pay more in taxes. But broadening who pays could ultimately lower the rate, which could help even more people.

Similarly, look at the billions of dollars the state doesn’t collect annually due to sales tax exemptions.  For people who have been subsidizing a special-interest exemption, removing it might seem fair because they would no longer pay for it.   But the folks benefiting from the exemption wouldn’t be happy because they’d have to pay more in sales taxes.

Yes, it’s complicated.  But for lots of taxpayers, this notion of fairness is central to comprehensive tax reform.  They want to make sure the burden of state taxes they’re shouldering is fair compared to everyone else.  They don’t want to pay a higher portion of taxes than someone who is rich.

This sense of tax fairness or equity came up time and again in dozens of comments to a recent Statehouse Report reader survey.  When asked to explain what tax reform means to them, here are some reader responses:

“Logically fair tax rates and distribution of tax revenues,” said Michele Barker of Beaufort.

“Fair distribution of paying responsibility to include rethinking tax breaks for corporations,” responded Jennifer Reed of Columbia.

“Tax reform to me means equality,” said William Spearman of Summerville.  “No loopholes, no favored business sectors, etc. And I believe the poorest should not be taxed excessively.”

Another reader:  “Everyone pays their fair share, including the wealthy, so the middle class does not bear the greatest burden.”

But comments also show how the notion of fairness can be squishy.  Reform, one person said, meant fairness, but also higher taxes for the rich.

Few legislators answered a similar survey.  But those who did, most of whom were Republican, offered a different notion of comprehensive tax reform.  Rather than something based solely on fairness with strategies of broadening the base and lowering rates, they mentioned something else – tax neutrality.  They viewed reform as rearranging taxing structures while keeping state revenues the same.

Unfortunately, that adds a level of complexity to everything.  It would be difficult to treat everyone fairly and broaden a base to make it more structurally sound.  Reforming structures in a revenue-neutral way likely would create shifts from one group to another.

South Carolina legislators need to revamp the antiquated tax structure.  But they need talk honesty and candidly about tax restructuring that will be fairest to all. Otherwise, they will be playing a verbal shell game, dooming real tax reform yet again.

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