Brack: New $2 billion plan is for schools, roads

Folks in Columbia have been so consumed by state budgeting and the mess at S.C. State University that they don’t realize yet the can of worms two legislators opened up this week.

State Reps. Jenny Horne, R-Summerville, and Mia McLeod, D-Columbia, courageously filed a bill that will put them on just about everyone’s bad list except mine. They’ve proposed sweeping reform to South Carolina’s tax structure to steer $2 billion in sales tax revenues lost for years to special interests to pay for the state’s two most vexing problems — schools and roads.

In two previous legislative sessions, Horne filed a proposal to revamp the state’s education funding formula by essentially pooling education tax money into a special fund and reworking how property taxes for schools are paid. (The full explanation is wonky and detailed, but suffice it to say that it modernizes and vastly simplifies education funding.)

This year, however, Horne and McLeod added what was missing — money to pay for it. They propose eliminating about $2 billion in special interest sales tax exemptions of the $3.1 billion in subsidies enjoyed for years by favored businesses and factions powerful enough to get tax breaks that regular people can’t.

“Everybody will be fed out of the same spoon,” Horne said. “These exemptions are things people have not been paying taxes on that they probably should have been paying sales taxes on.”

You can already hear the wail and cry of folks in the Club for Growth, tea partiers and libertarian Republicans, all squealing that Horne and McLeod want to raise taxes.

Not true. What they want to do is broaden the tax base by pressing a big tax “reset” button to get rid of lots of exemptions that may no longer be valid. Subsidies like these exemptions have overburdened other parts of society (generally the middle class). By eliminating these special interest tax breaks, tax codes will be more transparent and fairer, which is exactly what the blue ribbon Taxation Realignment Commission recommended in 2010.

But already, conservative legislators say a proposal like that advanced by Horne and McLeod will probably be dead on arrival because it would dramatically increase government revenues without a significant tax offset.

“How much government is enough government?” state Rep. Kenny Bingham, R-Lexington, asked when told of the Horne-McLeod plan. “There’s all kinds of things we could spend money for, but there’s only so much we can do. It’s a complicated paradigm that’s not just that simple.”

Horne said, however, that the $2 billion in revenue now being lost by the state could be steered to help change school funding and make it fairer, which also should address last year’s state Supreme Court ruling to make school funding more equitable across the state. Meanwhile, the plan would add a billion dollars to road improvements — something the state desperately needs if it is to maintain economic competitiveness.

Among the key components of the plan found in H. 3671, which deals with exemptions, and the companion H. 3672, a 50-page rewrite of the school funding formula, include:

• Changing school funding so it follows students, instead of funding education based on programs.       The proposal would offer about $5,400 per child per year in state and local dollars to go into the new education fund outlined in the bill.
• Changing how local property taxes are collected by lowering rates and steering the money directly into the new fund. The plan, Horne said, often would reduce property taxes on commercial property owners, who got hammered with an additional burden in the Act 388 property-sales tax swap of a few years back. Horne said if the plan went through, commercial property taxes in her home county of Dorchester would drop 40 percent, unless local voters wanted to opt to pay more in property taxes for schools.

Horne says she’s ready for the mud-slinging and name-calling that surely will come her way for introducing the plan. But she and McLeod shouldn’t be pilloried by narrow minds. They should be thanked for starting a conversation that the legislature has ignored for a generation.

Andy Brack is editor and publisher of the online politics and policy forecast Statehouse Report. He can be reached at: brack@statehousereport.com.