By Andy Brack, editor and publisher | It’s almost a given at the Statehouse that if you’re Republican, you’re for tax cuts. It’s just an assumed part of the political playbook — the same document that includes the think-tank-generated mantra that scores of legislators embrace to get elected — to oppose tax increases.
This tax worldview creates a limited policy framework with which lawmakers can operate to deal with the challenges of government. When tax hikes are off the table and tax cuts are always on the table, what can a state rely on for new revenue as the price of everything rises? Economic growth — or some clever scheme than makes new revenue look like anything other than an across-the-board tax (hence, the explosion of “fees” fueling state government).
So as an academic exercise, let’s challenge the notion of tax cuts. Is there a point when there can be just too many tax cuts?
The discussion has relevance now because of big policy discussions going on in Columbia. Gov. Nikki Haley, who seems to have never seen a tax she likes and who has slammed more borrowing to pay big needs even though she has backed a billion dollars of borrowing, wants more money for roads. But she says she won’t approve extra taxes on gas unless there is a commensurate cut in income taxes. In other words in a time where much of state government is funded at levels from a decade ago and hasn’t recovered from the effects of the Great Recession, she wants to cut revenues even more and shrink general government, which would be so draconian that services taxpayers expect would just have to go.
Meanwhile, the state Senate is backing a plan to pay for billions of ignored road needs with extra gas tax money without Haley’s tax cut. (Haley says she’ll veto that plan.) And two House members say the whole tax system needs to be reformed by eliminating $2 billion of annual special-interest tax breaks to fuel needed investments in roads and schools.
But back to the question at hand. Just as it becomes unhealthy to stop eating food (you become anorexic), is it unhealthy to continue to cut taxes, year after year, election after election?
National analysts Katherine Barrett and Rich Greene say the tax cut question is a “tricky game” for states. In a new article for the Council of State Governments, they challenge the notion that tax cuts always lead to improved state economies. Just look at the 20 states with the highest state-local tax burdens, they say. Six are in the Tax Foundation’s top 10 New Economy Index, which highlights states likely to have continuing economic health. On the other hand, Kansas, which had some of its largest tax cuts in history in 2012, continues to reel from the impact of lost revenue. Predicted “growth” just did not trickle in.
Barrett and Greene say businesses obviously will locate in states that offer low taxes — just as long as services are good. But they won’t move to or remain in a state where tax cuts impede services that businesses need, such as good roads to truck goods to market. And they won’t go where inconsistent tax policy yields fluctuating, unpredictable bills.
“Growing in a state isn’t just the function of putting up offices or factories. It requires filling those buildings with men and women who can do the necessary jobs without tons of expensive training and retraining,” Barrett and Greene write. “The kind of educational system that builds such a workforce isn’t cheap. And it’s primarily paid for by tax dollars. So, the moment that tax cuts require reducing the quality of K-12 or higher ed, the less competitive a state becomes.”
So listen to the message: When tax cuts slash into the marrow of education — as would happen if roads are fueled by a revenue-neutral cut in income taxes — legislators risk making South Carolina less competitive, which means fewer jobs, less growth and a tougher time for everybody.
There is no free lunch to pay for a decade of bad decisions that underinvested in education and roads. If South Carolina wants to move forward, leaders need to be more flexible on tax policy.
We Can Do Better, South Carolina!