NEWS: Tax reform is back on the table

By Andy Brack, editor and publisher  |  After six years of lip service about comprehensive tax reform, House leaders say they are ready to dust off a major 2010 report and take up the topic again.

S.C. House Speaker Jay Lucas of Hartsville this week appointed Speaker Pro Tem Tommy Pope, a York Republican, to chair a special tax reform committee comprised of eight Republicans and six Democrats.  The only committee member who also serves on the powerful budget-writing House Ways and Means Committee is Beaufort County GOP Rep. Shannon Erickson.

“Our outdated tax code needs a dramatic transformation in order to promote economic competitiveness and increase the size of our citizens’ paychecks,” said Lucas, who did not respond to two requests for an interview.  “Achieving this difficult task is long overdue, but necessary to ensure our tax code is fair for our taxpayers. A broader and flatter tax code will help continue to spur job growth and provide greater opportunities for South Carolina families.”

Other Republican members include Reps. Todd Atwater of Lexington, Mike Burns of Taylors, Joe Danning of Goose Creek, Jay Jordan of Florence, Bill Taylor of Aiken and Anne Thayer of Belton.  Democrats appointed to the committee include Reps. Bill Bowers of Hampton, Chandra Dillard of Greenville, MaryGail Douglas of Winnsboro, Joe Jefferson of Pineville, Roger Kirby of Lake City and Mandy Powers Norrell of Lancaster.

The committee will hold its first meeting at 2 p.m. Tuesday in room 516 of the Blatt Building on the Statehouse grounds in Columbia.

What’s ahead

The committee is tasked with reviewing the state’s tax code and making suggestions for reform before the start of the next session in January.

Pope, who has said he is interested in running for governor in 2018, said the committee likely would discuss the three foundations of South Carolina taxes — income tax, property tax and sales tax.  The state’s reliance on user fees as a part of the budget probably wouldn’t be a focus, he added.

In general, the committee will seek ways to make the tax structure fairer to all South Carolinians, he said.

“My goal is to make it simpler for the public to understand and for the legislature to understand and to make it fairer,” he said this week.  “The goal is creating a product that is fair and is equal.”

For example, he said the committee likely would look at Act 388, a controversial property tax-sales tax swap that caused inequities on small businesses.  “There are a lot of things that are inequities that the public would like to see addressed.”

He said the committee also likely would examine the billions of special interest sales tax exemptions that outweigh the amount of sales taxes the state collects.  He also said a focus would be to make recommendations to simplifying educational funding and how income taxes are determined.

“What we don’t want to do is reinvent the wheel,” Pope said.

A key 2010 report

And that’s where a December 2010 report comes in.

In 2009, former Gov. Mark Sanford and the legislature appointed the Taxation Realignment Commission (TRAC), a special panel of business professionals who had 17 meetings over 14 months to probe the tax code.

The report, released as the state was still feeling impacts of the Great Recession, didn’t find lots of takers in the legislature as it was grappling more with finding enough money to keep from cutting state programs  than reforming the tax structure.

The 400-page report called for multiple policy changes, including removing about $1 billion of sales tax exemptions, which small government advocates say is a raise in taxes while in reality it is a way to restore equity and get rid of special tax breaks.

“With few exceptions, TRAC found that South Carolina is a low tax state by almost any honest measure,” the report said in an overview by its chair, former state Department of Revenue Director Burnet Maybank III.  “However, that positive finding should not, for reasons addressed in this report, be misconstrued to suggest that South Carolina‘s current tax structure is not plagued with structural deficiencies. These deficiencies have challenged both the fairness of the current system and the current system‘s ability to produce stable revenues over time.”

Not politically popular at the time, the report got shoved to Statehouse shelves.

Now it’s being dusted off, Pope said.

“I’ve asked the staff to pull the TRAC commission report and get it out to folks,” he said.  “We want to move forward and make some decisions based on those recommendations.”

That’s music to Maybank’s ears.

“We did a tremendous amount of work,” Maybank said.  “I don’t know that there’s a whole group of new ideas out there.

“The committee’s report is just as accurate today as it was when we issued it.  Very little has changed.  It’s a valuable document, not dated.”

Taylor, the Aiken Republican on the new ad hoc committee, remembers sitting through some of the TRAC hearings in 2010.

“The TRAC report is an excellent starting point for our work,” he said.  “I’ll be reviewing it over the weekend before our first hearing.  The work of TRAC was quite thorough and they received input from nearly all the stakeholders. Unfortunately, it came at a time when the state was working its way out of the so-called ‘Great Recession’ so it didn’t get addressed by the General Assembly.”

Think tank offers other policy ideas

The Center for a Better South offered a book full of tax reform ideas in 2006, many of which remain relevant today.

Author Sarah Beth Gehl, a Georgia public policy researcher who wrote the book, noted that 10 years ago, South Carolina had embraced only two of 11 policy ideas.  Since then, it has strengthened measures accountability measures.

“There continue to be several opportunities for the legislature to reform the tax code in ways that broaden and modernize the base, enhance fairness, and ensure sufficient funds for education, health, and other services,” she said this week.  “Goals of fairness and transparency never go out of date.”

Still on the table for South Carolina are opportunities to:

• Broaden the sales tax base by removing abolishing sales tax holidays and removing special interest sales tax exemptions.

• Modernize sales taxes by taxing more services.

• Raise cigarette taxes to the national average to promote public health.

• Enact a state Earned Income Tax Credit to complement the federal credit pushed by Presidents Ronald Reagan and Bill Clinton.

• Modernize state income tax brackets.

• Rethink senior tax preferences so they reflect ability to pay, which could help lower taxes for working families.

• Eliminate corporate tax loopholes.

• Connect property taxes with the ability to pay.

Click here to see a 2006 scorecard from the Center.

Editor’s note:  The writer is chair of the Center for a Better South.

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