Increase in sales tax is not the answer

October 4, 2003

They voted against it in Alabama, but South Carolina lawmakers have picked up the gauntlet of increasing sales tax to fund education.

A plan was proposed earlier this year that would have raised the sales tax statewide by two cents, and would concurrently decrease the portion of property tax that is now going to fund schools. It was still in committee hearings when the General Assembly dismissed in June.

In the Senate there was more than one attempt to raise the sales tax in exchange for lowering property taxes. Neither body got beyond the talking stages — and it’s a good thing.

Haven’t we learned our lesson about just exchanging one tax for another? Didn’t we learn it when legislators, some perhaps seeking re-election favor rather than renovations in our tax structure, implemented a gradually reduced automobile property tax?

That little "favor" did us no favors at all."

Now the sales-tax increase proposal is being raised again, and with the legislature returning to session in January, it won’t be long before we’re hearing talk of robbing Peter’s pockets and putting the money in Paul’s — it is an election year for some of them, after all. Lower property taxes always sounds good to the property owner. But the maxim "If it sounds too good to be true" ever applied, it does in this case.

There are a couple of things wrong with the philosophy that increased sales tax for education is a good idea.

Primary among them is that sales tax, particularly in tough economic times, is an unstable source of revenue. If you think we have budget troubles at the state level now, just wait until those revenues start decreasing even further, especially during the months after Christmas when everybody’s belt gets a little tighter — and not just from failing to back off from the dinner table.

The inability to accurately forecast revenues is part of the reason for our deficit situation at present. The other reason, of course, as repeatedly noted here, is the legislature’s penchant for spending one-time money for ongoing projects.
But enough about its past sins; to up the sales tax, even for such a worthy cause as education, will likely have another downside.

If sales tax revenue is directed toward education, it’s likely our legislature, with a subsequent decrease in property taxes, will continue to decrease traditional education funding. There won’t be any more money toward education with the increased sales tax, just money coming out of a different pocket — every time you buy anything from groceries to a new refrigerator to put them in. That’s the consumers who continue to spend in South Carolina, that is, rather than going to nearby states where the rate is already lower. In Georgia, sales tax is 4 percent; in North Carolina, 4.5 percent. In Georgia, food and prescription drugs are already tax exempt. Where are all those additional revenues if consumers decide a few more miles on the car is fair exchange for their savings?

The legislature also proposes to eliminate several areas of sales tax exemptions, including newsprint, broadcasting equipment, residential electricity bills, lottery tickets and long-distance phone calls, among others. To affix sales tax to components of manufacturing, which includes newsprint, opens the door to other taxes applied in any other area of manufacturing. If manufacturing concerns lose their exemptions, the logical money-saving course many would take would be — you guessed it — layoffs.

In some cases, most likely utility costs, those additional taxes will simply be passed on to the consumer. Where’s that property tax savings now? Again, just coming out of a different pocket.

Diversifying the income that supports education, particularly in an iffy economy and with the legislature’s track record on revenue projections, is simply the smartest thing to do. At present we rely on three sources of revenue: Income from fines and fees, taxes and property taxes.

Just as we try to diversify industry so as not to be overly dependent on any one industry’s economic fluctuations, so have we diversified funding. That should continue.

We can’t base education funding on consumers’ whims. Areas already in poor financial shape aren’t going to miraculously recover if their consumers aren’t consuming and more of education funding is dependent upon consumers.

It is our legislature’s responsibility to find the way to properly finance education. That doesn’t mean further picking pockets to do so.

Copyright 2003, Anderson Independent Mail. All Rights Reserved.