When it comes to taxes, simple and smart don’t go hand in hand

By CINDI ROSS SCOPPE

Associate Editor

I DON’T want to say legislators think you’re stupid.

I’d rather let them say that.

Here’s Sen. David Thomas: “It is such a Christmas tree loaded down with so much stuff; it will create a firestorm back home.... People aren’t going to understand it. They’re going to think you’re giving with one hand and you’re taking away with the other.”

Now Sen. Jake Knotts: “I urge you to go back over the weekend and come up with a plan that we can let our people in simple Lexingtonian English understand.”

That’s pretty much the “substance” of the objections that were raised on Thursday when Sen. Larry Grooms explained the first comprehensive tax reform plan that has been debated in either body of the Legislature in the nearly two decades that I’ve been watching lawmakers.

There are plenty of actual problems with the plan, plenty of aspects that reasonable people could find unreasonable (see above editorial). But such rational objections were not what senators seized upon last week.

Sen. Knotts made his suggestion after complaining about “the hidden things” in the plan — things he had “discovered,” he acknowledged, by reading the one-page explainer that Sen. Grooms had distributed to senators.

The Grooms plan is not one you can sum up easily in a 30-second sound bite, at least not unless you talk really fast; it has too many parts.

What it doesn’t have is a lot of particularly complicated parts:

• It eliminates all school operating taxes on homes, cars, businesses — everything. That’s about 60 percent of the property taxes collected in the state, or $2.4 billion.

• It increases the state sales tax from 5 cents to 7 cents.

• It increases the sales tax cap on automobiles, boats and planes from the current $300 to $900.

• It eliminates about 15 other sales tax exemptions.

• It imposes a new 42-mill statewide property tax on all property except owner-occupied homes.

• It doubles the current taxes on alcoholic beverages.

• It increases the cigarette tax to $1 a pack, from 7 cents.

• It doubles the real estate recording fee.

The only place the plan gets at all hard to follow is in how the money is distributed. And that isn’t even terribly complex — it’s just different from the overly simplistic, and destructive, approaches lawmakers are used to considering.

The plan funds school districts using a formula that provides weights to each student based on how difficult it is to educate that type of child. For instance, a district gets more money for a high school student than an elementary school student and extra money for students who qualify for free or reduced lunch, or students with various types of handicaps. Except for the new poverty factor, the formula is identical to the one already used to distribute most state funding to schools.

That formula will result in some school districts having more money to spend than they have today — which means some will have less. And if it stopped there, the plan would be DOA, because a lawmaker isn’t going to vote for a plan that forces his school district to spend less money than it currently does.

Up until now, people assumed the only way around this type of political problem was to include a “hold-harmless” provision that gave wealthy districts extra state money, or else to fund every district at the level of the highest-spending district.

But Sen. Grooms proposes a third way: Districts that receive less money than they currently receive from property taxes would be allowed to impose a local property tax on non-residential property to make up the difference. He’s working on a formula that would result in this local tax eventually phasing out.

Amazingly, even the senators who complained that the plan would strip authority from local school boards seemed more concerned, as Sen. Dick Elliott put it, that it was simply a tax shift, and “the taxes are still going to be collected.”

The Post and Courier explained reaction to the proposal this way: “Many senators liked the idea but disliked where the $2.4 billion came from.”

Listening to the debate, I felt at times as though senators had never realized, until Sen. Grooms put forward his plan, that you can’t slash property taxes without increasing some other tax. Never mind that all the simple and destructive plans put forward to date also would increase some other tax in order to reduce property taxes.

Of course, maybe these critics just don’t like the idea of actual tax reform; maybe they actually believe in the Easter Bunny.

For the more realistic among us, there’s some simple math behind Sen. Grooms’ multi-pronged approach. You simply cannot get all the money to fund the schools from one place. The biggest target out there — and the one the “simple” crowd demands be hit — is the sales tax. But you would have to increase it to more than 9 cents to pay for the tax cut. And it’s not even clear that would work; officials project spending would start to drop off dramatically after 7 or 8 cents, as people found ways to do their shopping out of state or on the Internet.

“I like simple,” Sen. Grooms told his colleagues last week. “I love simple. But when simple won’t work, you can’t have simple.”

I think most South Carolinians are smart enough to understand that.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.