Flaws in state tax system can be fixed with reforms

e-mail this story discuss this issue in our forums Guest column • Walter Ezell: Voters should look for vision, moral authority, ability to lead (02/02/04) • Diane Smock and Buddy Puckett: County must welcome all students so none is left behind (02/01/04) • Mike Campbell: South Carolina has no business trading with Castro's Cuba (01/29/04) • Joey R. Preston: Citizens are picking up the tab for the state (01/26/04) • Phil Leventis: A four-year university in Sumter would benefit entire state (01/26/04) More details Hunter Howard Jr., a native of Greenville County, is president and chief executive officer of the South Carolina Chamber of Commerce. Based in Columbia, the state Chamber is the state's largest broad-based business and industry trade association, representing more than 2,300 members.

It is under this scenario — and at a time when the General Assembly is facing shortfalls and tight budgets, and legislators are offering sweeping tax reforms promising stability and sustained progress — that the South Carolina Chamber reaffirms its commitment to helping ensure a sound, well-balanced tax policy that provides consistent revenues in both good and bad times.

Taxes and government services are critical to our future and closely linked. Governments need a stable, predictable tax system that allows them to plan for services that are critical to society. Taxpayers — both individuals and companies — need a stable and predictable tax system that allows them to plan for the future and ensure competitiveness and growth. A balanced tax system, with each class of taxpayer paying a fair share, rides the cycles of the economy and provides the consistency that both government and taxpayers need.

That should be a goal of our state, and through a decade of participation in tax study committees, it's been a goal of the South Carolina Chamber. And now that the issue is garnering more intense focus, the Chamber is currently participating in the public/private South Carolina Joint Tax Study Commission, comprising Senate and House budgetary leaders and private sector business leaders, which has worked toward three goals: 1) establishing guiding principles; 2) evaluating the current system and 3) measuring future tax proposals and analyzing implications.

Outcomes of that work will allow the membership of the South Carolina Chamber of Commerce, as well as all taxpayers in the state, to get a better understanding of the current tax system and to make informed decisions about a number of pending legislative proposals to address the issue.

In establishing guiding principles for a good tax system, the Study Commission outlined several considerations:

Revenue should be adequate to meet our state and local services. Do the proposed changes make collections more stable and less susceptible to fluctuations in the business cycle? Given the various proposals, will revenues keep pace with inflation and real growth?

Fairness in the eyes of the beholder. Changes in the tax code should not be particularly detrimental to any class of taxpayer (both initially and long term). Do the changes alter the relative burden on households and businesses? Do they shift taxes among taxpayers? Do the changes alter the relative burden on individuals, particularly as they relate to regressive, proportional and progressive tax systems?

Simplicity to make it easier for the taxpayer to plan and prepare and for state government to administer. Do the proposed changes simplify or complicate the tax structure? Will the cost of collection and compliance increase or decrease?

Balance so that the stable and predictable "three-legged stool" of consumption/sales, income and wealth/property taxes remain a constant blend.

Neutrality among taxpayer groups and to the state and local government. Do the proposed changes alter existing conditions related to households and businesses about where they locate, where they work, how they spend and invest, and where they purchase goods and services?

Competitive tax structure that supports job and personal income growth, ensuring that South Carolina can compete with surrounding states, the nation and the world.

In evaluating the current tax system in South Carolina, the Joint Tax Study Commission also has found, through analysis of our revenues and expenditures, that this state has a relatively positive tax climate and well-balanced system — with our overall tax burden (sales, income, property) as a percentage of personal income 5 to 8 percent below the national average.

So, with this background and the continuing work of Chamber member-led task forces to consider the myriad of new tax proposals coming from legislators, educators and the private sector, what is the conclusion of the South Carolina Chamber of Commerce? Simply enough, the current system is not broken, but it could certainly be improved.

How? First, South Carolina needs to stop the erosion of our sales tax base caused by changes in consumption patterns due to technology. In other words, consumers are convenience shopping through catalogs and the Internet. It's taking those dollars out of the state's economy and giving out-of-state companies a 5 to 6 percent advantage, costing South Carolina about $90 million a year (projected to be $250 million with three years).

Secondly, South Carolina needs to review tax exemptions. There are currently over 60 sales tax exemptions totaling about $1.5 billion — many legitimate, but some outdated, and they all need be studied.

Taxes are a necessity for providing a good quality of life and positive growth. With a generally sound tax structure from which to work, South Carolinians must make a few tweaks here and there, while considering both short- and long-term implications, to ensure a stable and competitive environment for future growth of our economy. The considerations I've mentioned above are a good place to start.