The sales tax gets the nod in the two most talked-about tax proposals in the General Assembly this year: the Quinn-Sheheen bill for school funding and the David Thomas bill for property tax relief. Both bills propose to raise the state sales tax rate from 5 percent to 7 percent to replace other revenue sources.

Is this a good idea?

The first question on some people’s minds is how a higher retail sales tax will affect our ability to compete as a tourist destination and in retail sales. After all, 20 of our 46 counties border another state. That’s probably the smallest concern. A number of states raised their sales tax rates in the 1990-92 recession, but South Carolina did not, so we have some headroom.

Right now, 25 states have higher state retail sales tax rates, 13 are lower, six are the same, and five have no state retail sales tax at all. Our combined state and local rate is 6 percent in 27 counties with local option sales taxes, 7 percent in some places with a special capital projects tax. Thirty-one states have a maximum combined state-local rate of more than 6 percent; of those, 22 have a combined rate that is more than 7 percent. Our neighboring states, Georgia and North Carolina, have maximum rates of 7 percent and 7.5 percent. So a single increase of 2 percentage points with displacement of the existing local option sales taxes would not lead to any increased cross-border shopping; if the local option sales tax is retained, though, the combined rate would be higher.

The second question is, will it raise enough money? It appears to raise enough revenue to fund Sen. Thomas’ property tax relief for cars, motorcycles and owner-occupied houses, not quite enough to fund the Quinn-Sheheen school equity proposal. But the future of the sales tax is uncertain.

Congress has put a moratorium on collecting these taxes on Internet sales, and many catalog sellers are also not required to collect. These are two growing areas of retailing, especially the Internet. Also, the tax is almost entirely on tangible goods in South Carolina, so the sales tax doesn’t capture much revenue from the faster growth of services — recreation services, personal care services, educational services, travel services, cleaning and yard care services. Motel accommodations and dry cleaning services are among the few services subject to this tax.

Some states — Hawaii, New Mexico, South Dakota — tax a broad range of services and are thus able to raise more revenue at a lower tax rate. Economists always find a broader tax base and a lower rate to be not only more efficient but also fairer than a narrower base and a higher rate. With South Carolina’s present base plus a few more exemptions, however, revenue growth from the sales tax not only is at risk from Internet and catalog sales but will also continue to lag behind the growth of personal income. That makes the sales tax a rather risky choice to carry such a heavy funding burden.

An even more important issue is the distribution of the tax burden. The sales tax is regressive. It takes a larger percentage of a poor person’s income than a richer person’s income, because poor people spend a larger share of their income on items subject to the sales tax — tangible goods such as food, clothing and household goods such as appliances and cleaners. In higher income brackets, more income is saved — thus paying no sales tax — or spent on services, most of which are not taxed.

There are ways of making sales taxes less regressive. Food exemptions can help, although they should be targeted to lower-income households rather than everyone. Broadening the base to include more services and eliminate some exemptions would also help. The Quinn-Sheheen bill eliminates some exemptions but does not expand taxes on services. Taxing services has its own problems. It would involve a lot of smaller businesses and be more expensive both for the state to collect and for the businesses to pay. But it would make the sales tax less regressive.

Finally, both of these bills use the sales tax to reduce the property tax. The Thomas bill uses the sales tax for targeted property tax relief. The Quinn-Sheheen bill uses the sales tax to replace property tax funding for schools. In Quinn-Sheheen, the local option sales tax in 27 counties is going to be displaced, so that extra revenue and that property tax relief will be gone, and local governments will have to depend on a check from Columbia. A responsive and accountable local government should not only provide quality services but also have to be responsible for the cost. Taking away the property tax as a funding source eliminates that independence and accountability for local governments.

Raising the sales tax is not necessarily a bad idea, particularly if we take steps to mitigate the impact on our lower-income households. But we only get one shot at it. This increase will bring us up to the national and regional average, and we want to stay competitive in retail sales and tourism. We as citizens and as a state need to think carefully about what would be the best use of this one-time opportunity.

Dr. Ulbrich is alumni professor emerita of economics at Clemson University and a senior fellow at Clemson's Strom Thurmond Institute.