Posted on Fri, Oct. 10, 2003


Tax reforms must consider unequal U.S. pocketbooks


Guest columnist

Recently the editorial page of The State initiated a debate on the tax structure in South Carolina in order to make the tax system more logical. Adjectives such as “exciting” are being used to describe the school financial officers’ proposal to increase sales taxes and to reduce property taxes. Undoubtedly we need to replace the current dilapidated system, but the assertion that we need “to spread the tax burden as widely and as thinly as practical” is wrong — because wealth and income in both the United States and in South Carolina are so unevenly distributed.

Sales taxes are regressive taxes, and they are the last thing that we need to implement, especially when one considers the hemorrhaging of the state’s manufacturing base and the resulting loss of decent-paying jobs to Third World countries.

You can’t have a successful debate on tax structure without knowing something about how wealth is distributed among the population. In the United States, the wealth distribution is exponential. The top 1 percent owns about 40 percent of the national wealth. The top 20 percent owns about 80 percent of the wealth. Contrast that with this: The bottom 60 percent owns only 5 percent of the national wealth, and, incredibly, the bottom 40 percent owns nearly zero percent of the national wealth.

If you suspect there is something intrinsic about free markets that causes those inequities, then you are right. Moshe Levy of the Jerusalem School of Business is one of a handful of research leaders in the emerging field of microscopic simulation of financial and economic systems — a new branch of economics that uses the mathematical tools of particle physics to explain the flow of money in real economies.

Many people will be surprised by Dr. Levy’s conclusions, since they are often contrary to contemporary neo-liberal thought. His most powerful statement is: “Our analysis leads us to conclude that the extreme inequality in modern Western society is a very fundamental and robust outcome of the nature of the capital investment process. Furthermore, this inequality is driven primarily by chance, rather than by differential ability.”

That’s right, the investment process itself causes extreme wealth inequality — and chance itself determines (initially) the winners and losers of the investment game. Given the process on which Dr. Levy’s arguments are based, one can also easily infer that once wealth inequality takes place, it is unlikely that the winners of the investment game will move to the bottom, or vice versa. These two ideas may portend dire consequences for poor states such as South Carolina.

What does all of this have to do with sales taxes? Given that we are one of the poorest states, we don’t have many wealthy people to tax to begin with, so the majority of the burden is passed down to a middle class that is fed up with property taxes ad infinitum.

Naturally, the middle class wants to spread the burden to other groups, and the only groups left are the working class and the working poor. These folks are hard-working, and they represent the heart and soul of South Carolina. To me it is unconscionable that we would even consider raising taxes on people who have done so much for our state, yet don’t have material possessions in proportion to their contributions.

The truth is that there can be no satisfactory state tax scheme, regardless of how we arrange it, independent of the federal tax system. The vast majority of the wealth in the United States is outside of places such as South Carolina, and the only way to access this prospective tax base is on the federal level.

If we really intend to uplift South Carolinians from the adverse effects of a global free market system, then our federal representatives are going to have to start working with congressmen of other states that share similar prospective fates.

Mr. Whittington is the Richland County chairman of the United Citizens Party.





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