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Talk about property-tax relief must reflect difficult choices

Reduced property tax could dictate sales-tax reform

Published Thursday, August 18th, 2005

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If South Carolina legislators want to reduce property taxes, they could start by cutting exemptions in the state sales tax and funneling the money to the public schools.

By doing so, the legislature would at least be taking action on a tax that is levied by the state, not local governments. That would be more constructive than calling local governments "termites," as state Sen. President Pro Tem Glenn McConnell has done in implying that towns, counties and school districts have run amok.

And by doing so, the legislature would address a concern that should be obvious to all by now: if the property tax is cut, the money governments need still has to come from somewhere.

One problem is that all sales tax exemptions -- including the exemption on newspapers -- have lobbies behind them that will fight against change. It shows that nothing about this issue is going to be simple, and the public should not be led to believe that the property tax can be reined in painlessly.

Actually, the sales tax may need as much attention as the property tax. As the economy has changed to what is known as a "service economy," the sales tax also must change. If more services were taxed, the pressure would be released on the tax on consumer products. And, as to consumer products, Congress must act to enable states to collect sales tax on goods sold via the Internet. That flaw reflects government not keeping up with the world around it.

The sales tax on food needs to be reexamined. So does limiting sales tax to $300 on an automobile. Both of these examples illustrate the regressive nature of the sales tax. It's the same rate, with vastly different impacts, for those struggling to put dinner on the table as those who have catered cocktail hours on the ocean. That must be taken into consideration.

Two years ago, two leading state representatives, a Republican and a Democrat, proposed a 2-cent increase on the state sales tax to substitute for all local property taxes for public schools, except for bonded indebtedness and lease payments. It didn't get anywhere. For one thing, it added sales tax to many services and cut many of the sales tax exemptions. For example, it would have gradually increased the sales tax on cars from a maximum of $300 to $1,000. And it left local communities without the control they want over public schools, and the right to supplement state school appropriations.

It was a hard sell, but it got a discussion going on both the sales tax and the property tax. That discussion, and a square look at hard choices, are needed today much more than populist rhetoric about "termites."

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