Complaints about tax law highlight need for reform

THIS IS GETTING to be ridiculous.

The ink hadn’t dried on the massive tax swap bill the Legislature passed this spring before the state Chamber of Commerce and anti-tax groups were demanding that a new cap on local taxes be made retroactive.

Within a month after that, those same groups were back, with reinforcements, demanding a spending cap on top of the tax cap.

At the other end of the spectrum, school officials are crying Chicken Little-like that the best schools will disintegrate and the poorest ones will starve now that the Legislature will take on a larger role in school funding.

As wrong as they may be on all those demands and concerns, all the disaffected are right on one count: The tax compromise that suddenly emerged and was passed before most legislators realized what it included was flawed, and is in need of change.

What we don’t need, though, is the nip-and-tuck operation that various critics are demanding to the law — which increases the sales tax, slashes homeowners’ property taxes and imposes those spending caps on not just schools but also cities and counties. That would almost certainly result in an even bigger mess than the one we have. What we need is the comprehensive overhaul of our state and local tax structure that lawmakers keep talking about but just can’t seem to pull off.

“Comprehensive” means everything’s on the table: Not just residential property taxes, but the balance between residential, business and auto property taxes. Not just a higher sales tax to offset lower homeowner taxes, but all those loopholes in the sales tax that give preferential treatment to activities that might or might not deserve them — and that push the sales tax rate much higher than it would be if we taxed more sales. Not just which product loopholes to close but which services to add to the sales tax, to make sure the sales tax remains a broad, general tax as we shift from a product to a service economy. Not just loopholes in the sales tax but also the special exemptions in the property and income taxes. Not just the big three taxes but our nation’s-lowest cigarette tax and our gas tax and alcohol taxes and all those other little taxes that round out our system. Not just taxes but also user fees, which we rely on more heavily than most states.

When we get all that on the table, there are a few simple questions we need to ask: How do we balance different types of taxes to make sure our system is fair to rich, poor and middle class, to businesses and individuals? How do we make sure we’ll bring in an adequate amount of money to pay for those services that we can agree the government needs to provide, and bring it in as the economy ebbs and flows? Which taxes and fees should we use to pay for schools, for prisons, for courts, for other services, and who should provide those services (state, city or county government)? (That, of course, should lead to letting the government that provides a given service collect the type of tax that should pay for that service.) Which behaviors do we want to encourage through tax breaks (companies moving to South Carolina and South Carolinians investing in their own businesses, perhaps), and which behaviors do we want to discourage?

The answers such a discussion produces won’t satisfy all the concerns various groups are expressing. But they will likely satisfy the legitimate ones. And they certainly will put our state in a better position.