Arthur A. Felts is director of the Joseph P. Riley Jr. Institute for Urban Affairs and Policy Studies at the College of Charleston.
BY ARTHUR A. FELTS
Members of the S.C. General Assembly have indicated they desire to take up the issue of property tax reform in next year's session. At least two, and likely more, proposals call for eliminating or reducing property taxes and, instead, raising the state sales tax by 40 percent.
Not having to pay or paying less property taxes obviously has appeal. But before S.C. citizens buy in, we need to seriously consider the implications of an increase in the sales tax.
First, when the sales tax is levied on food, it has a disproportionate impact on those who earn less. Simply put, they pay a higher percentage of their income in taxes than those in higher income brackets.
The family of four that earns $25,000 a year will pay exactly the same tax on $100 worth of food as the family that earns $100,000. We are told that the sales tax is discretionary because how much you pay is determined by how much you spend. But food is hardly a discretionary expenditure.
It is true that increasing the sales tax will "export" part of our tax burden to out-of-state visitors. But that may be small consolation for those on fixed income or earning minimum wage who still must eat. And, in spite of this, it is still a fact that S.C. citizens pay a huge percentage of the sales taxes collected.
The bottom line is that if a 2 percent increase in sales tax will allow the elimination of local property taxes, we are being told that the same amount of money will be collected, only differently. That likely means some people will pay less overall taxes and some will pay more. We are entitled to know these devilish details before buying into the change.
Second, perhaps we should question whether or not an increased sales tax would generate the same revenue as local property taxes currently do. For several years now, the state has been fiscally crunched largely because state sales tax collections have lagged in a recessionary economy. Even if sales tax collections are picking up, we know that the future will have downturns.
It is not far-fetched to envision a time when the state would tell local governments, "Sorry, we didn't collect as much as we thought we would this year, so you'll not be getting what you counted on." Some may see this as a good thing, but shouldn't that be a question for each locality to answer? A majority of citizens in some localities might actually want services they would be denied because of lack of funds.
Third, along the same lines, we should consider the implications of not having a diverse tax base. Eliminating the property tax is much akin to a business that has two products generating stable revenue deciding to eliminate one and bank on increased sales in the other to offset. A diverse revenue stream is healthy, even in tax bases.
Finally, the property tax in South Carolina is a local tax, not a state one. Any community that wants to can elect leaders who could work to significantly reduce or even perhaps eliminate property taxes altogether. Just why do our state representatives see this as an issue they should deal with?
Democracy works best when it is closest to the people, and the General Assembly is one step removed.
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