OUR STATE LEADERS have been governing as if gripped by crisis. And indeed, South Carolina has been tossed by similar problems as other states — fiscal strife and concerns over personal and national security. Our state’s problems have been exacerbated by short-sighted decision-making. Lawmakers raid trust funds and other one-time sources to appear to balance the budget. A longtime prohibition on state-sanctioned gambling falls, and proves to be no panacea for enduring educational woes. Ill-crafted tax breaks decimate state income while failing to achieve their goals of promoting economic development and a sense of equity among taxpayers. We are a state that seems to favor ad hoc “solutions” that move the state two steps back for every pace forward.

There is no room anymore in South Carolina for this approach, and 2004 is the time to stop. We need stability. We need a system that fosters sustained progress.

Look at the results of our crisis mode of government:

Children from the poor, rural areas are undereducated, far too many of them never advancing beyond the ninth grade. Yet, because of the system of paying for education, those children get short shrift in school funding. Children in areas with greater property wealth see more resources devoted to their education, but only at the expense of higher local property taxes.

In some areas, property tax bills grew to the extent that homeowners and businesses rebelled. The General Assembly adopted an ill-conceived break for homeowners; legions of exemptions and loopholes benefit specific businesses and industries. Beyond creating inequities, these special exemptions are eroding our tax base, forcing one of the nation’s poorest states to choose between drastically reducing services and increasing tax rates on a dwindling set of taxpayers.

There is another cost of property taxes that are considered too high: They alienate taxpayers, causing them to resent the schools. That reduces public support for school funding, making it more difficult for the state to create the kind of work force that will attract high-paying jobs and lift our standard of living.

High income tax rates make the state less attractive for investors; and because our income tax is flat, it doesn’t help balance regressive parts of the tax system. And as more of us shop on the Internet, and as more of our consumer dollars go to untaxed services, the sales tax becomes a less and less reliable source of funding.

Over the years, legislators have proposed to deal with this or that complaint about taxes, but their efforts have been confined to creating yet another exemption. At the same time, there have been few serious efforts to make sure kids who need extra attention in order to learn get that help.

This could be about to change. A lingering fiscal crisis is forcing the state to pare down services and start thinking seriously about how to come up with money to pay the bills. A pending lawsuit could force the General Assembly to pump more money into struggling school districts. These crises have prompted policy makers to offer up bold proposals to overhaul the way we raise and spend money, particularly money for education.

That is exciting, because it presents us with the opportunity to move beyond the momentary crisis and plan a better future for South Carolina. But with that opportunity comes a heavy burden. All of us, from ordinary citizens to legislators, must carefully analyze the plans and decide what is best for our state.

Today, we begin the process of helping our state come to a consensus on the best path to follow. This editorial is just the beginning of an intensive, multi-week effort. At the present, there are more questions than answers, because any plan that is comprehensive — as a good plan must be — has sweeping implications.

The various plans

By far the most comprehensive proposal is a bipartisan plan offered by House Republican Leader Rick Quinn and Rep. Vincent Sheheen. It makes significant changes to all three major taxes — sales, income and property. Most of the ideas that others are offering are included in this plan. It also makes major changes to the way we fund education, and the way we look at local control of schools. That makes it useful as an organizing focus for discussion, since most questions raised about other plans could also be raised about this one.

The proposal is still evolving. But the major elements are constant. They would:

• Increase the sales tax from 5 percent to 7 percent. The extra tax would not be collected on food.

• Raise the sales tax cap on automobiles from $300 to $1,000, so the cap would limit the sales tax bill on cars worth more than $20,000, instead of the current $6,000.

• Add the sales tax to many goods and services that are now exempt. This part of the plan changes frequently. The big-ticket items on the current list are telephone charges, residential electricity, water, gasoline, lottery tickets and wrapping paper and twine used by businesses.

• Charge a $25 annual state registration fee on autos.

• Eliminate property taxes for school operations on homes and businesses.

• Eliminate all property taxes on automobiles.

• Reduce the state income tax rate by 15 percent, and raise the income level at which the highest rate kicks in.

• Hold public votes on whether to continue the 1-cent local option sales tax in those counties that collect it.

• Phase out the local sales taxes that are used for infrastructure projects, and prohibit such taxes in the future.

• Place annual caps, tied to inflation and population growth, on state and local government spending.

• Raise teacher pay to the regional average.

• Equalize per-pupil spending statewide, at an amount slightly higher than most districts spend. A few districts that spend more would continue collecting property taxes until their sales tax allocation supplants them.

The other plans are either simpler or similar.

Gov. Mark Sanford wants to lower the income tax rate and make up the money by increasing the tax on cigarettes and taxing lottery tickets.

House Ways and Means Chairman Bobby Harrell wants to increase the sales tax to 6 percent on everything but food and hotel rooms, eliminate a few minor tax exemptions and abolish automobile property taxes.

Sen. David Thomas wants to increase the sales tax to 7 percent and eliminate home and auto property taxes.

A plan by a group of school finance officers mirrors the revenue-raising aspects of Quinn-Sheheen but reduces, rather than eliminating, school property taxes.

On the negative side

For our editorial board, Quinn-Sheheen raises two major questions: Should the state take over funding of schools? And if so, is this the right way to do it?

They sound simple. They are anything but. They raise dozens of other questions. While we’re still trying to answer some of those smaller questions, the answers to many of them form the basis of lengthy lists of what we consider good and bad about the plan.

While the negative list is shorter, some of the problems are quite significant. The plan would:

• Leave local communities with no options if the Legislature underfunds schools.

• Make the tax system less able to withstand economic changes. We rely about equally on funding from the sales, property and income taxes. This would change that three-legged stool to one in which sales taxes make up more than half the money from the major taxes and property taxes less than a fifth.

• Move the state sales tax rate from 27th highest to first (tied with three other states) in the nation, and move the maximum combined state-local tax, for several years, from 23rd to seventh.

• Give away the deduction that property owners are able to claim on federal income taxes.

• Place artificial caps on the growth of state and local spending. This means a government spending less money than needed will never be able to catch up.

• Force some businesses to pay significantly higher taxes, thus potentially hurting employment.

We are concerned the changes might make our tax system more regressive. We are still researching that.

The other plans don’t generally have as many negatives. None of them caps government growth. The plans by the governor, Rep. Harrell and school officials don’t reduce local communities’ ability to raise money. The Harrell and Sanford plans don’t greatly unbalance the tax system; the governor’s plan doesn’t raise the sales tax rate, and Rep. Harrell’s plan doesn’t raise it as much. However, the Thomas proposal raises additional problems by stripping cities and counties of local control — which is of even greater concern than taking away control over schools alone. And it distributes the money in ways that force people whose cities and counties are small and frugal to subsidize big spenders.

On the positive side

If those were the only implications of the tax plans, they would all be awful. But Quinn-Sheheen would cause numerous positive changes. It would:

• Make sure we spend at least as much to educate the average child who lives in a poor area as we spend to educate the average child who lives in a wealthy area. It also would increase the weighting, or extra funding, we provide for special-needs children, even going so far as to acknowledge that being poor creates special needs.

• Increase overall education funding, at least in the first few years, and potentially longer term.

• End the war between senior citizens (and other property owners) and the schools.

• Eliminate the 1995 property tax rollback, and all its problems, which likely will not otherwise occur.

• Reduce the amount spent on the homestead exemption, which is not means-tested and thus gives breaks to rich elderly people but not poor young people.

• Eliminate the problem of high car property taxes.

• Eliminate many sales tax exemptions, thus broadening the tax base and doing away with bad policy.

• Give cities and counties more room to raise property taxes to pay for their needs.

• Spur development in poor, rural counties, by reducing their extra-high property taxes.

• Reduce the tax disparity between large and small, old and new industry, and between industrial and other businesses, by reducing the need for special tax breaks.

• Reduce the incentive for people not to register — and insure — their cars.

• Shift more of the tax burden to tourists.

• Reduce the sales tax preference the state gives for more expensive automobiles.

• Eliminate school districts’ fiscal autonomy.

• Eliminate a major obstacle to reducing the number of school districts through consolidation.

• Solidify the state’s responsibility to adequately fund public education, making it impossible for legislators to pass the buck by blaming local officials (and vice versa) when funding is inadequate.

While the Thomas plan carries most of these benefits (although with more negatives), the other proposals tend to have only a few positive aspects. The school finance officers’ plan would increase funding for public schools and eliminate the same problems with sales tax exemptions as Quinn-Sheheen; but it doesn’t eliminate any class of property taxes. The Harrell plan would increase funding for schools somewhat, shift some of the tax burden to tourists and eliminate the problems associated with high car property taxes. The governor’s plan would reduce the income tax’s disincentive to invest in the state and reduce teen smoking.

The balancing act

There is no perfect tax system. There is no perfect way to fund and control public education. There is no magical number we can derive that is the exact amount of money needed to provide an adequate education to all of our children — just as there is no magical number that tells us how much money cities and counties and the state need to spend on all government services.

But there are outcomes we should work toward that would be better for our state than what we have today.

We must work toward a more equitable tax system that meets the important goals of promoting economic development and individual prosperity. That system must adequately fund the services our citizens demand, including a public school system that gives every child a genuine shot at being a self-supporting adult.

There is no mystery to why South Carolina has so long remained at the back of the pack in key indicators of quality of life. We have pulled against each other too much and failed to pull together for the good of everyone in our state. We must set aside all of that, and resolve to work together on the very difficult task of coming up with the right way to fund what we agree must be funded.