No matter how you crunch the numbers, S.C. isn’t a high-tax state

By CINDI ROSS SCOPPE

Associate Editor

THE BUSINESS groups painted a dire picture when they announced last month they were joining forces with anti-tax and anti-government groups to push for spending caps on local government.

S.C. Manufacturers Alliance president Lewis Gossett asserted that “most local governments never miss opportunities to raise taxes,” and the state Chamber of Commerce’s Otis Rawl warned that “South Carolina’s economy will go stagnate quickly” if the Legislature doesn’t act.

Obviously the usually rational Mr. Gossett was engaging in hyperbole. But the overheated nature of the rhetoric, combined with the fact that such business groups have joined into such an alliance and such a push, suggests that there’s a crying need for some perspective about the level of taxes paid in South Carolina.

Some of South Carolina’s taxes and fees are indeed among the highest in the country; others are among the lowest. That’s one reason we need a top-to-bottom overhaul of our tax structure. But when you look at the total amount of money that South Carolinians pay to run state and local government, no matter how you do the calculations, one fact stands out: South Carolina is not a high-tax state.

Don’t take my word for it. That’s what the economists at USC and Clemson say. It’s what the anti-tax Tax Foundation says. It’s what pretty much any national ranking says.

The Tax Foundation is the 80-year-old anti-tax group in Washington that calculates how many days Americans have to work to pay all their taxes. Its primary calculation is “tax burden,” which it defines as the percentage of income paid in taxes. In 2006, South Carolinians paid 10.2 percent of their income in state and local taxes. That ranked 30th nationally, which was the highestour state has ranked since 1990. Over that 16-year period, our combined state and local tax burden has ranged from a low of 9.6 percent to a high of 10.3 percent. (When you add in federal taxes, our tax burden rises to 29.2 percent, which ranks 38th nationally and puts our “Tax Freedom Day” for this year on April 17.)

The great thing about the Tax Foundation’s number is that, unlike most legitimate comparisons, it’s up to date. That’s because it uses projections instead of actual tax numbers for local taxes, which the Census Bureau can’t compile in real time. Any comparison that looks only at state taxes is worthless, because, as the Tax Foundation notes, “some states accomplish at the local level what other states accomplish at the state level.”

But there’s a major drawback to this nifty real-time comparison: It counts only taxes. That’s particularly problematic in South Carolina, because we rely much too heavily on fees. We get 29.6 percent of our revenue from what the Tax Foundation calls “non-tax charges and miscellaneous,” compared to the national average of 24 percent.

As the Palmetto Institute reported last fall, in a series of studies it commissioned economists to write on South Carolina’s tax system, that over-reliance on fees moves our state much higher on some measures of tax burden.

Still, though, we’re nowhere near the top.

One of the Palmetto Institute reports shows that that in 2002, South Carolinians spent 15.3 percent of personal income on state and local taxes and fees. That compares to a national average of 14.9 percent, and ranks 24th among the states.

That report, by three economists at USC and Clemson, measured the burden of taxation in other ways as well. It found that state and local taxes and fees claimed:

• $3,874 per capita. That compares to a national average of $4,599, and ranks 44th nationally.

• 13 percent of the gross state product. That compares to 12.7 percent nationally, and ranks 29th.

• 11.8 percent of total taxable resources (a more complicated measure of how much money is available in a state to be taxed). That compares to a national average of 11.6 percent, and ranks 26th among the states.

I couldn’t find comparable numbers for 2004, but I tried to generate a close approximation, using the Tax Foundation’s “State and Local Revenues Per Capita” table, which includes money that comes from the federal government, along with another table that shows the percentage of state and local revenue each state gets from taxes, from fees and from the federal government. By factoring out the federal funds, I came up with per capita state and local fees and taxes of $5,447 in 2004.

That number isn’t directly comparable to the 2002 figure provided by the Palmetto Institute, because it includes “intergovernmental transfers,” such as money the Legislature sends to cities and counties; in other words, it double-counts some funds. But while you can’t compare the 2002 and 2004 raw numbers, the state ranking is still relevant. In this case, it’s 36th, which is hardly high enough to justify claims that local governments are on a mad taxing spree — much less to justify having the state Legislature impose even further limits on the ability of local communities to decide how much government they are willing to pay for.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.