Taxation and Regulation

Increasing Gas Taxes

S 279:  With oil prices near record highs, this bill proposes creating a “local option motor fuel user fee.” In plain language that means counties will be able to raise the gas tax by one cent per gallon. The money is to be used to pay for road improvement projects. First, this is a tax increase, pure and simple – not a user fee. Second, if counties need more money for roads, a sounder option would be to use their growing economic development budgets rather raising taxes. They might also consider cutting staffing costs – in the midst of the Great Recession, local government hiring in South Carolina increased by more than 8 percent.

 

Cutting Manufacturing Property Taxes

S 347: South Carolina has the highest effective manufacturing property tax rate (3.73 percent) in the nation – more than double the national average. Instead of cutting it, the Legislature uses this high rate as an excuse to dole out economic incentives. This bill would cut the tax from 10.5 percent to 6 percent. For the sake of comparison, Virginia’s effective rate is 0.48 percent (tied with Delaware for lowest in the country); North Carolina’s is 0.98 percent; and Georgia’s is 1.52 percent.

 

Eliminating the Corporate Income Tax

S 155: This bill would reduce the corporate income tax every year until 2020, when the tax would be reduced to zero. The bill would also repeal many targeted tax credits, including the research and development credit. One problem: taking eight years to fully eliminate this tax is too long, especially given that corporate income tax revenue represents only a small portion (just over 2 percent) of General Fund revenue. Whatever the bill’s problems, however, it’s a refreshing departure from the usual policy of simply subsidizing government-favored industries and handing out tax credits to political allies. (See also S 142, S 274.

 

Eliminating Capital Gains Taxes

S140: Like S 155, this bill would have an immediate positive impact on South Carolina’s uncompetitive tax environment. It would gradually reduce state capital gains tax collections, eliminating the tax completely by 2020. This tax cut would boost investment and reduce taxes on the sale of homes and other property. It is also especially timely, given that the federal Affordable Care Act is increasing capital gains taxes by 3.8 percent.

 

Alternative Energy Mandates

S 719: As in past years, legislators attempted to mandate that utility companies adopt a renewable energy portfolio requiring certain levels of electricity be generated from alternative energy sources like windmills and solar panels. This bill would require that 20 percent of annual retail sales by electric power suppliers be produced by renewable energy resources. Not only is the bill a clumsy attempt at controlling the energy market; it represents government overreach at its worst. The legislation aims to do everything from stabilize energy prices to create jobs to protect public health. One thing it will surely do: raise utility rates for South Carolina consumers.

 

Reducing Sales Taxes and Eliminating Exemptions

H 4271: This bill would eliminate dozens of state sales tax exemptions, ranging from exemptions on newspapers to exemptions on wrapping paper. Exemptions on groceries, prescription medicine, durable medical equipment, and utility bills would remain in place. In return, H 4271 would reduce the general sales tax rate from 6 percent to 3.85 percent and the state accommodations tax from 7.0 percent to 4.5 percent. Based on previous analysis of a similar plan promoted by the Taxation Realignment Commission, the bill would likely result in increased tax revenue, suggesting the sales tax rate could be reduced by even more. As it stands, the state’s byzantine tax code empowers legislators to pick winners (those industries with political influence) and losers (those without), harming consumers and ordinary taxpayers in the process.

 

Over the Top Regulations for Music Therapists

H.3093:  This bill would create the South Carolina Board of Music Therapy to regulate the practice of music therapy and create new fees. Too many boards function as impediments to competition already, and in any case it’s hard to see why a practice as little-known and nebulous as music therapy needs protection from unlicensed competitors.

 

Reducing Commercial Property Taxes

H. 4676:  This bill begins a two-year reduction in commercial property taxes, lowering them from their current rate at 6% down to 5% by 2013. The political subdivisions and school districts that receive funding from property taxes will be reimbursed for their loss of revenue by the Trust Fund for Tax Relief.

Cutting property taxes may lessen the burden of government on business, which is critical to restoring the state’s economy. While a tax decrease is almost always a good thing, this bill lowers taxes in one area and makes up the difference in another, without any cuts in spending.

 

Creating a Citizen Relations Committee

H. 4648:  This bill establishes a “Citizen Relations Committee” within each county, established to “recommend to the governing board of the county plans and programs to eliminate prejudice and discrimination, as well as to promote and safeguard the equal rights of, and respect for all people within the county in the areas of employment, education, and social and economic justice.”

While certainly a laudable social goal, it’s unclear why a citizens group should be part of the state government. It is the responsibility of state and county officeholders to “safeguard the equal rights” of the people, and the responsibility of those who carry out state law to “eliminate prejudice and discrimination” to the best of their abilities within the law.