The State Gets It Right

Months after a contentious 2006 legislative session resulted in a "tax swap" that cut South Carolina homeowner property taxes and hiked the state sales tax rate, the editorial board at the State newspaper rings in the new year by looking back on what lawmakers have wrought.

And their assessment is (as usual) dead on. They've got one good thing to say about the tax swap: it moved South Carolina away from local tax sources and toward state sources.

By increasing the portion of school funding paid for by the state, [the tax swap] begins to move us toward providing the same quality of education to every child, rather than chaining a child's opportunity to how wealthy his or her neighbors are. It also re-balanced a system that was beginning to rely too heavily on property taxes.

But that's about where the compliments end. Here's the lowdown on what went wrong with the 2006 tax swap:

[I]t also barred local communities from determining the level of services their cities and counties will provide, imposed a new regime in which some homeowners pay taxes on the full value of their homes while others pay on an ever-dwindling fraction, shifted as much as $250 million in taxes to businesses, increased the federal tax burden on many homeowners and might have shifted the pendulum too far, setting up sales taxes in some areas that will send shoppers out of state. Worst of all, it made only that tiny move toward solving the biggest problem with our tax system — its inability to provide equitable school funding.

There's a lot to unpack here. But suffice it to say that the State's diagnosis is right on the money. In their haste to enact a very visible, easily understandable property tax cut, lawmakers brought some unforeseen consequences upon themselves that could hamstring future efforts to enact true reforms. Kudos to the State for remaining sober-minded about both the virtues and the defects of the 2006 tax swap.