A Year Later, Who Wins? Who Loses?

This is the week when the chickens come home to roost. The major cuts in homeowner property taxes enacted by the state legislature last year will, as of June 1, be at least partially paid for, as the state sales tax goes up by 1 cent. The State's John O'Connor gives a retrospective on what people are saying about the impact of last year's "tax swap."

O'Connor finds a lot of opposition to the swap:

• Low-income advocates argue (correctly) that it hurts low-income renters, who pay more sales tax but get no benefit from the homeowner property tax breaks.
• Businesses argue (correctly) that they're being dumped on, since the carry an increased share of the cost of funding public schools through property taxes.
• Local governments argue (correctly) that their options for adequately funding their operations are being hamstrung, because the new law caps the growth of property assessed value and also caps property tax rates.

So does anyone have anything good to say about this plan, one year later?

“It still represents the best that we could get through the Legislature to address a very important, long-standing problem,” said state Sen. Larry Martin, R-Pickens.

And Rep. Don Bowen thinks last year's changes reflect the principle that "the state should protect homeowners who wisely chose their real estate or want to live in their homes long-term."

Martin's praise is about as lukewarm as you can get: anything is better than nothing. And Bowen's argument is, to be polite, just not applicable to the bill as passed. Everyone agrees it's important to find a way to keep long-time homeowners in their homes after they retire. But the question is, why is repealing a property tax for every single homeowner in the state-- and hiking the sales tax to pay for it-- an evenly remotely smart way of achieving this goal?

So the revised question should be whether anyone has anything that is both good and sensible to say about last year's tax reform. Any thoughts?

Senate Committee: Use Cig Tax to Pay for Income Tax Cuts

If you're going to use a flatlining tax to pay for cuts in a growth tax, you might as well go all the way.

That's the message from the South Carolina Senate's Finance Committee, which has approved a bill that would use a 45-cents-per-pack increase in the state's cigarette tax to pay for (among other things) eliminating the bottom tax bracket of the state's income tax.

This approach makes us feel a little silly for browbeating the state House for wanting to use the cig tax to pay for grocery tax reductions. In that case, one regressive, zero-growth tax was being hiked to pay for cuts in a regressive, slightly-faster-growing tax. The Senate Committee has basically decided they want to cut something that grows a bit faster.

We've said ad nauseum that the last thing you should ever use cigarette revenues for is to pay for things. As the folks at the Campaign for Tobacco Free Kids know only too well, what the cigarette tax does best is to make people quit smoking-- which means tax collections go down.

Governor Sanford opposes the plan, because a bit of the cigarette tax money would go not for income tax cuts but to create a new health care savings account:

"This is not a revenue neutral plan," Sanford spokesman Joel Sawyer said.

Funny thing is, he's right-- but not in the way he imagines. Whatever this plan raises in the short run, it'll raise a little bit less the next year, a little bit less the year after that. And eventually, it will lose money outright. There's no such thing as a "revenue neutral" cigarette tax swap. But what that means is that the long-run choice made by South Carolina lawmakers this month may end up being unfunded sales tax cuts versus unfunded income tax cuts. And neither is a sustainable option.