Thursday, March 8, 2012

Tax exemptions, meet transparency

Phil Noble of Charleston published a great column in the online magazine Like The Dew -- "A Journal of Southern Culture and Politics" -- that I highly recommend:

It is often said that South Carolina is a one-party state, and usually this is understood to mean the Republican Party. However, in many areas, it’s really the ‘good old boy’ party that is in charge – the party of legislators in both parties that are committed to protecting the status quo of corrupt special-interest, business-as-usual politics in our state.

In no area is this clearer than with our state’s current service and sales tax exemptions policy.

First, a few basic facts:

S.C. has 213 sales and service tax exemptions that give away a total of $3.7 billion in taxpayer money each year. This is an enormous amount of money when compared to our entire state general fund budget for 2011-12 of $5.9 billion.

Currently, we exempt 62% of all items sold in our state from taxation, leaving only 38% of items bought and sold subject to tax.

The result is we actually exempt more in sales tax collections, $2.7 billion, than we collect, $2.5 billion.

Not all sales and service exemptions are bad, and we can have an honest policy debate about those that we should keep, as they serve a desirable economic purpose. However, what we should totally agree on is the need to reform how we decide what should and should not be taxed.

The big problem, as usual, is transparency. Most of these exemptions are the result of the corrupt iron-triangle relationship among special-interest groups, their hired lobbyists, and the legislators that do their bidding. In most cases, these tax exemptions were passed in near secret, often many years ago, and the public has little or no idea who was responsible or what the give-away is costing our state.

I’d like to propose a very simple four-part reform that will solve all of these problems.

First, all the current sales and services tax exemptions should end on a near-term date certain.

Second, legislators can then introduce legislation, with their name listed as sponsor, to reinstate each individual exemption. Accompanying the legislation must be a statement of how much money their proposed exemption would cost the state each year.

Third, there should be a public, up-or-down roll call vote on each separate exemption by both the state House and Senate.

Fourth, all exemptions that are passed would have an automatic sunset provision that would end the exemption in four years. At that time, any lawmaker could then reintroduce the exemption, with a new yearly financial statement on its impact. Then the process begins again with another public up-or-down vote.

That’s it; it’s that simple.

As the Legislature moves to take up comprehensive tax reform in the coming months, fair-minded people – right, left and center – should be able to agree that this is a reasonable proposal, and that its adoption would be a major step in bringing much-needed tax-exemption reform to our state.

We should all watch closely to see which members of the ‘good old party’ refuse to support this kind of open and honest reform.

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