Monday, April 9, 2012

Sun-News: New tax proposal offers another fine mess

It's never a good sign when a newspaper editorial begins with a string of county administrators' quotes. This one does, published a couple of weeks ago in the Myrtle Beach Sun-News about a new tax-cut proposal that editors predict will have plenty of unintended consequences.

In other words, it's an editorial about a commonplace, run-of-the-mill legislative product in South Carolina.

“The bottom line is, if you want to cripple local government – cities, counties, schools – pass this idea.”
– Mark Kruea, Myrtle Beach spokesman

“A primary solution is obvious – after making whatever staff and services cuts they can, cities and towns will have to increase their millage rates in order to close the gap.”
– Pat Dowling, North Myrtle Beach spokesman

– Teal Britton, Horry County Schools spokeswoman

Local governments will be breathing a sigh of relief this summer if Rep. Tracy Edge’s prediction for S.C. House Republicans’ tax reform plan comes true. Edge, who sits on the Ways and Means committee that will consider the package of bills, predicted Thursday that the bills will eventually pass the House but then run out of time in the Senate.

“I don't see them ever finding the time to take it up,” he said.

The bills would make a host of changes to the state’s tax laws with the goal of simplifying them and making South Carolina more business friendly. But the provisions that have local governments worried are the proposals to cut property taxes on all businesses except utilities from 10.5 percent to 6 percent and reduce property taxes for rental and second homes from 6 percent to 5 percent. Statewide, the changes would suck more than $1 billion in revenue from the budgets of local governments who rely on that money to provide police and fire protection, fund schools and more. There is no plan to replace any of that money, and the proposals’ sponsor, Rep. Tommy Stringer, seems remarkably unconcerned, saying that local governments “have plenty of money, they need to tighten up.”

Here on the Grand Strand, we would be particularly hard hit because we’re more reliant on the property taxes of second homes than many other areas of the state. In Myrtle Beach, for instance, 86 percent of the residential property is made up of second homes and rental properties. In North Myrtle Beach, it’s about 75 percent. It’s a similar story up and down our coast. Cutting the rate on this wide swath of the tax base would place an enormous strain on local budgets that have already undergone repeated contractions in recent years.

Horry County could not immediately provide numbers to estimate the impact of these proposals countywide, but those numbers that are available are daunting. If both of these tax cuts were fully implemented, Myrtle Beach would lose about $3.5 million a year, a signficant chunk of change. The situation is magnified for Horry County Schools, which estimated its budget would shrink $24.5 million if these proposals pass. That’s a lot of teachers’ salaries.

What would the answer be for local governments? Raise taxes. To make up the loss in Myrtle Beach’s budget, city spokesman Mark Kruea said the city would have to institute an 18 percent tax hike for all property in the city. And North Myrtle Beach spokesman Pat Dowling, speaking of the city’s many second homes, pointed out that the legislation would “shift the tax burden from those dwellings on to the backs of the city’s 6,739 primary homeowners.”

In other words, lawmakers in Columbia, touting their pro-business bona fides, would reduce taxes for businesses and second homes, which would then prompt local governments to raise taxes on the rest of us instead. In a bizarre sleight of hand, state lawmakers will get to say that they’ve cut taxes while at the same time making local leaders the bad guys for raising taxes to make up the difference. That’s if they even could.

Kruea called these latest proposals “another brilliant idea from the legislative mind that brought us Act 388,” and pointed out that as part of Act 388, municipalities are limited in how much they are allowed to raise taxes each year. While both of these proposed tax cuts would be phased in over years, there is the possibility that some governments could not even legally raise taxes enough to cover the loss. The result: Fewer services and local jobs lost, all at a higher cost for permanent, primary residents. Does that sound like a good outcome for any idea?

Can you hear the music?

Half a pound of tuppenny rice,
Half a pound of treacle.
Mix it up and make it nice,
Pop! goes the weasel.

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