S.C. Politicians’ Talking Points: Myths vs. Facts
NOTHING WRONG WITH MYTHS …
JUST DON’T REPEAT THEM AS FACT
Since the conclusion of the 2013 legislative session, lawmakers have been blasting out emails that boast of the year’s accomplishments. Even allowing for politicians’ customary boasts, some of these claims are either misleading or flatly untrue. Here are a few:
Taxes and Size of Government
Claim: A Tax Foundation map shows that South Carolina ranks third to last in growth in direct spending per capita from 2001 to 2011. South Carolina is therefore said to be an exemplary model of fiscal conservatism and limited government.
Fact: The reason South Carolina spending growth is relatively low isn’t because our politicians are somehow more fiscally conservative than their counterparts in other states. The reason is that the state is poor, and state government can’t spend what isn’t there to extract from taxpayers. In any case, while the Tax Foundation’s ranking is correct, it has to be kept in mind that around the same time (FY 2003 to FY 2013) South Carolina’s budget, when adjusted for inflation, grew by 21.88 percent – a rate that far surpasses inflation and population growth. South Carolina government was too big in 2001 and it remains too big now, a relatively “slow” rate of growth is nothing to cheer about. Only a reduction in real spending would be worth cheering.
Claim: South Carolina has the lowest tax collection per capita (the most recent reports from Tax Foundation have South Carolina second to last). Again, the implication is South Carolina is a low tax beacon of economic freedom.
Fact: As we have said before, low tax collections per capita are not due to fiscal conservatism but rather to the fact that South Carolina has the fifth lowest household income in the United States. Translation: South Carolinians earn less, so the government collects less.
Claim: There have been “$28.8 billion in tax cuts since 1995.”
Fact: Individual income taxes have risen for over 50 years since they haven’t been properly indexed to inflation. In 1959 the top income tax bracket of 7 percent began at $10,000. This means that, if properly indexed to inflation, the top bracket in 2010 should have begun at $73,600. Instead it kicked in at $13,500. Even starting from a more recent baseline, we can see significant increases. In 2002, the top income tax rate kicked in at $12,000. If matched to inflation the top rate should have begun at $15,314 in 2013. Instead it began at $14,000 in income, meaning the government took more in income tax in 2012 than it did in 2002. Making matters worse, South Carolina’s inflation-adjusted median household income from 2001 to 2011 fell by $3,342. In other words: taxes went up as citizens got poorer.
Moreover, many of the tax savings cited came in the form of special exemptions and credits to the benefit of special interests rather than in the form of across-the-board tax cuts. Roughly $5.7 billion of these cuts were special interest deductions, exemptions, or credits. Further, $6.5 billion of these alleged savings are listed as income tax indexation. But (to repeat) income taxes have not been properly indexed to inflation, and even if they were this wouldn’t be a tax “savings” but merely a maintenance of the status quo. In essence, the claim takes credit for tax savings under a category (income taxes) that actually increased significantly due to the failure to update tax brackets to match inflation. Finally, $3.7 billion is listed as tax savings was a result of property tax relief from Act 388, which as part of a deal was offset by a general increase in the state sales tax in 2006 from 5 to 6 percent. To sum up: $15.9 billion of the alleged tax savings are coming from special interest breaks, savings that aren’t really savings at all (indexing income taxes), and tax relief that was offset by other tax hikes. While this leaves $12.9 billion, it’s fair to assume that the lack of proper indexation to income tax more than offsets these tax savings as income tax is the single largest state level revenue generator.
One further note: The expansion of targeted credits occurred alongside a general economic stagnation in South Carolina.
Claim: Government positions in South Carolina have fallen by 10,000 since 1994. The implication is government is small and continues to shrink further and become more efficient.
Fact: In May of 2013 the state employed 356,800 people, making government South Carolina’s largest employer.
Claim: A statewide elected official recently boasted about the results of Area Development magazine’s Top States for Business Ranking. The magazine ranked South Carolina number three.
Fact: The official failed to mention another Area Development article attributing the success of many of the top ten states to marketing rather than actual business friendliness. The article acknowledges that the magazine’s survey results are inconsistent with various rankings from the Tax Foundation – which usually ranks South Carolina in the bottom half of its corporate tax climate rankings. (Area Development, incidentally, is one of several economic development magazines to which the South Carolina Department of Commerce has in the past sent considerable amounts of public money for advertisements.)
Claim: South Carolina has budgeted millions for road improvements “without raising taxes.”
Fact: What elected officials don’t like to mention is that the road improvements were funded with debt. The primary method the legislature used to generate infrastructure funding was an initial transfer of $50 million to the State Infrastructure Bank (it will become a recurring transfer in the future if money is appropriated). That transfer will be bonded into $500 million in new debt each year. At some point this debt will have to be paid off, and the most common way to accomplish that is by increasing taxes. The debt from these new bonds will join $2.07 billion in existing outstanding infrastructure bank bond debt, as reported by the state’s Comprehensive Annual Financial Report.
Claim: South Carolina is among the least corrupt states in America.
Fact: A quick review of the study to which one prominent lawmaker cited in making this claim shows that the criterion for “corruption” is convictions on ethical matters. In other words, those states that are actually holding public officials accountable (as evidenced by their convictions) are being judged the most corrupt states. But South Carolina is among the most corrupt states in America precisely because it doesn’t hold public officials responsible for their actions. In fact, a recent study by State Integrity Investigation measured corruption based on state’s laws and practices. South Carolina received a failing grade and was ranked the sixth most corrupt state.
There’s nothing necessarily wrong with elected officials boasting about accomplishments – so long as they are actual accomplishments. These, unfortunately, are not.