Eliminating Sales Tax Exemptions to Raise Revenue for Roads/Schools

H.3671 would eliminate the majority of South Carolina’s numerous sales tax exemptions and dedicate half of the resulting new revenue to schools via the South Carolina public education program fund (this fund would be created by another bill, H.3672), and the other half to the state highway fund. Of the sales tax exemptions retained by the bill many are targeted to benefit favored companies, industries, and constituencies. Some notable sales tax exemptions retained by the bill include:

  • Coal, Coke, or other solid fuel sold to manufacturers (read Boeing) for the purpose of test flights for aircraft, or transporting unfinished aircraft from one manufacturing facility to another
  •  Electricity used by cotton gins, manufacturers, miners, or quarriers to manufacture, mine, or quarry tangible personal property for sale.
  •  electricity used to irrigate crops
  • computer equipment used in connection with a manufacturing facility that meets certain investment and job creation thresholds
  • Construction materials used in the construction of a new or expanded single manufacturing or distribution facility that meets certain investment and job creation thresholds
  • seventy percent of the gross proceeds of the rental or lease of portable toilets

SCPC has long argued against the enactment of new tax favors and subsidies for favored businesses and industries. For the same reason SCPC approves of eliminating sales tax exemptions that are already law, but only if this elimination is accomplished properly. First, no sales tax exemptions designed to favor certain industries should be retained. Second, the appropriate reason to abolish these exemptions isn’t to raise revenue for the state, but to establish lower and more equitable taxation on all citizens and businesses. As we have said before state government could retain its current revenue levels and greatly improve the well-being of many of its citizens by simultaneously eliminating sales tax exemptions and significantly reducing or even completely eliminating state personal income tax.

In contrast to true tax reform, using new revenues from eliminating tax exemptions to fund roads and schools will only lead to more waste. No matter how much revenue the state has it will never be enough according to proponents of big government to meet the state’s needs. We have demonstrated before the falsity of this view. South Carolina public education and roads do not need more funding in order to improve. Publicly funded education can be improved for less than the state currently spends by simply offering students and parents choice (see the fallout section of the linked piece) in schools and curricula. South Carolina roads can be improved by implementing proper funding priorities and reforming infrastructure governance.

Sales tax exemptions should be eliminated, but this should only be done with an eye towards establishing low and equitable taxation for all citizens.

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