S.C.’s Economic Outlook Still Lackluster

 A BRIEF LOOK AT WHY 

The latest ALEC-Laffer State Economic Competitiveness Index ranks South Carolina’s economic outlook at 31st in the nation. That’s right. Despite handing out hundreds of millions of public dollars in corporate welfare, hundreds of press releases proclaiming new jobs and investments, and countless ribbon-cutting ceremonies, South Carolina’s economic outlook still lags behind.

What’s behind the ranking, then?

Top Marginal Personal Income Tax Rate: 7 percent; Rank: 35

One might assume “red” states like South Carolina to have some of the lowest taxes in the nation. If so, one would be wrong. Not only does South Carolina have one of the highest top income tax rates in the nation; after North Carolina’s recent tax reforms, South Carolina now has the highest top income tax rate in the Southeast. In order to be truly competitive with other states (and more importantly to promote economic freedom), South Carolina should eliminate this tax altogether.

Top Marginal Corporate Income Tax Rate: 5 percent; Rank: 9

Just because other states already have higher corporate income tax rates than South Carolina, does not mean we should be content with this current rate. State officials have used this tax as an excuse to give tax favors to companies they personally would like to bring to the state, leaving the burden on the rest of South Carolina’s businesses. South Carolina’s culture of corporate welfare thwarts equality of opportunity. With no corporate income tax, all companies are more likely to move here and government interference is unnecessary.

Personal Income Tax Progressivity: $16.00 change in tax liability per $1,000 of income; Rank: 43

With 6 different income brackets and a top bracket of 7 percent that kicks in at roughly $14,000, South Carolina has one of the least progressive income tax policies and the highest marginal tax rate on the lowest level of taxable income in the Southeast (and 3rd in the nation). Put simply: South Carolina’s income tax directly hurts the poor by making many of them pay at the highest tax rate for at least part of their income. South Carolina’s brackets are severely outdated as they haven’t been properly adjusted to inflation since their inception in 1959. If properly adjusted, the 7 percent rate wouldn’t kick in until at least $73,600 in income.

Property Tax Burden: $30.82 per $1,000 of Personal Income; Rank: 26

Again, “conservative” South Carolina is ranked in the bottom half of the country. If owning a home is still part of the “American Dream,” state and local governments are ending this dream by making it more expensive to do so.

Sales Tax Burden: $20.21 per $1,000 of Personal Income; Rank: 20

To be clear, tax burden is not the same as tax rate. South Carolina’s sales tax rate, at 6 percent, is the 16th highest in the nation. Florida has the same sales tax rate as South Carolina, 6 percent. South Dakota and Wyoming have a lower rate than we do: 4 percent. Texas’s rate is just a little higher, at 6.25 percent. The difference between all these states and South Carolina? They don’t have an individual income tax at all.

Remaining Tax Burden: $17.10 per $1,000 of Personal Income; Rank: 20

Special exemptions for certain people help bring down the “burden,” but don’t create an even field of taxation.

Estate/Inheritance Tax Levied: None; Rank: 1

It’s great that our state doesn’t have a “death tax.” If it were politically feasible to do so, one fears that lawmakers would jump on the chance to bring in this new “revenue” to the state. Let’s be grateful for politics.

Recently Legislated Tax Changes: -$.0.04 per $1,000 of Personal Income (2012-2013); Rank: 23

Any “tax cuts” implemented have been at the corporate level, and even at that level not for all businesses and types of businesses. Sales and personal income taxes have not been cut; nor has any piece of legislation to do so been taken seriously by leadership in the House, Senate, or the executive branch.

Debt Service as a Share of Tax Revenue: 13.3%; Rank: 49

The claim many lawmakers like to make that “South Carolina passes a conservative balanced budget” each year is completely untrue. Even with limits on General Fund debt, over $200 million in the proposed FY 2014-15 budget is allocated to debt service. On top of that, many other areas of government don’t have that same debt limit – for instance, transportation and energy. As of 2012, the State Transportation Infrastructure Bank had $2 billion in outstanding debt and the Public Service Authority had $5.1 billion in debt. Debt crowds out other budget priorities and is a tax on future South Carolinians.

Public Employees per 10,000 of Population (full-time equivalent): 540.8; Rank: 25

Being ranked in the middle of the pack is nothing to be proud of. In this case, it suggests that state government has expanded far beyond its core functions. The money spent on public employees would be better spent on those same peole in the private sector where they can create actual value.

State Minimum Wage (federal floor = $7.25): $7.25; Rank: 1

Although several bills have been proposed to raise the minimum wage in South Carolina, the state still has the lowest minimum wage possible, and it should stay that way. While raising the minimum wage may sound like a good way to help the poor, it actually does the opposite by increasing unemployment at the same time. If businesses are forced to raise wages, they will be reluctant to take on more employees and likely consider laying off current ones. Government does not have the moral or intellectual authority to arbitrarily set value on the work of human beings.

Right-to-Work State? (option to join or support a union): Yes; Rank: 1

Although technically a “right-to-work” state, South Carolina has a plethora of other mechanisms to keep people out of the workforce. With 43 licensing boards and 62 chapters in the Code of Laws dedicated to regulations, our state over-licenses and overregulates. “Tenured” businesses love regulations and licenses because they tend to hinder completion. And in South Carolina, there is no “right to own a business.” One can’t start a business without paying the several business taxes, fees, and jumping through innumerable licensing hoops. Rights are unalienable; they shouldn’t require a fee.

Number of Tax Expenditure Limits: 1; Rank: 14

South Carolina has no law in place to force surplus funds to go back to the taxpayers. Any limits in place only allow tax collected to stay with state government. This is why the cliché “government should live within its means” misses the point. The state could collect 75 percent of every citizen’s income, and as long as it doesn’t spend more than it takes in, it could still be considered to be living within its “means.” South Carolina not only needs spending limits, it needs a mechanism to return excess revenue back to its original owners. Unfortunately, the likelihood of most state lawmakers to consider any tax revenue as “excess” is not good.

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