Hatfield: A Modest Proposal on Tax Exemptions

August 19, 2014

Inside Insight

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WANT AN EXEMPTION? EXPLAIN WHY.

Recently, some citizens of Beaufort County have suggested that another 1 percent sales tax referendum should be included on the ballot in November to deal with issues that, for whatever reason, could not be funded by the usual processes. These citizens didn’t provide a list of those items, so the Beaufort County Council decided to appoint a commission to determine what items should be included. The result was a $211 million list of mostly “wants” versus important “needs” in the county. Fortunately, the measure was defeated.

The tax hike’s supporters’ only response to the defeat was to say that we should have allowed the citizens of Beaufort County to decide, and that it was wrong of our County Council to deny them that opportunity.

Curiously, the word “referendum” isn’t even in the U.S. Constitution. While the term is not new, it became very popular after citizens of California in 1985 determined that their county and municipal elected officials could not be trusted to spend their taxpayers’ money wisely. The result was Proposition 13, which limited what municipal and county governments could tax property owners. Since then, referendums have become the “de riguerur” of modern American economic politics. Every effort to defeat Prop. 13 since then has been defeated.

Allowing a referendum is a failure of the principles on which our democratic republic is based. America is not a pure democracy. We are a democratic republic: We elect people who (should) have far more access to information to deal with complicated issues than we do.

So how to deal with the problem?

I believe Sen. Tom Davis has the beginning of an answer. While no one wishes to increase our taxes, he does offer a solution that makes sense. Today we exempt $2.7 billion from sales taxes but collect only $2.1 billion. As a simple example, if you purchase a $30,000 automobile your sales tax is $300. That is a tax of 1 percent. Does that make sense? Of course not.

Currently, state law allows far too many exemptions to sales taxes. Mostly as a result of special “carve outs” derived by special interests groups that are represented by lobbyists. Sen. Davis’ answer is to start at zero and require those special interest groups to prove that their exemptions are in the best interest of all of our citizens. Seems like a simple request. But does the General Assembly have the courage to do so? I have my doubts.

Tom Hatfield, a founding board member of South Carolina’s first-in-the-nation Public Charter School District, is a resident of Beaufort.