The Palmetto Insider

The blog of the South Carolina Policy Council

TRAC Strategy Clear: Bait with Tax Cut, Switch with Tax Hike

with 4 comments

By now it’s become clear what TRAC is about.

Not fundamental tax reform, but a tax hike on fundamentals—that is, the bare necessities like food, water and fuel.

Meeting this week, the Tax Realignment Commission unanimously approved a plan to lower the state’s overall sales tax rate from 6 percent to 4.96 percent: a reduction of 1.04 percent. At nearly 5 percent, the reduced rate would still be higher than neighboring Georgia’s (4 percent) and potentially North Carolina’s (5.75 percent, scheduled to fall back to 4.75 percent as of July 1, 2011).

The price for lowering the rate, however, is steep. In fact, it translates into a tax increase, predicted to increase revenue for the state once the economy recovers.  

To begin with, the commission is recommending a 2.5 percent tax on such essentials as:  groceries, prescription drugs, electricity, natural gas, and water sold by utilities.

The commission also wants to eliminate sales tax exemptions on:

  • Internet purchases: otherwise known as an Amazon tax. As we’ve written before, this tax raises significant constitutional issues. Up next: SC, like NC, may demand back taxes on Amazon purchases.
  • Vehicle purchases: Currently, the state caps sales taxes at $300 on a wide array of vehicle purchases, including cars, boats and airplanes. TRAC recommends eliminating this cap. The tax would increase by 100 percent per year over three years, reaching $1,200 in year 3.  That’s a 300 percent increase. For cars and motorcycles the cap disappears in year 4. Those wanting to buy a boat or a plane fare much better. Their cap stays at $1,200 in year 4 and beyond.
  • And a variety of other goods and services, ranging from guns to music downloads to hearing aids to concession sales at charitable events.

To see the full list of targets, see here and here.

To see the amount of revenue the state hopes to raise, see here.

Of course, the Policy Council supports the elimination of all targeted tax exemptions (which is what we told TRAC back in November), with the understanding that eliminating exemptions should facilitate an overall tax cut for everyone.

But TRAC wants to have it both ways. They want to eliminate exemptions and increase taxes. And unless the people of South Carolina demand otherwise, that’s what will happen.

This is one way it may play out:

First, the powers that be have no intention of lowering the sales tax. The state is facing a billion dollar-plus shortfall for FY2012. If lawmakers chose not to cut the corporate income tax this session—a tax that brings in only about 6 percent of General Fund revenue—there is no way they are going to vote for a sales tax cut.

Second, this is about laying the groundwork for a wide array of tax increases – but not necessarily the high profile increases mentioned above. The game works like this:

a)      Propose a radical tax increase on food, water, etc.

b)      Back away from this tax increase in exchange for what seems to be a more moderate increase. Say, a 0.25 percent sales tax increase; or a 12 cent increase in the gas tax.

c)       Result: Those with short memories feel fortunate they at least didn’t get smacked with a new grocery or water tax and decide they can live with the other tax hike.

Don’t believe me? Look at the fate of H 4478, signed by the governor a few weeks ago.

(Coincidentally, Burnie Maybank was instrumental in writing this same law, which is filled with a variety of new targeted tax cuts. Yet, Maybank denies that chairing TRAC poses any conflict of interest.)

a)      The bill featured a corporate income tax, used as sweetener for increasing legislative control over the state’s economy.

b)      The tax cut was killed.

c)       H 4478 became a “Christmas tree” of corporate giveaways.

In other words, H 4478 started out as a bad idea and only got worse. Expect the same from any legislative proposals that come out of TRAC.


Written by Jameson Taylor

July 23, 2010 at 8:37 am

Posted in Budget, Economics, Taxes

Tagged with ,

4 Responses

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  1. […] As for that proposed sales tax cut? … don’t believe it. […]

  2. […] are not alone in choosing who wins, and who loses, in our state. The Tax Realignment Commission (TRAC) recently voted in favor of a package of likely tax increases and unlikely tax cuts. The likely increases include […]

  3. […] last month, TRAC approved its recommendations, which include taxing numerous items that have been tax-free in the past—groceries, prescription […]

  4. What TRAC is all about-An Opinion

    Making the “Rich Richer by shifting more and more of the tax burden from the rich to the poor- the real objective of Supply side conservatives – commencing with the Bush Administration (Washington Post Dec 16, 2002).
    They did a good job – the income share for the upper income jumped to the highest level since 1928 while the median income barely keep up with the cost of living.

    When our Fair tax legislature told TRAC that the all ready infamous and regressive property- screw up- Act 388 was off the table – then the objective of TRAC became obvious- Increase the already regressive sales tax and provide a nexus for a National Fair Tax which they hope will follow- which is another tax to make the Rich Richer.

    Why was Act 388 taken off the plate?- simple:

    The fat cats did not want it change-Because it contained the largest property tax shift FROM THE RICH TO THE POOR in South Carolina History-How was that done – by Shifting($600 million a year-compounded) from property tax to a regressive 20% increase in sales tax- In addition the 15% Cap will shift over each 5 year reassessment period $372 million from wealthy property owners to poor and middle class property owners- statewide-the act that created and compounded out recession.

    No way under such gound rules could TRAC do anything to make our tax system “adequate, equitable, and efficient”. They did as they were directed- shaft the poor – come hell or high water or depression!

    Where will it end? How much more of the state and local tax burden can be shifted to the backs of The Forgotten Man for no better reason than to maintain the life style of our greedy McMansion owners and their beach buddies.

    bob henderson

    August 14, 2010 at 2:29 pm

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