Tax reform power_point_revised_nov16_2009


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Tax reform power_point_revised_nov16_2009

  1. 1. AN ANALYSIS IN SUPPORT OF COMPREHENSIVE TAX REFORM Is our State Broke? … Or is our System Broken? Olde English & Western Piedmont Consortia
  2. 2. <ul><li>With budget cut after budget cut… and the state and country in the midst of a recession, these words are often uttered. </li></ul><ul><li>But South Carolina has real needs… and citizens continue to expect basic services such as education, safety, and healthcare. </li></ul>“ But the State of South Carolina Has No Money?” Olde English & Western Piedmont Consortia
  3. 3. But the State of S.C. Has No Money? <ul><li>Since 1953, South Carolina experienced negative revenue growth only 2 times… </li></ul><ul><li>But we are now entering our third year of negative revenue growth (2009-10)… </li></ul><ul><li>The S.C. Board of Economic Advisors (BEA) has cut revenue estimates 7 times in the last 9 months! </li></ul><ul><li>Just over the last year, the state of South Carolina has lost over $1.3 billion in revenue… leading to multiple budget cuts! </li></ul>Olde English & Western Piedmont Consortia
  4. 4. What Has Happened to S.C. Revenue? BEA to the TRAC, Dr. Bill Gillespie, September 30, 2009 <ul><li>Since 2006, S.C. has cut 1/5 of the state budget (19% cut) </li></ul><ul><li>S.C. now relies on the Sales (47%) and Personal Income (40%) Taxes for a total of 87% of State Revenue </li></ul><ul><li>S.C. Sales Tax Revenue has decreased (even though we’ve increased the tax twice since 1984) due to: </li></ul><ul><ul><li>Increased numbers of Sales Tax Exemptions </li></ul></ul><ul><ul><li>S.C. economy shifts from products to “services” (few are taxed) </li></ul></ul><ul><ul><li>Shift of sales to Internet (little-to-no S.C. taxation) </li></ul></ul><ul><ul><ul><li>NC law increases internet sales tax collection (est. $500 million taxes) </li></ul></ul></ul><ul><li>Personal Income Tax Collections not kept up w/ growth </li></ul><ul><li>All Remaining (non-Sales/Personal Income) : only 13-15% </li></ul>Olde English & Western Piedmont Consortia
  5. 5. How is the State’s Tax System set up to support the delivery of essential services? S.C. Tax Revenue and the State Budget Olde English & Western Piedmont Consortia
  6. 6. <ul><li>SC’s Overall State/Local Tax Burden: </li></ul><ul><li>37th highest nationally </li></ul><ul><li>Estimated at 8.8% of income </li></ul><ul><li>(below the national average of 9.7%) </li></ul>“ Our Taxes here in South Carolina are just too high !” Olde English & Western Piedmont Consortia
  7. 7. Are South Carolina Taxes Too High? The Tax Foundation , non-profit 501-c-3 since 1937: <ul><li>Sales Tax (6%): 25 th </li></ul><ul><li>Cigarette Tax (7cents): 50 th </li></ul><ul><ul><li>NC raised 10-cents to 45-cents </li></ul></ul><ul><li>Gas Tax: 46 th (1987 last increase) </li></ul><ul><li>Car Sales Tax : 40 th </li></ul><ul><li>Income Tax </li></ul><ul><ul><li>Top Rate: 14 th </li></ul></ul><ul><ul><li>Overall: 35 th </li></ul></ul><ul><li>Indiv. Property Tax: 34 th </li></ul><ul><li>Industrial/Commercial Property Taxes: 7 th </li></ul><ul><ul><li>Due to Act 388 tax swap </li></ul></ul><ul><li>Business Climate Tax: 25 th </li></ul><ul><ul><li>Compares 5 areas: corporate taxes; sales taxes; unemployment insurance taxes; indiv. income taxes; & taxes on property </li></ul></ul><ul><li>Corporate Income Tax: 40 th </li></ul>Olde English & Western Piedmont Consortia
  8. 8. South Carolina Taxes Versus the Nation Olde English & Western Piedmont Consortia 1 5 10 15 20 25 30 35 40 45 50
  9. 9. <ul><li>Permanent Tax Cuts have Eroded state Revenue Stream </li></ul><ul><li>(size of reduced state revenue since 2006) </li></ul><ul><li>Property Tax Relief for Homeowners (sales swap): $585 million </li></ul><ul><li>Total Elimination of the State’s Grocery Tax: $354 million </li></ul><ul><li>Elimination of S.C.’s bottom income tax bracket: $86 million </li></ul><ul><li>Reduction of tax on small businesses (7% to 5%): $129 million </li></ul><ul><li>* Source: State Budget Outlook presentation by SC Sen. Finance (Mike Shealy & Craig Parks) </li></ul>S.C. is Collecting 22% Less ($1.5 billion) in Tax Revenue than in 2006. Why? Olde English & Western Piedmont Consortia
  10. 10. The Three Legged Stool <ul><li>South Carolina’s Tax Structure prior to 2007 </li></ul><ul><li>What Do We Tax in South Carolina? </li></ul><ul><ul><li>In 2007, S.C. passed Act 388 which eliminated owner-occupied property taxes (for schools) in exchange for a 1-cent state sales increase. </li></ul></ul><ul><ul><li>Prior to this, our state’s tax structure was praised by economists because it was balanced with three major sources of revenue: sales, income and property taxes. This three legged stool had served our state well for decades. </li></ul></ul><ul><ul><li>Today, S.C. relies mostly on Income & Sales Taxes to Fund most of its state budget… largely a two-legged stool ! </li></ul></ul>Olde English & Western Piedmont Consortia
  11. 11. What Did Act 388 do to S.C.’s Tax System? <ul><li>Act 388 shifted the tax burden from stable revenue source (owner-occupied property) to a less reliable & more volatile source (sales). With sales down 8-10% in the current recession, so is state sales tax revenue </li></ul><ul><li>Since the General Assembly (G.A.) has promised to make up any lost 388 tax swap (sales tax) revenue, the G.A. has been forced to budget $50 million (2008-09) & $100 million (‘09-10) to reimburse school districts. </li></ul><ul><li>388 shifted the local burden of funding public schools from homeowners to S.C. businesses (only 1 left!) </li></ul><ul><li>388 created a tax incentive for people from NC to move to SC, work & pay NC taxes, & bring children to schools </li></ul>Olde English & Western Piedmont Consortia
  12. 12. What Do We Tax in South Carolina? <ul><li>South Carolina’s State Sales tax is 6%. The state raises $2.5 billion annually through this tax. </li></ul><ul><li>By allowing 80 exemptions to this sales tax, the state exempts more ($2.7 billion) annually than it actually collects ($2.5) </li></ul><ul><li>S.C. could eliminate 95% of exemptions, cut the sales tax in ½ (6 to 3-cents), and collect the exact same revenue ($2.5 billion) </li></ul><ul><li>S.C. taxpayers (w/ no deductions) are subsidizing those who enjoy these exemptions! </li></ul><ul><li>This naturally begs the question: in South Carolina… what do we actually tax ? {Cost of exemption to state in parenthesis.} </li></ul><ul><li>* Source: South Carolina Board of Economic Advisors “Sales & Use Tax Exemptions: Fiscal Year 2008-09” ( ). Note: The examples below are just some of the 80+ exemptions to the South Carolina state sales tax. See link for more info. </li></ul>Olde English & Western Piedmont Consortia
  13. 13. What Do We Tax in South Carolina? <ul><li>SC has a Vehicle Tax Exemption of a $300 cap on sales tax </li></ul><ul><li>We collect $300 on the sale of a used 2006 - $5,000 Hyundai. We collect $300 on a $385,000 - 2009 Lamborghini Roadster – $22,800 exemption. {$152 mill} </li></ul><ul><li>  We collect $300 on a $36,000 BMW. N.C. collects $1,080 & Georgia collects $2,520 on the same vehicle. </li></ul><ul><li>We collect $300 on the sale of a $5,000 - 15 foot Sylvan Smokercraft Fishing Boat. We collect $300 on a used 1982 – 126 foot $6.5 million Feadship Yacht – a $389,700 exemption. {$5 million} </li></ul>Olde English & Western Piedmont Consortia
  14. 14. What Do We Tax in South Carolina? <ul><li>We collect 90 cents (6%) sales tax on a $15 model airplane, but we cap the tax on a million dollar leer jet at $300 - a $59,700 tax exemption. {$1.2 million} </li></ul><ul><li>We collect $300 on the sale of a 1989 - $5,000 Chieftain Winnebago. We collect $300 on a 2007 - $130,000 Coach House Platinum Recreational Vehicle – a $7,500 exemption. {$7.9 million} </li></ul><ul><li>We collect $300 on the sale of a 1973 - $5,000 Singlewide (2 BR/1Ba/480 sq ft) Manufactured Home. We collect $300 on a 2001 - $139,500 Doublewide Commander Manufactured Home (4 BR/2Ba/2432 sq ft) which meets certain energy efficiency standards – a $8,070 exemption. {$26.6 million} </li></ul>Olde English & Western Piedmont Consortia
  15. 15. What Do We Tax in South Carolina? <ul><li>We collect taxes on one-half of the proceeds from the sale of a modular home. We collect no taxes on the other half? {$1.9 million} </li></ul><ul><li>We collect $4.14 on the sale of a Panasonic KXTS 2-line corded phone at Wal-Mart. We collect nothing on the sale of “charges for colored telephones and retractable cords” obtained through a telephone company. {total customer charges exemptions: $22.8 million} </li></ul><ul><li>We collect $18 in taxes for the sale of a Classic Lionel Train Set. We collect no taxes on the sale of a $300,000 EMD 1750 HP GP-9 Locomotive. {$352,710} </li></ul>Olde English & Western Piedmont Consortia
  16. 16. What Do We Tax in South Carolina? <ul><li>We collect 18 cents on a $3 spool of string used to fly a kite. We collect nothing on the sale of a spool of twine used to deliver newspapers. {total containers exemption: $600,000} </li></ul><ul><li>We collect 6 cents on a $1 pack of college rule paper. We collect nothing on the sale of newsprint paper sold to newspapers. {$5 million} </li></ul><ul><li>We collect 42 cents on the sale of $7 College Football Preview Magazines. We collect nothing on the sale of The State newspaper. {$7 million} </li></ul><ul><li>We collect taxes on the supplies and equipment bought by coin-operated Laundromats. We collect no taxes on the sales of supplies and equipment bought by laundries and dry-cleaners. {total cleaner exemptions: $3.3 million} </li></ul>Olde English & Western Piedmont Consortia
  17. 17. What Do We Tax in South Carolina? <ul><li>Banks charge customers $2 for use of an automated teller machine – not affiliated with the person’s bank. The state collects nothing for the transaction. {$5 million} </li></ul><ul><li>We collect 14 cents tax on the dry cleaning of shirt. We collect nothing on the dry cleaning for ships involved in intercoastal trade. {total vessel bunkering exemptions: $1.5 million} </li></ul><ul><li>We collect $144 on the sale of the $2,400 Giles Dairy Deluxe Milking Machine. We collect nothing on the pasteurizing machines utilized once the cow is milked. </li></ul><ul><li>We collect taxes on gloves used by farmers in cleaning out chicken cage houses. We collect nothing on the sale of automatic clean-out systems for cage houses. </li></ul>Olde English & Western Piedmont Consortia
  18. 18. What Do We Tax in South Carolina? <ul><li>We collect 7 cents a pack (lowest in nation) in cigarette taxes. We collect nothing in the sale of tobacco curers and/or transporters. </li></ul><ul><li>We collect $35 on the sale of a 9-ft G-3 Jon Boat. We collect nothing on a $15 million – New Hopper 560-ft Barge. {$169,546} </li></ul><ul><li>We collect taxes on the broadcasting tower for an FM Radio Station. We collect no taxes on the broadcasting tower for an AM Station. </li></ul><ul><li>We collect taxes on a Dinner Cruise in Charleston. We collect no taxes on a vacation time-share near the Battery in downtown Charleston. {$5.3 million} </li></ul>Olde English & Western Piedmont Consortia
  19. 19. What Do We Tax in South Carolina? <ul><li>We collect 18 cents on a Blockbuster video/DVD movie rental. We collect nothing on the rental of a movie by a theater. {$2.8} </li></ul><ul><li>We collect $60 in taxes on the sale of new asphalt for your driveway. We collect nothing for the sale of asphalt products transported and consumed out of South Carolina. {$614,000} </li></ul><ul><li>We collect sales taxes on concession items sold at the State Fair. We collect no taxes on concession sales at the annual Ridgeway Pig on the Ridge Festival. {$475,000} </li></ul><ul><li>We collect taxes on the sale of a new chassis for the rebuilding of a C-10 Chevy. We collect no taxes on the chassis sold to international shipping lines. {$550,000} </li></ul>Olde English & Western Piedmont Consortia
  20. 20. What Do We Tax in South Carolina? <ul><li>We collect $12 in taxes on the sale of a carburetor for the engine of a Chevrolet Nova. We collect no taxes on the sale of parts/supplies used in repairing commercial air carriers. {$562,000} </li></ul><ul><li>We collect taxes on the sales of Carolina and Clemson football tickets. We collect no taxes on lottery tickets. {$47.6 million} </li></ul><ul><li>We collect taxes on 30% of the gross proceeds of the rental of a portable toilet. We collect no taxes on the other 70% of the toilet. {$332,976} </li></ul><ul><li>We collect taxes on a family’s outing to Chuck-E-Cheese. We collect no taxes on an amusement park ride (or anything connected building/repairing rides). {$3.9 million} </li></ul>Olde English & Western Piedmont Consortia
  21. 21. <ul><li>S.C. taxes only 35 (out of the possible 170) services! </li></ul><ul><li>This is significantly less than in other states. </li></ul><ul><li>New “growth” items: not taxed </li></ul><ul><li>Traditional SC products: taxed, no growth </li></ul>“ Do We Tax “Services” in South Carolina?” Olde English & Western Piedmont Consortia
  22. 22. <ul><li>Our State is not Broken… </li></ul><ul><li>Our current system of taxation is! </li></ul>“ So… How Did We Get in This Mess?” Olde English & Western Piedmont Consortia
  23. 23. Why Do We Need Tax Reform? <ul><li>Our current system of taxation is a hodgepodge that has evolved from tax cuts and tax shifts over the past 20 years that has left the state with unstable and unreliable revenue sources . </li></ul><ul><li>We have cut tax sources during the good years leaving us with insufficient resources during the down cycles. </li></ul><ul><li>We have responded to the pressure of special interest groups (mainly wealthy homeowners) to eliminate tax on property, a very stable source of revenue, and shifted that burden to sales tax, a very unstable source of revenue. </li></ul>Olde English & Western Piedmont Consortia
  24. 24. Why Do We Need Tax Reform? <ul><li>Our current system does not support the development of the infrastructure needed for the successful future operation of our state. It only supports the state’s needs during the boom years. </li></ul><ul><li>Our current system encourages the introduction of piecemeal proposals to patch the broken system: </li></ul><ul><ul><li>Lower income tax levels or eliminate income tax to be replaced by higher sales tax </li></ul></ul><ul><ul><li>Eliminate the corporate income tax (already one of the lowest in America – SC is 45 th ) to encourage corporate investment. </li></ul></ul><ul><li>We tax some goods and do not tax others without any apparent reason. </li></ul><ul><li>We encourage smoking with one of the lowest cigarette taxes in America. </li></ul>Olde English & Western Piedmont Consortia
  25. 25. Why Do We Need Tax Reform? <ul><li>We cap the tax on cars at the same level as when passed in 1984. </li></ul><ul><li>Some of our taxes are too high and some are too low while our overall burden ranks us at 37 th with 50 th being lowest. </li></ul><ul><li>Public Education’s Base student cost has been funded at the appropriate level only 8 out of 30+ years. </li></ul><ul><li>Act 388 has further distorted an already out of whack system by shifting tax burden from homeowner to business. </li></ul>Olde English & Western Piedmont Consortia
  26. 26. <ul><li>What are the Fundamental Criteria </li></ul><ul><li>of a </li></ul><ul><li>Sound Tax Structure? </li></ul>“ So… What Can We Do to Change our System & Get Out of This Mess? Olde English & Western Piedmont Consortia
  27. 27. Fundamental Criteria of Tax Structure <ul><li>It must be competitive . It cannot be viewed as one that discourages industries and people from coming to our state, living in our state, expanding business in our state, and investing in our state. </li></ul><ul><li>It must be adequate. It must support improvement of SC’s economic foundations: </li></ul><ul><ul><ul><li>Educational and workforce quality systems </li></ul></ul></ul><ul><ul><ul><li>Infrastructure </li></ul></ul></ul><ul><ul><ul><li>Vibrant and growing communities </li></ul></ul></ul><ul><ul><ul><li>Overall quality of life </li></ul></ul></ul><ul><li>It must be equitable both horizontally and vertically . It must be perceived as fair. No one segment should have advantage at the expense of others. (Palmetto Institute) </li></ul><ul><li>The best approach is to have a broad tax base with the lowest possible tax rates. This is not the way we are currently headed. </li></ul>Olde English & Western Piedmont Consortia
  28. 28. Fiscally Sustainable Revenue System <ul><li>A fiscally sustainable revenue system is a structure of revenue streams, spending obligations, and reserve funds that allow government to maintain an acceptable level of public services over the long term and through fluctuations in economic activity. </li></ul><ul><li>A fiscally sustainable state revenue system will: </li></ul><ul><ul><li>Raise adequate revenue to pay desired services </li></ul></ul><ul><ul><li>Raise revenue from a mix of sources while keeping tax rates low </li></ul></ul><ul><ul><li>Increase revenue at a rate no less than population growth plus inflation </li></ul></ul><ul><ul><li>Be prepared for unanticipated spending needs and revenue shortfalls </li></ul></ul><ul><ul><li>Saltzman & Ulbrich, Strom Thurmond Institute </li></ul></ul>Olde English & Western Piedmont Consortia
  29. 29. <ul><li>On June 24, 2009, the leaders of the General Assembly passed S.12 creating the </li></ul><ul><li>“ South Carolina Tax Realignment Commission ,” </li></ul><ul><li>also known as TRAC . </li></ul>“ So… What is Our General Assembly Doing to Fix it? Olde English & Western Piedmont Consortia
  30. 30. What IS this “TRAC” Commission? <ul><li>TRAC is a temporary & independent commission comprised of non-legislators. It is created to assess the effectiveness of the current tax structure and make recommended changes to the General Assembly by March 15, 2010 (dissolve on Jan. 1, 2011). </li></ul><ul><li>Members include: </li></ul><ul><ul><li>Ken Wingate (CPA, JD – Gov. Sanford) * Jack Shuler (Speaker Harrell) </li></ul></ul><ul><ul><li>Brian Moody (CPA – Gov. Sanford) * Bob Steelman (Chairman Cooper) </li></ul></ul><ul><ul><li>Don Weaver (Sen. McConnell) * Kenneth Cosgrove (Chair Cooper) </li></ul></ul><ul><ul><li>Burnet Maybank, (JD - Sen. Leatherman) * Ray N. Stevens (DOR Director) </li></ul></ul><ul><ul><li>Ben Kochenower (CPA – Sen. Peeler) * (Staff: Craig Parks, Sen. Finance) </li></ul></ul><ul><ul><li>Charles S. Way, Jr. (Sen. Land) </li></ul></ul><ul><ul><li>Jimmy Addison (Speaker Harrell) </li></ul></ul>Olde English & Western Piedmont Consortia
  31. 31. <ul><li>Support the goal of Tax Reform & the work of TRAC. </li></ul><ul><li>Call your local Representatives & Senators NOW… thanking them for passing S.12 (TRAC) & encouraging them to vote to support TRAC’s recommendations. </li></ul><ul><li>Begin sharing (holding meetings and/or sharing at existing meetings)… sharing the need for tax reform in South Carolina & the structure for fundamental change </li></ul><ul><li>Make your voice heard (letter to editor, call/email, etc) </li></ul><ul><li>Ask candidates for office how they plan to vote: TRAC </li></ul>“ So… What Should I do about it? How Can I Make A Difference?” Olde English & Western Piedmont Consortia
  32. 32. What Questions Should I Be Asking? <ul><li>(Share your belief that Tax Reform should be a top priority) </li></ul><ul><li>How important is tax reform? Where does it rank on your priorities? </li></ul><ul><li>The General Assembly (G.A.) should be thanked for creating TRAC Is the G.A. just as committed to passing TRAC recommendations ? </li></ul><ul><li>Some say “this is too big to ever pass.” If so, why appoint a highly qualified commission, have these experts spend 6 months of their time & our tax dollars… & then not pass their recommendations? </li></ul><ul><li>We realize that March 15 th (preliminary TRAC report) is after the state budget development. But isn’t Jan. 1, 2010 (right after big elections) the perfect time for the G.A. to pass something bold? </li></ul><ul><li>Even if the TRAC report isn’t perfect, can we still support it if it gets us “10-20 yards further down the football field to our goal?” </li></ul>Olde English & Western Piedmont Consortia
  33. 33. Who can I contact for more information? <ul><li>Olde English Consortium </li></ul><ul><ul><li> (Click on “Board of Directors” for hand-outs, revised regularly) </li></ul></ul><ul><ul><li>803-817-6637 or [email_address] </li></ul></ul><ul><li>Western Piedmont Consortium </li></ul><ul><ul><li> (hand-outs revised regularly) </li></ul></ul><ul><ul><li>864-223-9127 or [email_address] </li></ul></ul><ul><ul><li>Please feel free to contact Dr. Mike Fanning (OEC) and/or Dr. Ray Wilson (WPEC) if you would like further information or if you would like for someone to come and speak re: Tax Reform with a group in your region. </li></ul></ul><ul><ul><li>Please use this information in any way you see fit. They are yours to copy, adapt, & use on your own. Help us get the word out. We want our communities, legislators, and candidates to hear from as many people as possible about this important issue: Comprehensive Tax Reform. </li></ul></ul>Olde English & Western Piedmont Consortia