The Post and Courier’s Oct. 10 article, “Tempers flaring over tax debate — Confusion around Dorch. referendum” accurately describes how many Dorchester citizens feel about the prospect of a 1 percent local option sales tax (LOST) increase. They are angry that their County Council has scheduled its fourth attempt to pass LOST in a special election on Nov. 5, when they know that low voter turnout and $33,000-plus special costs are assured, rather than in a regularly scheduled, no-extra-cost election in say, November 2014. They also are angry about council’s misinformation (until corrected by citizens) that LOST would not tax groceries (it does) and its annual costs would be much lower than they are.
Citizens are angry to realize that, while LOST would give property tax relief to some, large numbers of citizens essentially would not benefit at all; most would pay more sales tax than they would save in property tax; most benefits would go to a wealthy few (including commercial property owners living outside of Dorchester County) who need them the least; the costs of getting LOST benefits would be exorbitant; and the LOST would grow government by increasing government spending.
LOST is a regressive tax that disproportionately hurts the poor and middle class by taxing food and other necessities to benefit those rich enough to own a lot of property. It’s called the “Reverse Robin Hood” effect. Over 14,000 (more than 28 percent) of Dorchester households are renters who pay property taxes as part of their rent but would derive zero benefit from LOST since they own no residential property. Renters should take little comfort from Councilman David Chinnis’ suggestion in a recent WCSC-TV interview that landlords benefitting from LOST might, in return, lower the rent they charge. That is “Alice in Wonderland” logic. Rent reductions are not realistic; lowering rents would negate property tax benefits to landlords.
LOST would reduce economic activity as residents paying increased sales taxes would have less income to spend. That reduction is quantified by the state Board of Economic Advisors, which notes that historically a 1 percent increase in the sales tax rate has resulted in a 5 percent reduction in spending. This 5 percent spending reduction means layoffs and fewer new jobs for businesses that depend on spending.
Since Dorchester already has a 7 percent sales tax (17th highest nationally compared to the 45th lowest owner-occupied property tax nationally), a 5 percent spending reduction would actually decrease revenues collected on all of that already existing 7 percent tax. This spending reduction of 5 percent would also decrease tax revenues collected on all purchases subject to the current sales tax of 7 percent.
LOST would also greatly expand government spending and the size of government. According to the BEA, $11.7 million would be generated by LOST during its first full year in Dorchester County. But, by law 5 percent of that $11.7 million must be redistributed annually to other, smaller “donee” counties. That is like paying 5 percent “interest” on a loan each year, except it is paying 5 percent to use our own money, not a lender’s money!
Further, Dorchester County would not get 95 percent of the total generated. After paying an annual fee ($26,677 in the first year) to the S.C. Department of Revenue, paying the 5 percent reduction in revenue above, and subtracting $1.1 million in one-time “compliance/ start up” costs, the BEA estimates that Dorchester County would actually receive only $9.5 million, or 81 percent, of the total tax collected in its first year.
Hence, Dorchester citizens in effect would pay 19 percent “interest” for the privilege of having 81 percent of their own money returned to them by Columbia. Of that $9.5 million, 29 percent, or $2.7 million, by law would be “distributed to the county and its cities that can be used at their discretion” (chief financial officer, Dorchester County). Thus, voting for LOST on Nov. 5 would be voting to allow Dorchester County and its municipalities to increase their spending by $2.7 million, “at their discretion”, and require that fees in excess of $500,000 be paid by Dorchester taxpayers to others outside Dorchester County, annually.
Growing government by giving it more taxes to spend is the opposite of what we should do.
The county and municipalities could vote to use some or all LOST revenues to give additional property tax relief. That vote would be taken each year by each entity. Dorchester County voted recently to use its share of LOST for 100 percent tax relief next year. But that can be changed each year and predictably would, as occurred when Berkeley County reneged on its commitments to use all of its LOST money only for property tax relief. No Dorchester municipality has voted to spend its share for property tax relief, and presumably all will spend it to grow government.
LOST will be virtually impossible to rescind if it is passed on Nov. 5. Another referendum would be held to do this, but only if 15 percent of Dorchester County voters signed a petition to hold one and presented the petition to County Council. Thus, passing LOST will impose it forever.
Michael T. Rose is a Summerville attorney and former Republican state senator representing Dorchester, Berkeley and Charleston counties.