You may have heard that South Carolina will be mailing $50 checks to taxpayers by Dec. 2, because the state sort of won the lottery.
Did you know that about 43 percent of taxpayers won't be getting a check? Or that it will cost the state close to $7 million, in addition to the lottery tax money, to fund the checks that will be mailed?
I'm as happy as anyone to get $50 I wasn't expecting, and I've always encouraged readers to take advantage of legal tax breaks, no matter how legislatively foolish or poorly designed they may be. In this case, however, there's also frustration.
Remember the small settlement checks that showed up in the mail in the wake of the state allowing the former SCE&G to charge customers billions for its failed attempt to add two nuclear reactors at a Midlands power plant? The checks were small, the process inefficient, and it all felt a bit insulting, right?
Most of the money for the upcoming $50 "rebate" checks comes from an unexpected tax windfall the state reaped after an unidentified woman bought a Mega Millions lottery ticket at an Upstate convenience store. She came forward in March to claim her $861 million prize.
The state pocketed $61.4 million in tax on that jackpot. Rebuffing suggestions that the money should be used to raise teacher pay, or go toward the roughly $25 billion shortfall in the state-employee pension system, lawmakers decided instead to mail modest checks to more than half the state's taxpayers.
The payments are based upon 2018 state income tax returns, so a married couple filing a joint return gets one check for $50, not two for $100.
So, why will roughly 43 percent of South Carolinians who file individual state income tax returns be denied one of those checks? It's just the latest example of the state's tendency to limit benefits, such as tax credits, to those who owed income tax to the state.
In this case, only those who owed the state at least $50 in income taxes in 2018 qualify for a $50 check.
Most retirees and many working people with low incomes didn't owe the state any income tax, because of standard deductions and the non-taxability of retirement benefits. For the 2017 tax year, the state received more than 2.38 million individual income tax returns, and 39.93 percent of them had no tax liability.
Another 3.33 percent of taxpayers owed $50 or less. (Getting a refund doesn't mean you had no tax liability. That usually means you prepaid more than you ended up owing).
Sure, most folks who owed little or no income tax pay the sales taxes that fund public schools, and the property taxes — directly, as homeowners, or indirectly, as renters — that fund local governments, and more. But, the state doesn't seem to consider them taxpayers unless they owe income tax.
The funny thing is, sales tax collections are a large part of the state's general revenues, and $6 million from general revenues will be used to supplement the lottery windfall in order to fund those $50 checks.
Like many legislative attempts to curry favor with taxpayers, this could have been so much simpler, and less costly.
Last year's debacle was the "motor fuel income tax credit" — the one where people were expected to save receipts all year long in order to claim a tax credit that ended up averaging $15.21 per taxpayer. The state had planned to spend as much as $40 million on those tax credits, but the credits were so small and the process was so cumbersome that only about $1.8 million was claimed.
The $50 rebate check scheme is more of the same. Instead of just adding a line to its tax forms, the state is physically mailing checks at a cost of $700,000.