Gov. Nikki Haley fairly hailed South Carolina’s sustained economic success in Wednesday night’s State of the State speech.
She also presented — finally — her prescription for the dangerously decaying state of our state’s long-neglected roads. And though she postponed that hard political call until after winning re-election in November, then waited until near the end of the State of the State speech to deliver it, she did rightly pitch a significant increase (10 cents over the next three years) in the state gasoline tax. She wisely urged the Legislature to “dedicate that money entirely toward improving our roads.”
And the governor correctly appealed for an overhaul of the sate’s highway funding system, aiming to promote efficiency and transparency in how the S.C. Department of Transportation makes its own tough decisions. She offered this all-too-accurate assessment of costly business as usual at the DOT: “The current system, with commissioners representing congressional districts and selected by local delegations, is the ultimate exercise in parochialism. Instead of fighting for the needs of South Carolina at large, they fight for the needs of their districts, which means they fight each other.”
As Mrs. Haley vividly put it: “Simply shipping more money into the current bureaucracy would be like blasting water through a leaky hose.”
Unfortunately, though, the governor didn’t mention the misguided expansion of the State Infrastructure Bank’s role.
Though the SIB was created in 2002 to fund major projects, it has warped into sort of a shadow highway commission routinely driven by politics. Any transportation reform effort that fails to assure adequate oversight of the SIB will not fully fix what ails the road-funding process.
Also unfortunate is this third element of the governor’s road-funding “here’s the deal” plan: She insisted Wednesday night that the gas-tax hike be contingent on not just DOT reform but a reduction in the state income tax from the current 7 percent to 5 percent.
Yet it’s folly to assume that a nearly 30 percent reduction in our state income tax rate wouldn’t also produce at least some reduction — over both the short and long terms — in the money it generates. And on Thursday, the state Revenue and Fiscal Affairs Office estimated that such a steep income tax cut, once fully implemented, would lower revenue by $1.8 billion a year.
So if, as it should, all of the gas-tax take goes to the user-fee purpose of addressing the critical condition of our roads and bridges, how would the General Assembly make up that shortfall?
How, too, would the Legislature find enough money to fund the other pressing needs, from education to the Department of Social Services and beyond, that Gov. Haley cited in her speech?
Yes, in not just theory but practice, properly timed and targeted tax reductions can be a smart move. As President John F. Kennedy memorably told the Economic Club of New York late in 1962: “It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now.”
President Ronald Reagan also acted on that principle with positive economic results.
So Gov. Haley was seemingly in impressive historical company Wednesday night when she said that cutting state income tax from 7 to 5 percent would “take us from 38th in income tax competitiveness to 13th,” adding: “Regionally, it will put our rate back below those of North Carolina and Georgia. It will be a massive draw for jobs and investment to come to our state.”
But how “massive”?
How can lawmakers responsibly bank on the governor’s rosy-scenario premise that we can afford to cut our income tax rate by nearly 30 percent?
And how can road-funding reform succeed if bringing the SIB back into line isn’t part of the mission?
Those questions demand convincing, detailed answers.
Meanwhile, our deteriorating highways demand immediate attention with overdue repairs and maintenance.
So good for Gov. Haley for conceding that South Carolina must transform transportation funding and raise its gas tax.
However, the Legislature should be very wary about the details of that reform — and about the bottom-line impact of cutting the state income tax.