Fix the roads and fund South Carolina’s obligations — we need to do both, not choose between them. An increase in the gas tax is the only logical, user-fee-based funding source to fix our roads. South Carolina has the third lowest gas tax among the 50 states. The last time we increased the gas tax was in 1987 (a 3-cent increase). The Consumer Price Index has doubled since then.
Don’t offset a gas tax with income tax cuts. We are not a high-tax state. Last month the Tax Foundation released its annual State-Local Tax Burdens report. South Carolina has one of the lowest tax burdens — 42nd in the country (50 is lowest) — and the lowest in the Southeast; Georgia is 32nd, North Carolina is 20th, Florida is 34th, Alabama is 39th and Mississippi is 41st.
While the state’s economy has grown, the capacity of the General Fund has declined. Fifteen years ago 50 percent of all retail sales were taxable but November 2015 data from the South Carolina Department of Revenue indicates that only 34 percent of sales are taxable today.
Further reducing the capacity of the General Fund to generate revenues by cutting the income tax might make sense if we had a high tax burden or, more importantly, if we were funding everything adequately. Neither is the case.
The local government fund that helps counties and municipalities hasn’t been fully funded for years. The base student cost (BSC) used in funding the Education Finance Act for K-12 education hasn’t been fully funded since 2008. By law, the BSC must be $2,801 for FY 15-16, but it’s currently $2,190. The shortfall is putting more and more pressure on local taxpayers.
Since Act 388 exempts homeowners from school operating taxes, business owners bear the increased tax burden. Other state needs continue to be underfunded, such as the Department of Social Services, Department of Health and Environmental Control and higher education. Sound fiscal policy would be to fix the roads with a gas tax and wait until we pay all our bills before we cut taxes in a state that already has one of the lowest tax burdens in the country.
Some suggest that any road funding plan should be “revenue neutral.” What they’re saying is that we can fix all our road problems and pay all our bills with no new money. If that’s the case, why haven’t we done that for the last 30 years?
Remember — Albert Einstein defined “insanity” as doing the same thing over and over again but expecting different results.
Former chairman, S.C. Board of Economic Advisors