“You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation. You cannot multiply wealth by dividing it.” Adrian Roger

from Greenville News

One of the problems with state government in South Carolina — aside from the fact that it is too large, wasteful and inefficient — is that it routinely makes decisions that benefit well-financed special interests rather than the best interests of the people.

How can that be in a representative democracy?  Well, start with the fact that there are currently 377 lobbyists representing 534 companies and organizations at the Statehouse, each of them pushing for special treatment for their clients.

Next, look at the fruits of those lobbyists’ labor: Our tax code has 112 sales tax loopholes. There is no rhyme or reason to these tax breaks; they range from portable toilet rentals to time shares, newspapers to direct mail postage, amusement park machinery to manufactured housing.

And then look at our state’s “tax incentives” carousel.  In the past decade, the special tax breaks doled out by the Legislature — special exemptions from taxes that the rest of us have to pay — have increased from $32 million to $254 million a year.

Public officials like incentive deals because it gives the appearance that they are “doing something” to create jobs.  But while government press releases gush about how those deals “create” jobs, they never mention the extra tax burden that falls on everyone else in order to pay for them — a burden that ends up destroying more jobs than are created.

It makes no sense to have a tax system that encourages private parties to fight over obtaining public favors.  When it becomes profitable for them to put time and money into lobbying politicians for favors, then that is precisely what they will do.  Why encourage such unproductive behavior?

And why let government pick winners and losers in the marketplace in the first place? Public officials should avoid what Nobel laureate Friedrich A. Hayek called the “fatal conceit” and leave that chore to the private sector and the profit and loss system. Top-down economies planned by government fail; those driven by the private sector and the free market flourish.

Unfortunately, however, our state’s economy is rapidly becoming top-down driven. As the South Carolina Policy Council documents in “Unleashing Capitalism,” total government spending in South Carolina amounts to 40.5 percent of the state economy — the 10th highest percentage in the nation — while North Carolina’s and Georgia’s is only 32 percent and 30 percent, respectively.

The private and public shares in a state’s economy, of course, add up to 100 percent and our goal should be to maximize the former’s share and minimize the latter’s. But South Carolina is doing the exact opposite, increasing state intervention in the economy and sliding toward the government percentage of the least prosperous state (West Virginia at 50 percent) and away from the most (Connecticut at 20 percent).

As the Policy Council notes, South Carolina has a hard-working labor force, abundant natural resources, excellent ports and major metropolitan areas, yet our per capita income is only 80 percent of the U.S. average. And what holds us back is our state government’s policy of doling out tax favors to the well-connected and trying to pick winners and losers in the marketplace. Here’s what we should do:

First, declare that no South Carolinian gets special treatment at the expense of another and call for all special sales tax breaks to expire by a certain date unless a new law is passed to keep them. Some exemptions, such as the one on grocery sales, make sense and are broad-based. But since the 112 special tax breaks represent about $2.5 billion annually, closing even a fraction of them would result in a huge revenue increase.

Second, resist the temptation to spend that new revenue. Yes, there have been substantial budget cuts in the past two years, but state government spending grew by 41 percent in the four years prior. Per capita state government spending in South Carolina is still 22 percent higher than Georgia’s and 13 percent higher than North Carolina’s. State government has enough money to discharge core functions if it is forced — as private households are — to spend wisely.

Third, use the new revenue to lower the state sales tax and the state income tax across the board so that everyone pays lower taxes, not just the politically connected. Lower taxes for everyone promotes free market entrepreneurship and discovery — the true sources of prosperity.

These straightforward changes to how we tax in South Carolina would simplify our tax code and put us on the cutting edge of tax policy nationwide. They would make us a magnet for jobs and investment at a time when other states are poised to enact massive tax hikes.

More importantly, these changes would put more money into the pockets of the people whose hard work drives our economy — the South Carolina taxpayers.

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