A recent analysis of South Carolina Budget and Control Board data highlighted the dire situation facing our state agencies because of budget cuts this year. The Associated Press found that agencies charged with protecting health, children, and families weathering the recession have cut more than 1,200 jobs in the past year, representing over half of the losses to the state payroll during that time frame. The drastic job cuts are a direct result of the state legislature trying to lop off $500 million from its $8 billion-per-year budget.
As the draconian cuts eviscerate the staffs of the Department of Social Services (charged with protecting neglected or abused children), the Department of Commerce (which is the state’s economic development agency), and the Department of Health and Environmental Control (which enforces the state’s health and environmental safety laws), one would think that all options would be on the table for increasing state revenues. However, the same AP article that reported these cuts also reported that tax increases would not be proposed by the incoming administration to make up the revenue shortfall.
This is more than ridiculous. The top five sources of revenue for our state government’s general funds are individual income taxes ($2.5 billion), sales taxes ($2.2 billion), insurance taxes ($174 million), corporate taxes ($129 million), and beer and wine taxes ($107 million). It does not take a Harvard-trained economist to conclude that if our state needs to increase revenue, a good place to look might be one of our top five streams of income.
But in South Carolina, raising taxes is anathema, especially with a Republican-dominated legislature. Politicians earn kudos for pledging not to raise taxes, and they are further praised if they find ways to cut taxes. Inevitably, the state revenue pie shrinks, and in the next budget year difficult cuts are made, an inordinate amount of which eliminate services for children and the poor. The United States Census Bureau ranks South Carolina as 40th out of the 50 states for its tax revenue per capita, meaning only 10 states place a lower tax burden per person than the Palmetto State does. Still, tax increases to shore up money for items as essential as health and public safety are out of the question.
It does not have to be this way. If we take a look at Massachusetts, which sits at number 10 on the same U.S. Census Bureau list for state tax revenue per capita, we find an example of another strategy at work. Forbes magazine places Massachusetts in the number-one slot for its quality of life index, which includes an index of schools, health, cost of living, and poverty rates. The 2010 New Economy Index by the Kaufmann Foundation ranked Massachusetts as the state best positioned to compete in the new economy based on its state investment in technical training, workforce education, and immigration of knowledge workers. The Bay State also recently enjoyed its fourth highest increase in per capita income as a result of these investments.
It’s enough to make one wonder: What is so different about Massachusetts? For starters, its legislature does not have the same aversion to taxes, with Democrats holding the governorship and the majority in the state legislature (141-19 in the House and 35-5 in the Senate). Their leadership resulted in a state corporate income tax that is the eighth highest in the nation and 39 percent higher than the national average, but which has provided a reliable income stream in tough times. Massachusetts also has a flat personal income tax rate of 5.3 percent, which does not discriminate on the basis of income. The result is a stronger state economy.
Raising taxes may not be the answer to South Carolina’s current budget crisis, but looking at our Northern counterpart is enough to make one wonder.