25 Ways to Unleash Capitalism in South Carolina

Want to know 25 ways we can unleash opportunity, freedom and hope in South Carolina? Here are 25 ideas taken from the pages of the Policy Council’s new blueprint for economic prosperity, Unleashing Capitalism.

1)      Cut the property tax on manufacturing equipment: At 3.73 percent, South Carolina has the highest effective manufacturing property tax in the country. Reducing this tax to less than 1 percent is one of the easiest and most important reforms the legislature could enact (p. 104).

2)      Cap state spending: What is really driving state spending is not the funding of core government services, but excess tax revenue wasted on pork barrel projects. South Carolina’s constitution already provides for a budgetary spending cap – but one that is completely ineffective. If the state had instituted a population plus inflation spending cap in 1992, state spending would have been 40 percent less as of 2007, and we would not be facing a budget “crisis” (239).

3)      Cut the income tax in half: Unleashing Capitalism recommends a flat income tax of 3.5 percent. This would include an exemption for the first $10,000 or $15,000 of income, so as to make the tax less regressive. In effect, South Carolina already has a flat tax – but one set at 7 percent, burdening citizens with the highest effective marginal income tax rate in the Southeast (101).

4)      Eliminate the corporate income tax: Revenue from the corporate income tax (CIT) was only $268.64 million in FY08-2009. Yet the tax has high compliance costs and also suppresses wages for workers. A Kansas City Federal Reserve study demonstrates that a 1 percent increase in the corporate income tax decreases wages by 0.52 percent. Eliminating South Carolina’s CIT of 5 percent would thus increase wages and create wealth, likely offsetting lost revenue (132).

5)      Lower the sales tax: Ideally, the state should consider eliminating the income tax altogether and replacing it with a broad-based sales tax. Doing so would reduce enforcement and compliance costs. Eliminating special-interest exemptions would also end wasteful lobbying expenses that contribute to a lack of transparency. The tax could be made less regressive by excluding the first $15,000 of consumer spending (102). Absent this comprehensive reform, lowering the rate is the next best option.

6)      Restructure government: The legislative branch of government in South Carolina has long held the reigns of power, facilitating a lack of transparency and accountability. On way to bring a democratic balance to state government is to permit the governor to appoint cabinet positions currently elected by popular vote (243).

7)      Reform the selection of judges: South Carolina is the only state in the country in which the legislative branch possesses exclusive control over judicial appointments. A better option is to permit the governor to appoint judges with the advice and consent of the state Senate (243).

8)      Implement school choice: School choice allows low-income families to take advantage of scholarships and tax credits to enable their children to attend the best schools available, even if they happen to be private. School choice also increases academic achievement in public schools by creating competitive incentives for all schools to improve (182).

9)      End the economic incentives game: Between 1994 and 2007, state spending on economic incentives went from $32 million to more than $250 million. The result: at best, no impact; at worst, negative employment growth. Targeted tax breaks are not only unfair, they shrink the tax base and inhibit widespread economic growth (138).

10)  Reform property tax system: While owner-occupied housing is taxed at 4 percent, rental and commercial properties are taxed at 6.5 percent and manufacturing property at 10.5 percent. The result, as we see in cities like Rock Hill, is that manufacturers are moving to North Carolina, with their employees living just across the border to take advantage of relatively lower residential taxes. Lowering the commercial/manufacturing rate would attract new businesses, even as the lower residential rate attracts new homeowners (93).

11)  Index income tax brackets for inflation: South Carolina’s top tax bracket (7 percent) started at $13,351 in 2008. The 2007 median family income in South Carolina was $52,913. Were the 1959 tax brackets properly updated for inflation, the top bracket would be set at $73,987 for 2008, and the median family would be in the third lowest, or 4 percent, bracket (97).

12)  Attach education dollars to students: Weighted-student funding would make the public education system more efficient, equitable and accountable by eliminating onerous categorical funding restrictions. The reform would not only empower schools to use innovative and targeted instructional programs, it would guarantee that all students, regardless of where they live, receive equitable funding (197).

13)  Return excess tax revenue to taxpayers: As indicated above, excess tax revenue is what often drives state spending during boom periods. In order to encourage fiscal discipline, such revenue should be refunded to taxpayers. The alternative of placing surplus revenue in a rainy day fund encourages legislators to keep spending when tax revenue dips (240).

14)  Lower taxes for the working poor and enact welfare reform: The current welfare structure creates perverse incentives for individuals to remain underemployed. Additional wages are taxed at a very high implicit marginal tax rate – as high as 82 percent for a mother of two earning $7.75 an hour. Lowering and indexing the tax rate is thus a necessary complement to limiting welfare eligibility and reducing the lifetime benefits timeframe from 60 months to 48 months (220).

15)  Abandon government-driven cluster theory: Whether economic cluster formations increase prosperity is a question still up for debate. What is settled is that government should not factor into the equation. Cluster formations should be organic – as at Silicon Valley – not government planned (124).

16)  Promote charter schools: The state could raise academic achievement and promote workforce development by fostering the creation of additional charter schools and promoting inter-district public school choice. Currently, South Carolina only has 31 charter schools while neighboring Georgia and North Carolina have 71 and 98 charter school programs, respectively (180).

17)  Promote homeschooling and magnet schools: Homeschooling should be further deregulated so as to give parents more options. Increasing the number of magnet schools would also give students more choices. South Carolina only has 37 magnet schools, compared to 152 in North Carolina and 72 in Georgia (182).

18)  Review and sunset regulations: South Carolina has several outdated regulations that hinder transparency and create uncertainty for business owners. A good start toward improving the state’s regulatory environment would be to periodically review existing regulations and provide for a sunset provision on all new regulations (160).

19)  Eliminate sales tax caps: Sales tax reform requires eliminating special-interest exemptions and lowering the tax for everyone. As part of this initiative, legislators should lift the sales tax cap of $300 on luxury vehicles and boats. This cap creates a regressive system that taxes a $6,000 used car the same as a $250,000 yacht (93).

20)  Abolish the Manufactured Housing Board and other similar regulatory bodies: In many cases, private trade associations can more effectively regulate their own industries, with tort law and other remedies used to address violations. Take the Manufactured Housing Board, which subjects builders to 20 pages of complex regulations and issues 8 different types of licenses. The overall effect of this board is to raise barriers to entry and increase costs for potential homeowners (164).

21)  Remove the Social Security exemption: The state exempts the first $10,000 of all Social Security or pension income for taxpayers 65 and older. This not only complicates the tax code, but shifts the tax burden to younger people. Instead of relying on exemptions to attract new residents, lawmakers should slash the income tax in half, as prescribed above (103).

22)  End film industry tax incentives: Study after study has shown that, as sexy as they are, film incentives don’t work. For every dollar in tax breaks the General Assembly gives the movie industry, the state gains only 19 cents in tax revenue. That’s a loss of 81 cents on every tax dollar spent (143).

23)  Eliminate cosmetologist training requirements: Cosmetologists are required to have 1,500 hours of training to offer their services in South Carolina. Such restrictions on an industry that could clearly regulate itself with little danger to the public should be eliminated, lowering prices for consumers (163).

24)  Eliminate massage therapy training requirements: Likewise, massage therapists are required to have 500 hours of supervised study. Instead, we should let consumers decide for themselves which therapists are doing a good job. Professional organizations, rather than the government, can assist consumers in making such decisions (163).

25)  Cut funding to Palmettovore and Certified SC Grown: These agricultural marketing programs have already cost taxpayers more than $2.5 million. It is not a core function of government to advertise and promote specific industries (166).

These are just a few of the ideas for unleashing wealth and prosperity in South Carolina. To learn more, visit unleashingcapitalismsc.org