I was very happy to hear a little bit of a conversation about our problematic tax system in South Carolina at the SC Chamber Grassroots Luncheon hosted by the York County Regional Chamber. I know there were some state legislators present: Tommy Pope, Wes Hayes, Gary Simrill, and maybe more. I know each of these gentlemen and have high opinions of them. I consider Tommy a friend and even help him with his website. My hope is that they will all take the conversation to heart.
We have an unsustainable tax situation here. For every dollar we collect from a person, we spend back $1.35 or so. This puts us in the negative. For every dollar we collect from a business, we spend back about 35 cents. This is how we make up the short fall. Therefore, we are under-taxing (or overspending on) people and over-taxing (or underspending on) businesses.
First of all, we would never run a business this way. We’d go bankrupt. We would not keep a service line that we lose our behinds on, and we would not stay competitive in the marketplace for overcharging our best clients. They would leave us, and we wouldn’t get many new ones. I agree, of course, that we want to lead with value and not price, that we need a great product, not a cheap price. But we can’t be priced out of the market. And we’re not investing that extra money in a better product for businesses anyway, we’re using it to cover the shortfall from our other income source, on which we lose 35 cents for every dollar we collect.
Our state is not a business though, and we can’t just cut out a service line. We have to provide services for people, and we have to tax them to do so. But, I suggest we MUST be in the black on this (whether we collect more or spend less) or we will bankrupt our state. The current situation is unsustainable.
The unexpected result of our current model is that we have a disincentive to recruit and retain people and a disadvantage in recruiting and retaining businesses. This is bad for traditional economic development – meaning that even after giving away the farm with all the tax incentives we can throw at businesses, we are still non-competitive. The situation is also particularly bad for the new economy, and the economic development that we need to start doing now for the future of our communities – recruiting and retaining talent.
Talent is the currency of the new economy. Over the next 30 years, the jobs of our communities will be created and recruited by the talent that chooses to live in our communities. Here’s the funny part though. A community wants businesses; businesses want talent; and talent wants a community. It’s a circle. We’re chasing our tails. So, the future of economic development for any county in the country is to focus on improving their communities, primarily their small urban districts. The reason is because the millennial generation seeks to engage in these districts, and the millennials are the body of talent that will drive the economy. Jobs are born of the talent, move to the talent, and stay near the talent.
In South Carolina, though, we have a tax system that creates a disincentive for us to recruit and retain talent. We don’t want people because we lose money on them. Instead, we want businesses. But what is a business if not the people that make it up? An article published by Forbes magazine quoted a study that said that 40% of the workforce in the US by 2020 would be independent contractors and freelancers. Richard Florida talks endlessly about the dominant percentage of the American workforce being knowledge jobs and creative jobs. We are all asking, how do we get these jobs in our communities? The talent creates the jobs. Of course, we can’t start recruiting and retaining talent when our entire tax system is set up to discourage having people in our community because we lose money on them.
So, here’s what I am asking of legislators. Whether it is simple business acumen, or a deeper understanding of what it will take to be successful in the new economy (the new marketplace), please acknowledge that our tax system is unsustainable.
Every time, I hear a conversation about tax reform, it ends with people saying it’s just not going to happen due to politics. They talk about Act 388 and Hugh Leatherman. They talk about the influence of the few and the self-serving politics of the wealthy. They say it’s just politics, and I wouldn’t understand. They’re right. I don’t understand. I don’t know much of these things, and I don’t know Mr. Leatherman (he’s probably a nice guy). I do know, though, that we don’t need any single person to come together as a group and save our state from the crippled-economy future we are creating for ourselves.
I also hear folks talk about conservatives not wanting to raise taxes, how it’s political suicide. To me, though, that is a misplaced conversation. I would think that conservatives would be the first champions of practical fiscal responsibility. I would think conservatives would see first the straight-up business flaw in losing our behinds on one of our two income streams and the unsustainable nature of this. Plus, I think it is insulting to the people to believe that they can’t understand these ideas and would just beat their pitchforks on the iron gates if there was a mention of paying taxes. And again, if we can’t earn more, then let’s spend less, or some compromise in between.
Again, our current tax situation in South Carolina is unsustainable. Mark this as a warning bell.