Tax Rate Increases Signify Trouble...Or Poor Management

Richland County SC expects total 2012 revenues of about $671M, up 4% from 2011.  Over the next twenty two years, assuming growth of 4% per year, the total revenue will be around $24.5B.  That $24.5B is expected to fund numerous existing county programs and activities and administrative costs, plus the dreams of council members, all of which are of higher priority than the bus system, road improvements, and biking and hiking trails.  I say those existing costs and plans are all of higher priority because, rather than divert funds from them to the transportation needs, the County is claiming to need an additional penny of sales tax to generate an additional billion dollars over the next twenty two years to pay for bus, road, and trail improvements.

Note: The City of Columbia budget is currently about $115M bringing the total for City and County to about $786M per year.

This current campaign reminds me of the additional state-wide sales tax penny approved by voters after Governor Richard Riley’s 1984 campaign in favor of an increase for education reform.  Education got the penny, I guess, but still needs money for reform, and, even after the 2002 approval of the SC Education Lottery, a tax on low income folks, by the way, we still, and will always, I suspect, use education to justify higher tax rates.

Can we have a little honesty here?  The prime driver for the currently requested Richland County sales tax increase is threats to shut down the bus system.  To broaden the campaign’s appeal, road and trail and riverfront improvements have been added and the size of the requested increase upped to cover those as well.  The additional tax is supposed to provide something less than $300M over 22 years for the bus system.  Surely no rational person can be convinced that a piddling $300M for buses cannot be squeezed out of the $24.5B in receipts already predicted.  $300M is about 1.2% of the $24.5B.  So, the truth is that Richland County has adequate funds for the bus system but also, like most government entities, has an insatiable hunger for more revenue and will always choose the current hot issue, education, transportation, crime, whatever, to justify additional taxes or increases in tax rates rather than divert funds from lower priority needs.

Here is a simple idea for cost reduction.  Consolidate Richland County and the City of Columbia governments and save at least 5% of the total spending.  That would be approximately equivalent to the new penny sales tax and would streamline and simplify our government structure, making it more attractive to business and industry, which would in turn improve tax revenues without rate increases.  And we could quit hearing reports of negotiations about shared services in law enforcement, fire protection, ambulance services, utilities, zoning, planning, etc., and could begin enjoying the resulting cost savings and increased economic activity.

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All the above is about Richland County and the City of Columbia, but there is a related general truth about taxes and tax rates.  There is no question that, up to a certain point, taxing and spending on infrastructure and public safety and other essentials best provided by government can improve the safety, security, economic strength, and outlook of a community.  It is just as obvious that levels of taxing and spending beyond some point consume funds needed for private investment, drive business out of a community, and therefore darken its economic outlook and jeopardize fundamental needs provided by government. 

If a tax rate, whether sales or income or corporate, is set appropriately to provide needed infrastructure and stimulate economic activity, tax revenues will grow as the economy grows and it will be possible over time to reduce the tax rates because, in any successful growing enterprise, overhead tends to decrease as a percent of total cost.  Government is essential overhead, but a mature and experienced government of a developed nation needing to increase tax rates to get additional tax revenue is a serious symptom of fundamental problems. 

Fundamental problems, by the way, are exactly what we had a decade ago when we went to war in Iraq and Afghanistan, and we should have temporarily increased tax rates at that exact time to pay the bills that were sure to come and to make the terrible costs of those wars more broadly shared by the American people.  

Because we failed then, we now have even more fundamental economic problems and are going to have to increase tax revenues to solve them.  I hope Congress is wise enough to do it with fundamental tax reform and not just resort to temporarily jacking up rates because, with the wars winding down and federal spending still at four times the income tax revenues, this is not a temporary problem.  We need serious economic revitalization to boost incomes and earnings and tax revenues and GDP, and simply jacking up marginal tax rates will make such revitalization very unlikely.

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