25-year-old SC Rep. Boyd Brown (D), who is going to law school instead of seeking a third term, bids his colleagues farewell.

By Sen. Phil Leventis
Sumter, SC

With my legislative tenure coming to an end, I want to share something with my fellow South Carolinians. Our state is not broke, but we are teetering on the verge of moral bankruptcy in our failure to meet the needs of our citizens. That’s why I have introduced the TRAC Recommendation Act (S.1454) that eliminates or reduces many sales-tax exemptions. The nearly $1 billion this act will raise annually would be used to pay for education and local governments, which continue to be shorted due to lack of revenue.

During my 32 years as a legislator, I have been guided by the principle that government should invest in meeting the needs and aspirations of its citizens. This principle has been undermined by an ideology claiming that government is the cause of our problems and, accordingly, must be starved.

The real source of our problems is a government unwilling to invest tax dollars in itself and its citizens. When businesses strive to be competitive, they invest in their future. That is what we have to do today in South Carolina to ensure a more prosperous future.

We’re not broke. The problem is that narrow political ideology has trumped statesmanship. The lack of political will to fairly reform our tax code to meet our basic civic contracts for education and infrastructure leads our citizens to believe that “minimally adequate” is the best we can hope for.

In 2010, the Tax Realignment Commission (TRAC) was created to review the state’s tax code and recommend changes “designed to ensure that the state’s tax structure is balanced so that the system is adequate, equitable, and efficient.” The TRAC commissioners and staff did a thorough job of reviewing tax loopholes and inequities, and recommended reforms of sales-tax exemptions that could raise close to $1 billion the first year.

Sadly, ideology trumped common sense, and the Republican-created and -appointed commission’s goal was to use any new revenue to further reduce taxes and increase corporate subsidies, not pay our bills.

Our state’s fixation on being business-friendly is reflected in the Forbes ranking that puts South Carolina fifth in its “business friendly regulatory environment” but 44th in quality of life. Forbes ranks the quality of our labor supply at 22nd, far behind North Carolina (third) and Georgia (fourth). The message this sends is that South Carolina, with its lax regulations and unskilled labor force, is a cheap place to do business — but you might not want to live here.

To put the anti-tax ideology in perspective, consider that of all the industrialized nations, only Turkey and Mexico have a lower individual tax burden than the United States, according to the Organization for Economic Cooperation and Development. The anti-tax National Tax Foundation ranks South Carolina 43rd among the 50 states in taxes as a percentage of income, and dead last in per capita state and local taxes. You begin to wonder why we need to further reduce taxes when we can’t pay our bills.

The House’s budget cuts mandatory funding for education by $665 million and local government funds by $71 million and robs $118 million from the general fund to cover the sales-tax shortfall of Act 388’s property-tax swap. These spending levels are set by law, but education and local government funding obligations are ignored annually by budget provisos because of a presumed lack of revenue and a clear shortage of political courage. These cuts mean larger classes, fewer teachers, police and firefighters and deteriorating infrastructure, all of which combine to make our state less competitive.

The TRAC recommendations on sales taxes would raise nearly $1 billion next year and more in coming years. This is what we need to meet these mandatory spending requirements, and more comprehensive tax reforms would meet and exceed them for years to come.

I’m sponsoring this bill because there is no real legislative debate — and little public understanding — about how we could raise the revenue to pay our bills with fair and broad tax reforms while also improving our quality of life and strengthening our economy.

The critical debate I hope to spark is whether the role of our government is shaped by the special-interest groups who make the majority of campaign contributions, or by the citizens who pay the taxes. I believe that citizens are willing to pay fair and equitable taxes when they get their money’s worth. It’s called democracy, and it’s past time for South Carolinians to reclaim it.

Sen. Leventis is a Sumter businessman; contact him at philleventis@scsenate.gov.

Nearly $700 million a year in state income taxes withheld from worker paychecks in 16 states is being used to provide lavish subsidies to corporations rather than paying for vital public services. These diversions have gone to more than 2,700 companies, including major firms such as Sears, Goldman Sachs and General Electric. Few, if any, of the affected workers are aware, because no state requires they be informed on their pay stubs.

South Carolina’s Job Development Credits cost $70.3 million per year, the fourth-costliest diversion among the states. “Putting aside the question of this being a good investment of tax dollars, the immediate problem is a lack of transparency,” said Dr. Hoyt Wheeler, Co-chair of the SC Progressive Network.” Wheeler, a retired business professor, noted that the SC Department of Revenue does not reveal the credit amounts the 221 companies receive, or require the workers to be notified that their employer is pocketing their state income tax. “Individual workers at some of these companies can be donating as much as $1.25 an hour for years to the corporate bottom line, while thinking they are helping pay for schools and infrastructure,” Wheeler said.

These are the key findings of Paying Taxes to the Boss: How a Growing Number of States Subsidize Companies with the Withholding Taxes of Workers, a study published today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC. It is available here.

“Diversion of personal income tax revenues into subsidies violates how economic development has been defined,” said Good Jobs First Executive Director Greg LeRoy. “States are draining a revenue source that helps many of them address structural deficits.”

Paying Taxes to the Boss traces the rise of 22 subsidy programs derived from personal income taxes (PIT) that together cost about $684 million a year. “These programs are justified in the name of job creation, but they often end up subsidizing companies to move existing jobs from one state to another. In other cases, they go to employers that threaten to move unless they get paid to stay put,” said Philip Mattera, research director of Good Jobs First and principal author of the report.

“We recommend that states seriously consider abolishing PIT-based subsidies. Short of that, we urge Truth in Taxation: that companies be required to disclose the details of how much money is going where on every pay stub of affected workers,” LeRoy added.

The report examines South Carolina’s PIT-based subsidy program, known as Job Development Credits, or “JDC”. The JDCs are considered by the state Department of Commerce to be the “most significant incentive created by the 1995 Enterprise Zone legislation. The programs work in various ways in different states. Some allow employers to immediately retain (and never remit to the state) a large portion of the withholding taxes generated by designated new or retained workers. Some provide cash rebates or grants calculated the same way. Others provide credits against corporate income taxes or other business levies, with the value of those credits based on the withholding taxes of new or retained workers. (Some of these credits are cash-refundable if the credit exceeds the company’s tax liability.)

The share of withholding taxes diverted into subsidies can be as high as 100 percent (such as EDGE tax credits in Illinois and Indiana) and the duration can be as long as 25 years (such as Mississippi’s Withholding Rebates). Twelve programs divert 75 percent or more of withholding, and 18 do so for 10 years or longer.

The most expensive program is New Jersey’s BEIP, which in FY2011 approved new grants worth up to $73.2 million over their multi-year terms and disbursed $178 million during the year for previously approved contracts. Among states with subsidy recipient disclosure, those with the largest number of participants in PIT-based programs are: Ohio (567), Kentucky (509), Illinois (315), New Jersey (306) and Indiana (283).

The SC Progressive Network‘s monthly movie night is changing time and location to co-sponsor the newly released 80-minute documentary We’re Not Broke. The public is invited to a free screening on Wednesday, April 25, 6:3-8:30pm at the USC Law School Auditorium, 701 S. Main.

After the screening, the film’s director, producer and writer—Karin Hayes—will be with us to answer questions. The evening will conclude with a discussion of the next steps to advocate for Congress to close corporate tax loopholes, end offshore tax havens and resist another repatriation tax holiday. This free event sponsored by the SC Small Business Chamber of Commerce.

With the United States in the grip of the worst economic recession since the Great Depression and an unprecedented budget deficit, the conclusion that our country is broke seems unquestionable. At least that’s what politicians and pundits want ordinary citizens to believe as they call for massive spending cuts.

Karin Hayes and Victoria Bruce’s searing exposé reveals that, strangely absent from this rhetoric, is the infuriating fact that multibillion-dollar corporations are based in the U.S., make money from American consumers, and often even receive lucrative contracts from the government, yet pay nothing in U.S. income taxes. By exploiting tax-law loopholes and spending millions on lobbyists to pressure politicians to protect their interests, corporations pocket billions while the less-connected middle class disappears, and the poor get poorer.

We’re Not Broke explores how the government has allowed this inequality to develop and the growing wave of discontent that it has fostered. Presaging the larger wave of protests that have arisen in recent months with the international Occupy movement, the film follows a number of activists who have had enough and are demanding that corporations finally pay their fair share.