South Carolina's Taxation Realignment Commission (TRAC) was established over a year ago and has been meeting since September. Commissioners were charged with studying the tax structure with these instructions: "The goal of TRAC, and ultimately of the state’s tax structure, is creation of a system that enhances the state’s reputation as a '…optimum competitor in efforts to attract business and individuals to locate, live, work and invest…' in South Carolina."
The Commission has spent much of its time studying sales tax exemptions. Last week the Commissioners approved a proposal that would eliminate a series of sales tax exemptions including those for electricity and water, and would also expand the sales tax (albeit at a reduced rate) to include groceries and prescription drugs. The Commission's proposal includes a reduction in the overall sales tax rate so that the net fiscal impact of the base broadening measures is revenue-neutral.
A broad-base, low-rate tax is often good policy, but applying the tax to so many basic necessities is cause for alarm. As ITEP noted last week, "It's hard to find items that you could tax that would have more of a regressive impact than groceries and utilities."
The revenue-neutral nature of the proposal is also cause for concern. John Rouff from South Carolina Fair Share recently addressed that issue, saying, "Revenue neutrality is not what we need today. We have a state that is facing a dire economic crisis."
The Commission is expected to make a final decision in September about whether to send the proposal to the Legislature for their approval.