Chapter 8

CHAPTER 5: SPECIFIC TAX REFORMS
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Presumably the original intent of imposing a tax rate schedule with graduated marginal tax rates was to make the income tax progressive. However, what progressivity exists in the states income tax structure is due to the zero tax on the first $2,630 of income, and because of the graduated marginal tax rates. However, since the marginal tax rate increases over such small steps in income, as shown in Figure 5.5, most of the progressivity occurs at lower income levels, not higher levels of income. At higher income levels, the average tax rate hardly increases at all. This nature of the current tax is directly contradictory to the goal of progressivity. So although on the surface it appears that the tax satisfies the vertical equity condition, it reallyC H AthisT E Rat 8 lower income levels reducing the does P only the wealth of these lowest income taxpayers, not the intended consequence.
REGULATORY REFORM PRINCIPLES Figure 5.5: South Carolina income tax: Current tax rates compared to F O R inflation-indexed A R O L I N A S O U T H C rates, 2009
Income Tax Rates/Brackets if 1959 Tax Current Income Tax Schedule was Inflation Adjusted to by Douglas Rates/Brackets M. Walker 2009 Taxable Income $5,000 $10,000 $15,000 $20,000 $30,000 $50,000 $75,000 $100,000 $150,000 $200,000 Tax Amount $71 $290 $604 $954 $1,654 $3,054 $4,804 $6,554 $10,054 $13,554 Average Tax Rate 1.42% 2.90% 4.03% 4.77% 5.51% 6.10% 6.41% 6.56% 6.70% 6.77% Tax Amount $125 $250 $377 $527 $834 $1,695 $3,127 $4,877 $8,377 $11,877 Average Tax Rate 2.5% 2.5% 2.51% 2.63% 2.78% 3.39% 4.17% 4.88% 5.58% 5.94%
Figure 5.5 also shows what the average tax rates are for various incomes and taxes under the current tax system in South Carolina. In the right columns it also shows what the taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. As South Carolina income taxes continue to climb while the tax brackets remain stagnant, the state becomes a relatively high-tax state. This has a negative impact on
150 18 18
UUNLEASHING CAPITALISM NLEASHING CAPITALISM
manufacturing property tax inin the country. In Figure 5.8 we present the effective property tax manufacturing property tax the country. In Figure 5.8 we present the effective property tax rates data for Southeastern states, for comparison. The ranks given for the states are out of all rates data for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The net tax and effective tax rate are calculated based on property valued atat $25 50 states. The net tax and effective tax rate are calculated based on property valued $25 million ($12.5 million ininmachinery and equipment, $12.5 million inininventories, and $2.5 million ($12.5 million machinery and equipment, $12.5 million inventories, and $2.5 million inin fixtures). Notice that South Carolinas effective tax rate on industrial property is million fixtures). Notice that South Carolinas effective tax rate on industrial property is over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isis listed in over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware listed in the figure because it it is the lowest-tax state.) the figure because is the lowest-tax state.)
Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007 Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007
State Rank (of 50) State Rank (of 50) South Carolina 11 South Carolina Mississippi Mississippi Texas Texas Tennessee Tennessee West Virginia West Virginia Louisiana Louisiana Georgia Georgia Florida Florida Alabama Alabama North Carolina North Carolina Kentucky Kentucky Virginia Virginia Delaware Delaware 44 66 10 10 14 14 17 17 20 20 24 24 35 35 37 37 47 47 49 49 50 50 Net Tax Net Tax $1,864,900 $1,864,900 $1,291,050 $1,291,050 $1,264,358 $1,264,358 $1,033,544 $1,033,544 $833,234 $833,234 $783,407 $783,407 $760,381 $760,381 $677,683 $677,683 $533,776 $533,776 $491,071 $491,071 $327,100 $327,100 $241,498 $241,498 $238,840 $238,840 Effective Tax Rate Effective Tax Rate 3.73% 3.73% 2.58% 2.58% 2.53% 2.53% 2.07% 2.07% 1.67% 1.67% 1.57% 1.57% 1.52% 1.52% 1.36% 1.36% 1.11% 1.11% 0.98% 0.98% 0.65% 0.65% 0.48% 0.48% 0.48% 0.48%
Source: National Association ofof Manufacturers (2009) Source: National Association Manufacturers (2009) * Taxes measured inin the states largest city only. * Taxes measured the states largest city only.
Importantly, South Carolinas effective tax rate isisalmost 2.5 times greater than Importantly, South Carolinas effective tax rate almost 2.5 times greater than Georgias tax, and almost 4 4 times greater than North Carolinas. This puts South Carolina at a Georgias tax, and almost times greater than North Carolinas. This puts South Carolina at a serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina has the highest tax inin the country on industrial property, it should be no surprise that it has has the highest tax the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates inin the country. one of the lowest per capita incomes and economic growth rates the country. Although it it is probably not critical that South Carolina set its tax rate to the lowest in Although is probably not critical that South Carolina set its tax rate to the lowest in the country, it itshould definitely make it itatatleast competitive for the Southeast. Since the country, should definitely make least competitive for the Southeast. Since Georgias rate isis effectively 1.52 percent and North Carolinas is just under 1 percent, a rate effectively 1.52 percent and North Carolinas is just under 1 percent, a rate Georgias rate atataround 1 1percent might be sufficient totoattract more industry. Working to reduce the around percent might be sufficient attract more industry. Working to reduce the various taxes applied toto industry would seriously improve the states competitiveness. various taxes applied industry would seriously improve the states competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a Such significant reduction in taxes on industrial property would obviously lead to a reduction inintax revenues on industrial property, atatleast initially. However, the overall reduction tax revenues on industrial property, least initially. However, the overall revenue may ininfact increase once the growth rate inin the state begins to pick up andmore revenue may fact increase once the growth rate the state begins to pick up and more industry moves into the state. Furthermore, ifif the official tax rates are lowered, then the state industry moves into the state. Furthermore, the official tax rates are lowered, then the state
CHAPTER 5: SPECIFIC TAX REFORMS
151 13
Presumably the original intent of imposing a tax rate schedule with graduated marginal tax rates was to make the income tax progressive. However, what progressivity exists in the states income tax structure is due to the zero tax on the first $2,630 of income, and because of the graduated marginal tax rates. However, since the marginal tax rate increases over such small steps in income, as shown in Figure 5.5, most of the progressivity occurs at lower income levels, not higher levels of income. At higher income levels, the average tax rate hardly increases at all. This nature of the current tax is directly contradictory to the goal of progressivity. So although on the surface it appears that the tax satisfies the vertical equity condition, it really does this only at the lower income levels reducing the wealth of these lowest income taxpayers, not the intended consequence.
REGULATORY REFORM PRINCIPLES FOR SOUTH CAROLINA
Figure 5.5: South Carolina income tax: Current tax rates compared to Douglas M. Walker inflation-indexed rates, 2009
Many citizens are unaware of the extent to which the federal and state government intervenes in our daily lives. Indeed,Income Tax Rates/Brackets ifeverything government affects almost 1959 Tax Current Income Tax we citizens directly or of the extent to which taxes almost all monetary transactions, it Schedule was Inflation Adjusted to Manydo, eitherare unawareindirectly. Government the federal and state government intervenes licenses workers Indeed, Rates/Brackets in a wide variety of affects almost everything we do,aspects of many or industries, it regulates technical either directly 2009 in our daily lives. government types of Government taxes almost all monetary even controlsitindividuals behavior on consumer products, and government transactions, licenses workers in a wide indirectly. Tax Tax Average Tax Rate Average Tax Rate Taxableindustries, it regulates technical aspects aggregate monetary and non-monetary Income private property. Seldom do voters consider the of many types of consumer products, and variety of Amount Amount costs of government regulation. Voters behavior on private property. Seldom do voters if they government even controls individuals can be pardoned; however, since2.5% made an $71 $125 effort$5,000 at comprehensive awareness 1.42% of government costs of government regulation. Voters regulation, they would have time for consider the aggregate monetary and non-monetary little else. Even however, since vast knowledge effort at comprehensive awareness $290 $250 2.5% can be$10,000 if they did have a if 2.90%made anof the regulatory environment, there is of pardoned; they little they could do to change it. have time for little else. Even if they did have a vast government regulation, they would 4.03% $15,000 $604 $377 2.51% South Carolina is one of the poorest states in they could do states failure knowledge of the regulatory environment, there is littlethe nation. The to change it. to keep $954 4.77% 2.63% pace $20,000 statesis one of many causes, but the$527nation. Theof government in the with other size South Carolina is due to the poorest states in the and scope states failure to keep economy is a primary due other $30,000 $834 pace with other states$1,654 to The 5.51%chapters in size and scope of2.78% fact. One is cause. many causes, but the this book illustrate this government in the aspect of athe state$3,054 The other chapters in this book illustrate thisis the One aspect of government that needs comprehensive reform fact. regulatory economy is primary cause. $50,000 $1,695 6.10% 3.39% environment. This that needs comprehensive reform is the regulatory environment. This the state governmentchapter describes some general principles and examples for regulatory $75,000 $3,127 6.41% 4.17% reform which would$4,804 principles and examples for regulatory reform which would chapter describes 1somepromote a free market, economic growth, and individual freedom in general South a free market,$6,554 $100,000 $4,877 6.56% promote Carolina. economic growth, and individual freedom in South4.88% 1 Carolina. South South Carolina does rank well well in some some$8,377 surveys, such as such as Forbes Forbes $150,000 Carolina does rank 6.70% in generalgeneral surveys, 5.58% Americas $10,054 th Americas Live. South Carolina ranks 26th. ranks more specific examples of business Best States toBest States to Live. South Carolina Some 26 . Some more specific examples $200,000 $13,554 $11,877 5.94% of business environment rankings6.77% environment rankings are discussed inare discussed inexample, South Carolina does rather Chapter 2. For Chapter 2. For example, South Carolina Small Business in the Small Business & Entrepreneurship the 2009 business 2 well in the does rather well & Entrepreneurship Councils rankings.2 InCouncils rankings. tax th Figure business tax 11th in the average meaning are for has the 11 meaning taxes In the 2009 5.5 also shows what the country, tax rates the in the country, th best business index, South Carolina ranksindex, South Carolina ranks 11 statevarious incomes and the under the current th best businessSouth Carolina. InUnited States. South 2009 Small Business state has in the United States. South Carolina ranked th in the also shows what th tax system the 11 tax system in tax system in the the right7columns itCarolina ranked 7 the taxesthe 2009 Small Business Survival Index. 1959 tax tables were indexed for inflation. The in and average Survival Index. tax rates would be if the figure clearly shows thatranks particularly well in regulatory environment forforprogressive, South Carolina the particularly tax in structure is more uniformly business South Carolina ranks 1959 indexedwell rateregulatory environment business th especiallyForbes rd rdlevels of all 50statesItfor 2008. Yet the state ranks 29foroverall in the Best the lowest income getting at higherrank ofof incomes. for 2008. Yet the state ranks 29th overall in the getting Forbes 3 3 rank all 50 states keeps tax rates extremely low individualsBusiness (Badenhausen 2008),2008), falling 6 spots inranking since the the Best States for Business (Badenhausen falling 6 spots in the the ranking since previous States for in the state. Figure South shows Carolinas score system better, all North Carolina previous year. BothCarolinas neighborsneighbors score chargeswith income ranked 3rd and year. Bothrdof 5.5 alsoof Souththat the current taxbetter, with North Carolina groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the ranked 3 and table. As South Carolina income taxes continue to climb while the tax brackets remain 1 stagnant, the of this chapter followsrelatively high-tax and Curotts (2007)aexamination of regulatory negative impact on The approach state becomes a closely that of Corey state. This has
reform in West Virginia. 2 Source: Small Business & Entrepreneurship Council (http://www.sbecouncil.org/).
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UNLEASHING CAPITALISM
manufacturing property tax in8.1 illustratesIn Figure 5.8 we 2008 Best effective property tax Georgia ranked 5th. Figure the country. the 2007 and present the States for Business rates datafor South Carolina and for two immediate neighbors.3 All threestates are outin the rankings for Southeastern states, its comparison. The ranks given for the states rank of all 50 states.top 5 net tax and effectiveenvironment.calculated basedcriteria is thevaluedone$25 nations The states for regulatory tax rate are However, this on property only at for millionSouth Carolina is ranked in theand five. The other criteria are in inventories, and $2.5 which ($12.5 million in machinery top equipment, $12.5 million business costs, labor, million in fixtures). Notice that South Carolinas effectivelife. rate on industrial property is economic climate, growth prospects, and quality of tax One reason South Carolina over 7.8 times higher than politicians offer large incentives Delaware. (Delaware is in South ranks so highly is that the the most industry-friendly state, to companies to locate listed in the figure because it is the lowest-tax state.) Carolina. Indeed, the Forbes study methodology indicates that incentives are a major component of the regulatory environment category. Yes, South Carolina may indeed be aggressive in offering targeted tax breaks for companies who locate in the state (see Chapter 7).Figure 5.8: Industrial Propertyfor business success are lacking in South 2007 Nonetheless many of the other criteria Taxes in Southeastern states*, Carolina, as the states rankings for business cost, labor, and economic climate reflect. One of the State Net So major components of Rank (of 50) is taxes.Tax although the Effective Tax Rate business cost state may offer incentives to South Carolina 1 $1,864,900 high taxes, 3.73% attract businesses, these incentives are offset by relatively as discussed in Chapter 5. These incentives would be unnecessary if taxes in the state 2.58% already low and were Mississippi 4 $1,291,050 regulations were already business-friendly. 2.53% Texas 6 $1,264,358 Perhaps more importantly, most jobs in the United States and in South Carolina are Tennessee 10 $1,033,544 2.07% created by small businesses. The state does little to attract small, independently-owned companies. It does little to14 encourage its citizens to open businesses. Instead, the focus of West Virginia $833,234 1.67% state incentives appears to be heavily leaning toward attracting big businesses. Such a strategy Louisiana 17 $783,407 1.57% may make news headlines and may, in fact, create lots of jobs, but if state regulations stifle Georgia 20 $760,381 1.52% entrepreneurship and peoples willingness to open small businesses, incentives for large companies will only offset losses in small business employment. Florida 24 $677,683 1.36% The state should seek a regulatory system that treats all businesses equal and 1.11% Alabama 35 $533,776 encourage all sizes of companies to open in South Carolina. This can be done by having a North Carolina 37 $491,071 0.98% consistent and simple regulatory environment that minimizes compliance and enforcement costs. 0.65% Kentucky 47 $327,100
Figure 8.1: Forbes Best States for Business Rankings for South Figure 8.1 Forbes Best States $238,840 for Business Rankings for South Delaware 50 0.48% Carolina, Georgia, and North Carolina Carolina, Georgia, and North Carolina Source: National Association of Manufacturers (2009)
* Taxes measured in the states largest city only.
Virginia
49
$241,498
0.48%
Rankings (out of 50 states) Rankings (out of 50 states)
Year Year
Importantly, South Carolinas effective Economic isGrowth 2.5 times greater than almost Quality Business Business Labor Regulatory Economic Growth Quality 2007 2008 Regulatory tax rate State Statetax, and almost 4 times greater than North Carolinas. This puts Life Carolina2008 Labor Environment Climate Prospects of South 2007 at a Georgias Cost Cost Environment Climate Prospects of Life serious disadvantage, in terms of its ability to attract10 keep industry. Since South Carolina and Georgia 23 6 55 6 31 15 55 Georgia 23 6 10 6 31 15 has the highest tax in the country on industrial property, it should be no surprise that it has North North one of the lowest per capita incomes and22 economic growth rates11 the country. in 4 14 21 11 34 4 14 21 34 44 33 Carolina Carolina Although it is probably not critical that South Carolina set its tax rate to the lowest in South the country, it should definitely make3 it at least 41 competitive for the43 Southeast. Since South 27 33 20 29 23 27 33 3 41 20 43 29 23 Carolina Georgias rate is effectively 1.52 percent and North Carolinas is just under 1 percent, a rate Carolina at around 1 percent might be sufficient to attract more industry. Working to reduce the various taxes applied to industry would seriously improve thethe indexes are based. I quote directly states competitiveness. 3 The Forbes article (Badenhausen 2008) explains the criteria on which from theSuch a Business cost is based in taxes of labor, energy, and taxes. Labor measures lead to a article: significant reduction on cost on industrial property would obviously education reduction net migration and projected populationproperty, at least environment measures regulatory and attainment, in tax revenues on industrial growth. Regulatory initially. However, the overall tort climate, incentives, increase once bond ratings. Economic state measures pick up and gross revenue may in fact transportation and the growth rate in theclimatebegins to job, income and more state product growth, the state. Furthermore, if the official tax rates Growth prospects measures industry moves intounemployment, and the presence of big companies. are lowered, then the state
projected job, income and gross state product growth, business openings/closings, and venture capital investments. Finally, quality of life measures schools, health, crime, poverty rates and the cost of living.
CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM
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Presumably the originalranks lower imposing a tax rate schedule all metrics, and Overall, South Carolina intent of than both neighboring states in with graduated marginal tax rates of the pack compared to all the states. Regulatory environment is the are in the middle was to make the income tax progressive. However, what progressivity exists inranked criterion for tax structure is due to the zero tax on the first $2,630unattractive highest the states income South Carolina, but South Carolina is still relatively of income, and because of the graduatedmay be considering a However,the Southeast. South Carolina to prospective businesses who marginal tax rates. move to since the marginal tax rate increases over should revise andin income, as regulatory Figure 5.5, mostbe more competitive policy makers such small steps simplify our shown in environment to of the progressivity occurs at lower income levels, not higher levels would help At higher income levels, new with our neighbors. These regulatory reforms of income. foster the creation of the average tax rate hardly increases from This nature ofand current tax is directly contradictory businesses, attract businesses at all. out-of-state, the reduce unnecessary government to the goal of progressivity. So although on the would enhance economic growth in South intervention into private markets. All of these surface it appears that the tax satisfies the vertical equity condition, it really does this only at the lower income levels reducing the Carolina. wealth of these lowest income taxpayers, not the intended consequence.
Too often politicians focus on passing well-intentioned legislation that, in the nearterm, seems to be well informed and beneficial. Indeed, it would be surprising if any legislation was passed if lawmakers did not believe Income Tax Rates/Brackets iffrom it. Yet, that someone would benefit 1959 Tax Current Income Tax Schedule was intended effects. Often the effects of legislation and regulation are not limited to theirInflation Adjusted to Rates/Brackets regulations will have unintended consequences that, in many cases,2009 be worse than the will original problems they are designed to alleviate. Tax Tax Average Tax Rate Average Tax Rate Taxable Incomeof government has unintended consequences. Many of these cannot be Every act Amount Amount foreseen by lawmakers or the voters who support them. Yet, these secondary consequences $5,000 $71 $125 2.5% are just as important as the intended 1.42% of regulation, even if they are not immediately effects $290 2.90% 2.5% visible.$10,000 In the classic book, Economics in One Lesson, $250 Hazlitt (1946, 5) explains that: Henry $15,000 $604 $377 4.03% 2.51% The whole of economics can be reduced to a single lesson, and that lesson can be $20,000 $954 $527 4.77% 2.63% reduced to a single sentence. The art of economics consists in looking not merely at $30,000 5.51% 2.78% the immediate $1,654the longer effects of any $834 policy; it consists in tracing the but at act or consequences of that policy not merely for one$1,695 but for all groups. group $50,000 $3,054 6.10% 3.39% $75,000 $4,804 $3,127 6.41% 4.17% Hazlitts lesson is worth keeping in mind as we examine some principles by which South $100,000 6.56% 4.88% Carolinas regulatory $6,554 framework could be improved $4,877 The goal of such changes would upon. be to $150,000 the economic climate in the state, to encourage more 5.58% improve entrepreneurial and $8,377 $10,054 6.70% business activities, more employment, and a higher standard of living for the citizens in the $200,000 $13,554 $11,877 6.77% 5.94% state. The regulatory institutions set-up by government can play a key role in this. Here we describe a general strategy for reviewing all of the state-level regulations in Figure 5.5 also shows what the average general are for various incomes moves to South Carolina. The recommendations start withtax rates evaluation strategies and and taxes under specific ones. One very generalCarolina. In the right regulations also be evaluatedthe more the current tax system in South criterion by which columns it can shows what is taxes and averageuseful. That is, be if the 1959 tax tables werelegal disputes? If not, then whether they are tax rates would have they ever been cited in indexed for inflation. The figure clearly shows that the 1959 indexed tax rate and should be eliminated. For example, perhaps the regulation is not needed on the books structure is more uniformly progressive, especially at higher Carolina incomes. It keeps tax that there is a regulation that prohibits a recently the South levels of governor mentioned rates extremely low for the lowest income individuals in 48 hours in one place during any particular year.4 Is this regulation useful? Has circus lasting the state. it been Figure 5.5 also shows thatfor settling disputes among citizens? For those regulations relevant in recent history the current tax system charges all income groups more in taxesare deemed relevant and useful,The only exception is the to moreincome earner in the that than an indexed rate schedule. they could be subjected $5,000 stringent evaluative table. As South Carolina income taxes continue to climb while the tax brackets remain criteria. stagnant, the state becomes a relatively high-tax state. This has a negative impact on
4
Figure 5.5: FOR Carolina income tax: Current tax rates compared to PRINCIPLESSouthREGULATION REFORM inflation-indexed rates, 2009
See Governors Office (2008) for a list of odd regulations in South Carolina.
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manufacturing property tax in the country. In Figure 5.8 we present the effective property tax rates data for SoutheasternNEW AND Ecomparison. The ranks given for the states are out of all COST-BENEFIT TEST FOR states, for XISTING REGULATIONS 50 states. The net tax and effective tax rate are calculated based on property valued at $25 million One way to help improve the regulatory environment million inCarolina is toand $2.5 ($12.5 million in machinery and equipment, $12.5 of South inventories, ensure a million in fixtures).existing that South Carolinas effective tax rate on industrial property is regular review of Notice regulations. The effects of the regulation should be carefully over 7.8 times higher thanshould focus, as Hazlitt suggests, Delaware. (Delaware is long-run estimated. The evaluation the most industry-friendly state, on both the short - and listed in the figure because itEqually important, the regulatory impact should attempt to evaluate the effects of policies. is the lowest-tax state.) impacts on everyone affected, not just the intended beneficiaries. One way of undertaking an analysis of the net benefits of regulation would be to have a legislative5.8: Industrial Property Taxes in Southeastern importance. For the Figure committee group the regulations into categories by their states*, 2007 most important regulations those that impact large numbers of businesses and citizens, a State Rank (of 50) Net Tax Effective Tax Rate more comprehensive cost-benefit analysis could be undertaken. In these cases, the studies South detailed 1 $1,864,900 3.73% could be soCarolina as to include monetary estimates. However, doubts have been raised as to the value of such studies (e.g., Richardson$1,291,050 whether such studies can even be 2001), and Mississippi 4 2.58% performed accurately (e.g., Walker 2007). Still, such analysis would represent valuable 2.53% Texas 6 information that legislators could then use to$1,264,358 decide whether continuation of the regulations is Tennessee 10 $1,033,544 2.07% warranted. For those regulations that are deemed $833,234 to be minor i.e., those that probably do not West Virginia 14 1.67% have a widespread impact a more general evaluation process could be undertaken. For Louisiana 17 $783,407 1.57% example, the evaluative committee could recommend that any regulation that puts burdens on Georgia $760,381 1.52% a particular industry but not20 others, or legislation that provides benefits to one group of people at the expense of others, could be repealed because such regulation does not treat people Florida 24 $677,683 1.36% equally under the law. Otherwise, some judgment should be made as to whether the 1.11% Alabama 35 $533,776 regulation serves a socially-valuable service, or if it only benefits one group at the expense of North Carolina 37 $491,071 0.98% others. In some 0.65% Kentucky cases, either major or minor regulation may be judged to be problematic or 47 $327,100 obviously misguided (see Chapter 12). For example, in 2008 a law was passed to exempt hair Virginia 49 $241,498 0.48% shampooers from the 1,500 hour training requirement that applies to cosmetologists Delaware $238,840 0.48% (Governors Office, 2008). 50 original law was politically motivated to restrict competition The Source: National Association of Manufacturers (2009) in the hairstyling industry. There is no good economic reason for such legislation. After all, * Taxes individuals measuredrequired to have hours of training to wash their own hair; why should the are not in the states largest city only. government require training to wash someone elses hair simply because they are getting Importantly, a restriction on who can wash is or apply times greater than paid? Laws such asSouth Carolinas effective tax ratehair almost 2.5cosmetics could be Georgias tax,repealed. There is no economicNorth Carolinas. This puts South Carolina at a immediately and almost 4 times greater than reason for South Carolina legislators to get serious disadvantage, in terms of its ability to attract and 5keep industry. Since South Carolina involved to such an extent in private market transactions. has the What is tax in suggested here is not that property, it should be nobe the subject it has highest being the country on industrial every single regulation surprise that of an one of the lowest peranalysis, but rather, economic growthCarolina the country.be periodically intense cost-benefit capita incomes and that each South rates in regulation Although it is probably the benefits of the Carolina its tax rate to the lowest reviewed to determine whethernot critical that Southregulationset to all South Carolinians in the country, it shouldthe regulation to all South Carolinians. Those the Southeast. Since outweigh the costs of definitely make it at least competitive for that cannot pass this Georgias rate is effectively 1.52 percent and North Carolinas is just under sense and a few simple test, either with empirical evidence or through the use of common 1 percent, a rate at around 1 percent might be sufficient to attract more industry. Working to reduce the basic economic principles of regulation, should be repealed. various taxes applied to industry would seriously improve the states competitiveness. Such a significant reduction in taxes on industrial property would obviously lead to a reduction in tax revenues on industrial property, at least initially. However, the overall revenue may in fact increase once the growth rate in the state begins to pick up and more industry moves into the state. Furthermore, if the official tax rates are lowered, then the state 5
Later I will discuss sunset provisions which cause the regulation to automatically expire at the end of some pre-determined time period, unless the legislature acts to renew the legislation.
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Presumably the original intent of imposing a tax rate schedule with graduated UNINTENDED CONSEQUENCES marginal tax rates was to make the income tax progressive. However, what progressivity exists in the states income tax structure is due simply zero tax on theis a potentialof income, Government at any level should not intervene to the because there first $2,630 that some and becauseaction could improve a situation. Indeed, However,many situations wheretax rate government of the graduated marginal tax rates. there are since the marginal the use increases over such force or coercion, couldas shownto improve 5.5, situation the progressivity of government, i.e., small steps in income, be used in Figure the most of for at least some occurs atinvolved. However, thisnot higher government to use force does not mean that such of those lower income levels, ability of levels of income. At higher income levels, the averageare the appropriate function of government. of the current tax is directly contradictory actions tax rate hardly increases at all. This nature to the goal of progressivity. So although on the the cost-benefit analysisthe tax satisfies the A major consideration that is relevant to surface it appears that discussed above is vertical unintended consequences. Although some regulation may have a levels reducing the that of equity condition, it really does this only at the lower income positive intent, wealth of thesepolicy may not taxpayers, not the intended consequence. effects of the lowest income be limited to those intended impacts. Indeed, Hazlitts book mentioned above is largely dedicated to explaining the secondary, unintended consequences of the federal government. State regulations, too, will always have unintended consequences Figure 5.5: South Carolina income tax: Current tax rates compared to that must be considered along with the intended effects of the policy. inflation-indexed washing regulation cited above. (More As a simple example, consider the hair rates, 2009 substantive regulations will be considered in a later section.) The intent is probably to help ensure that customers seeking a haircut or hairstyling services receive those 1959 Taxby Income Tax Rates/Brackets if services Current Income Tax unintended consequence of this regulation was individuals who are property trained. Yet, one Schedule was Inflation Adjusted to Rates/Brackets to significantly raise the cost to consumers. This increased cost is because the law effectively 2009 requires licensed cosmetologists to wash hair. The training required to be a cosmetologist is Tax Tax Average passed on expensive in both money and time spent. Tax Rate costs of training will be Tax Rate to the Average These high Taxable Income Amount consumers of the product. It will cause customers to Amount money, and fewer people will pay more $5,000 their hair washed with their haircuts. $125 $71 1.42% 2.5% choose to have If instead hair salons were free to hire whomever they choose$290 to wash hair, 2.90% the prices for such services would be lower. Although $10,000 $250 2.5% the politicians may have intended to help the consumers with the legislation, it undoubtedly $15,000 $604 $377 2.51% makes them worse off. After all, how 4.03%could the consumer possibly benefit if the person much $20,000 $527 who washes their hair $954 is required by 4.77% have 1,500 hours of training2.63% to the cost law to relative and effort to acquire the hours of training? $30,000 $1,654 $834 5.51% 2.78% Another illustrative example is minimum wage laws. Although these are very popular $50,000 $3,054 $1,695 6.10% 3.39% among politicians both democrats and republicans and among the public, they arguably $75,000 $4,804 $3,127 6.41% 4.17% have some serious negative economic effects. Effective July 24, 2009, the federal minimum wage became $7.25. This law means 6.56% it is illegal for individuals to hire workers for less than $100,000 $6,554 $4,877 4.88% that rate. It also makes it illegal for workers to take a job for less than this amount. On the $8,377 $150,000 $10,054 6.70% 5.58% surface, such a law would seem to help individuals who are stuck in low paying jobs. After $200,000 $13,554 $11,877 all, why should someone who works 6.77% be able to afford the basic5.94% hard not necessities of life? The problem is that the minimum wage makes it more likely that employers will switch from hiring humans 5.5 also to usingwhat the average tax whereare for various incomes andof this Figure (labor) shows machinery (capital), rates possible. A good example taxes switch from labor to system in be seen at some airports. In columns it airport, for what the under the current taxcapital can South Carolina. In the right the Atlanta also shows example, trashcans average tax rates would cans that include electric compactors. This reduces the taxes and have been replaced with be if the 1959 tax tables were indexed for inflation. The number of workers that will 1959 indexed tax the garbage. At the Charleston progressive, figure clearly shows that thebe needed to collectrate structure is more uniformlyairport many of the parking booths are of incomes. It keeps is rates convenient for customers, but some especially at higher levels now automated. This taxjust asextremely low for the lowest income workers had to find other individuals in the state. jobs. To be 5.5 also is not an the current tax system charges all those workers more in Figure clear, thisshows thatargument against automation, since income groups who are laid off can indexed rate find a different job. However, the $5,000 income earner in the taxes than an eventually schedule. The only exception is the South Carolina examples demonstrate that if the cost of labor is continue to climb while the tax brackets remain table. As South Carolina income taxesartificially pushed up, employers are more likely to search for less expensive alternatives. Since the higher wage also has a negative impact on stagnant, the state becomes a relatively high-tax state. This makes it more attractive for potential workers to find a job, increases in the minimum wage are likely to be followed by
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manufacturing property tax in the country.the employers we present applicants than they have more job applications being submitted. If In Figure 5.8 have more the effective property tax rates availableSoutheastern states, for comparison. The ranks given for the statesmustout of all jobs data for at the current wage rate (say, the minimum wage), then they are make a 50 states.aboutnet tax and effective taxapplications to discard. Which applicants areatmost decision The who to hire and whose rate are calculated based on property valued $25 million ($12.5 millionjob?machinery and equipment, $12.5 skills, and experience will likely likely to be offered a in Those with the most education, million in inventories, and $2.5 million first job offers. Yet, that purpose of the minimum wage rate onto help those with the get the in fixtures). Notice the South Carolinas effective tax law is industrial property is over 7.8 times higher than theexperience. So although the Delaware. (Delaware is is wellleast education, skills, and most industry-friendly state, minimum wage law listed in the figure because it iseffect may be tostate.) those individuals it most seeks to help. intentioned, its actual the lowest-tax harm Rent control laws are similar in this regard. Although they are designed and intended to help relatively poor people, rent control laws create artificial shortages of apartments. Since landlords have more tenant applications than apartments, they can pick states*, 2007 to Figure 5.8: Industrial Property Taxes in Southeastern and choose who rent the apartments to. When it comes to a choice between a rich and poor tenant, most State Net Why Effective Tax Rate landlords are going to Rank (ofthe richer ones. Tax not be assured that the rent will get paid? choose 50) South Carolina 1 $1,864,900 3.73% In many cases, landlords often require minimum incomes to qualify to rent. So the rent control law, which is aimed4at helping poor $1,291,050 people to afford their rent, can often leave them Mississippi 2.58% without a home. 2.53% Texas rent control and minimum wage examples are typical economic textbook 6 $1,264,358 The Tennessee 10 $1,033,544 2.07% examples of the unintended consequences of well-meant legislation. Such unintended effects could withVirginia analysis be predicted prior to enacting new regulations. West careful 14 $833,234 1.67% Economists have studied regulations in a variety of industries. Such research often Louisiana 17 $783,407 1.57% exposes unintended consequences of regulations. In many cases, the very people who are Georgia 1.52% supposed to be protected 20 the regulation$760,381 being harmed. Take, for example, by end up regulations that prevent optometrists from advertising their services. 1.36% the focus of a This was Florida 24 $677,683 landmark regulation study (Benham, 1972).6 Many people believe that advertising increases 1.11% Alabama 35 $533,776 the price of goods and services since advertising is, in fact, a cost incurred by producers. They North pass these 37 0.98% can simplyCarolina costs on to consumers.$491,071 Yet, Benham found that eyeglass prices were significantly lower in states47 which allowed optometry advertising. In 0.65%more competition short, Kentucky $327,100 among producers more than offset the costs of advertising, and resulted in benefits to Virginia 49 $241,498 0.48% consumers in states that allowed advertising. Delaware 50 $238,840 0.48% This raises the question of when is regulation, in general, going to improve societys Source: National Association of Manufacturers (2009) welfare.
TAKING SIDES: CONSUMERS OR PRODUCERS? Importantly, South Carolinas effective tax rate is almost 2.5 times greater than Georgias tax, and almostgovernment regulations impact consumers puts South Carolina at a Although not all 4 times greater than North Carolinas. This or producers behavior, serious concerned herein terms with regulationsattract and keep industry. market transactions we are disadvantage, mainly of its ability to that do intervene in free Since South Carolina has the highest tax in willing buyers industrial property, it should bethat surprise that it has interactions between the country on and sellers. Despite the fact no markets naturally one of the lowest per capita incomes and economic growth rates in the country. transactions develop to help both consumers and producers serve their own interests, market are, by Although it is probably not critical that Southnot the case, then the two parties would their nature mutually beneficial. If that were Carolina set its tax rate to the lowest in the willingly transact with each other. This means that producers must the Southeast. things country, it should definitely make it at least competitive for create and sell Since not Georgias rate is effectively 1.52 percent and North Carolinas is just under is percent,toward that the consumers are willing to pay for. Indeed, most production activity 1 geared a rate at around consumers.might theresufficient toactivities more industry. Working to side of the satisfying 1 percent But be are some attract undertaken by the supply reduce the various that are unproductive, inwould seriouslythey attempt states competitiveness. market taxes applied to industry the sense that improve the merely to generate transfers of Such a significant reduction in taxes on industrial expense of consumers, as a group. wealth to benefit them. Such transfers are commonly at theproperty would obviously lead to a reduction in tax revenues on industrial the result of the rent-seeking However, examples of Government regulations are often property, at least initially. behavior, the overall revenue may in fact increase once thein this volume. For state begins to pick up and more which have been discussed elsewhere growth rate in the example, the regulation requiring industry moves into the state. Furthermore, if the official tax rates are lowered, then the state
6
For a more general study on optometry regulation see Haas-Wilson (1986).
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Presumably the original intent training was tax rate schedule result of the hair washers to have 1,500 hours of of imposing a almost certainly thewith graduated marginal tax industry lobbying government for regulation. Auto manufacturers may favor cosmetology rates was to make the income tax progressive. However, what progressivity exists in thethat specify construction standards, laborzero tax on environmental regulations, regulations states income tax structure is due to the practices, the first $2,630 of income, and Although of the graduated marginalproduction, However, since thebe hopeful tax rate etc. because this will raise the cost of tax rates. existing firms may marginal that the increases oversuch costly government regulations will in Figure 5.5, most of the progressivity imposition of such small steps in income, as shown create barriers to entry from new firms. occursalthough their own levels,may increase, the existing firmsAt highercharge higher prices Thus, at lower income costs not higher levels of income. can also income levels, the average taxcompetition increases at (seeThis nature and 12). when their rate hardly is restricted all. Chapters 3 of the current tax is directly contradictory to the goal of examples raiseSo although ongeneral rule for government to follow in the These progressivity. an important the surface it appears that the tax satisfies its vertical equity condition, it of regulation.this only atare scarce and must be allocated to their creation and re-examination really does Resources the lower income levels reducing the wealth of these uses. The entire study of economics is geared toward addressing the problem highest valued lowest income taxpayers, not the intended consequence. of scarcity. In other words, since humans desires are greater than the limited resources available to satisfy them,Carolina income tax: Economiststax rates compared to how Figure 5.5: South people must make choices. Current study 7 choices are made in an effort to best satisfy peoples desires given their limited resources. inflation-indexed rates, 2009 We should clearly acknowledge that some level of government regulation can be beneficial to society. For example, we may all agree that some level of workplace safety regulations, or at least a legal burden to provide Income Tax Rates/Brackets if 1959 Tax a safe workplace, is useful. And other Current Income Tax help the wheels of commerce keep spinning. regulations that spell-out legal recourse can Schedule was Inflation Adjusted to Socially useful productionRates/Brackets activities should not be over-regulated. However, business 2009 interests may often find that it is easier or less costly to lobby government for favors Tax Average Tax production through regulations or outright wealth transfers than Tax on lowering costs ofRate focus Average Tax Rate Taxable Income Amount Amount or otherwise improving the competitiveness of their firm or industry. Rent-seeking behavior $5,000 $71 $125 has been addressed elsewhere in this1.42% and the discussion below 2.5% volume, is limited to those types of activities on the part of producers. $10,000 $290 $250 2.90% 2.5% If we consider for a moment our overall economic interests from a social $15,000 $604 $377 4.03% 2.51% perspective, it is clear that as a society whether defined as a small group of friends, the $954 4.77% 2.63% people $20,000 of a state, or the entire worlds population $527 have an interest in abundance. we Abundance is the inverse to scarcity.5.51% An abundance of everything (money, goods, services, $30,000 $1,654 $834 2.78% clean air, good health, etc.) would mean that scarcity does not exist. Then humans would not $50,000 $3,054 $1,695 6.10% 3.39% need to make choices, such as, how to spend $100 of income. If everyone had unlimited $4,804 $3,127 6.41% 4.17% money $75,000unlimited goods and services, no one would need to be concerned with making to buy 8 choices among different products. $100,000 $6,554 $4,877 6.56% 4.88% It is helpful to dissect the market for goods and services into its two basic $8,377 $150,000 $10,054 6.70% 5.58% components: consumers and producers. (In economic analysis, these refer to the demand $13,554 $11,877 6.77% 5.94% curve $200,000 curve, respectively.) Let us consider whether the self-interest of the two and supply sides of the market is consistent with the interests of society. Recall from above that society has an interest 5.5 also shows more goods and services are are forthan less. incomes and taxes Figure in abundance what the average tax rates better various Now consider consumers. They have limited budgets columns it also shows what get under the current tax system in South Carolina. In the right and generally are seeking to the the most average tax rates would be if the 1959 tax tables were indexed for inflation. The taxes and goods and services in order to overcome their scarcity problem. In this sense, consumers share the that the of society overall; their interests are consistent with each other. figure clearly shows concerns 1959 indexed tax rate structure is more uniformly progressive, Now consider producers. of incomes. It keeps tax I am a hair stylist, then it is in income especially at higher levels What is their interest? Ifrates extremely low for the lowestmy best individuals in the state. 7 Scarcity applies5.5 also shows that the current tax systemapplies to time, for example. Wemore in Figure not only to money, goods, and services. It also charges all income groups all have limited than eachindexedwe may have manyThe only exception is the to complete each day. Scarcity also time an day, but rate schedule. more tasks than we can expect $5,000 income earner in the taxes applies to things like information good health and clean air. These things goods as economists call them table. scarce. As South Carolina income taxes continue to climb while the tax brackets remain are all 8 stagnant, the state becomes is scarcity. A very rich person can buy anyhas a negative impact not Of course, even in this case there a relatively high-tax state. This consumer good, but there is on
unlimited time to consume it all. So choices must still be made. Although this cannot be ignored, this point is not critical to the main argument.
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manufacturing propertyservices becountry. In Figureit5.8 to my benefit ifeffective propertyany, interest that hair stylist tax in the scarcer. That is, is we present the there are few, if tax rates data for Southeastern states, me.comparison. The ranks given for having scarcity for the other hair stylists practicing near for As a producer my interest is in the states are out of all 50 states. The net tax and effective tax rate are calculatedIbased on to charge valued at $25 good or service that I supply. If I have no competition, then am able property higher prices million ($12.5 millionI in machinery and In addition $12.5 million in inventories, andor no for my services than otherwise might. equipment, to higher prices, if I have little $2.5 million in fixtures). Notice that South on me to offer high quality products. Clearly, then, the competition, then there is less pressure Carolinas effective tax rate on industrial property is over 7.8 of producers are inconsistent with the interests of society. Consider, in addition, the interests times higher than the most industry-friendly state, Delaware. (Delaware is listed in the figure because it is the lowest-tax state.) products as opposed to lower prices. This is in fact that producers like higher prices for their direct conflict with the interests of consumers in particular and society overall. Higher prices mean that the people in society will have lower purchasing power, given income, and will therefore have lower standards of living. Taxes in Southeastern states*, 2007 Figure 5.8: Industrial Property To summarize, consumers in particular and society in general have an interest in lower Net Tax Effective Tax Rate prices andState abundance Rank (of 50) and services offered in markets. Producers, on the other of the goods South an interest 1 $1,864,900 hand, have Carolina in higher prices and scarcity for the goods and3.73% that they offer services for sale. If we were to make a general rule for government regulation, and whether it should Mississippi 4 $1,291,050 2.58% come down on the side of helping consumers or producers, then which is better? It should be 2.53% 6 $1,264,358 clearTexas that government will be acting in the interests of society if its regulations generally favor Tennessee 10 $1,033,544 2.07% consumers, and not producers. This general West Virginia rule might seem clear enough, but it is not always. Consider yet again the 14 $833,234 1.67% regulation requiring 1,500 hours of training to wash hair. The justification for enacting this Louisiana 17 $783,407 1.57% regulation was most likely the protection of consumers. After all, the hair washer is using Georgia 20 $760,381 1.52% chemicals that could conceivably cause harm if they are used improperly. This is where common sense and economic analysis are helpful. First, it is arguable whether there is any Florida 24 $677,683 1.36% real danger to consumers from using shampoo in a commercial setting. But more importantly, 1.11% Alabama 35 $533,776 the policy proposal should be judged not only for its intended effect but also the secondary North Carolina 37 $491,071 0.98% consequences, as discussed earlier. The policy that requires training for hair stylists effectively restricts the supply of that service.$327,100 is increased0.65% of hair styling The result scarcity Kentucky 47 services and higher prices. This is detrimental to consumers and society overall, but beneficial Virginia 49 $241,498 0.48% to the producers in that industry. Therefore, policies such as licensing requirements for Delaware 50 0.48% particular jobs, serve to restrict the supply in$238,840 that industry. The result is higher prices, and quiteSource: National Association of Manufacturers (2009) possibly, lower quality services for consumers. This lower quality may result because * Taxes measured in the states largest city only. with less competition in the market, sellers may not worry as much about being better than the competition. Importantly, ISouth Carolinas effective industries focus on lobbying for greater than To be clear, am not suggesting that all tax rate is almost 2.5 times government Georgias tax, and almost 4 times greater than North Carolinas.treatment for individual firms favor. However, any regulatory reform that can prevent special This puts South Carolina at a serious disadvantage, in terms of in a better, more competitive industry. environment.Carolina or industries will generally result its ability to attract and keep business Since South This, in has the highestthe standard of living for residents of South it should be no surprise that it has turn, will raise tax in the country on industrial property, Carolina. one of the lowest per capita incomes and economic growth rates in the country. CAVEATAlthough it is probably not critical that South Carolina set its tax rate to the lowest in EMPTOR the country, it should definitely make it at least competitive for the Southeast. Since Georgias rate is effectively 1.52 percent and North Carolinas is just under 1 percent, a rate The above discussion is not to say that government should always implement policies at help consumers. Indeed, itbe sufficient to attract not intervene in Working todecisionsthe to around 1 percent might would be advisable to more industry. consumers reduce as various taxes applied to industry would seriouslyup to the individual consumer to decide what much as possible. Policy makers should leave it improve the states competitiveness. Such a significant of goods in taxes on available in the free market. The consumer a to purchase from the arrayreduction and servicesindustrial property would obviously lead to is reduction in tax revenues on industrial the products they wish to consume. Sellers, for their responsible for collecting information on property, at least initially. However, the overall revenue may in fact provide honestthe growth rate thethe state begins to pick up and more part, are expected to increase once information on in products. For most products that one industry movesainto the state. Furthermore, if the official tax rates are lowered, then the state would find at grocery store or department store, these simple rules of thumb would be
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Presumably the original intent of imposing argue that schedule of graduated sufficient. For medicines, as an example, one might a tax rate some sort withinformation marginal tax ratesgovernment agencyincome as the FDA) could be warranted. Yet, it is clearinghouse or was to make the (such tax progressive. However, what progressivity exists in the states income of individual liberty to the zero taxwhen government regulation is probably rare that the idea tax structure is due is considered on the first $2,630 of income, and because of the graduated marginal tax rates. However, since the marginal tax rate being passed. increases over such small steps in buyer beware is a good rule for supporting individual Caveat emptor, Let the income, as shown in Figure 5.5, most of the progressivity occurs at Businesses wholevels,to do higher levels of income. At higher income levels, the freedom. lower income hope not well will have to convince the public that their products average tax rate hardly increases at all. This nature of the current tax is directly contradictory are high quality. Consumers can gain information from their own experience, or the to the goal of progressivity. So although onsuch surface it appears that theor Underwriters experience of others, through resources the as Consumer Reports tax satisfies the vertical equity The policyit recommendation only at to eliminate all regulation regarding Laboratories.9 condition, really does this is not the lower income levels reducing the wealth of these lowest income taxpayers,politicians in South Carolina and at every level of consumer transactions, but rather, that not the intended consequence. government give some credit to individuals for being able to make informed consumption decisions on their own. Government does not have to Currentin every transaction. Figure 5.5: South Carolina income tax: intervene tax rates compared to
inflation-indexed BAILOUTS FOR FAILING INDUSTRIES?
rates, 2009
Above it was argued that consumers should be leftTax Rates/Brackets if 1959 Tax Income on their own to make decisions Current Income Tax Economists give them the benefit of the doubt about what goods and services to consume. Schedule was Inflation Adjusted to Rates/Brackets that they will tend to consume goods and services that they expect will benefit them. At the 2009 same time, producers should be left to their own devices, when it comes to the market test. Tax Tax Average Tax Rate As Income Average his chapters on prices and profits (Chapters 15 and Taxable Hazlitt eloquently explains in Tax Rate Amount Amount 21, respectively), the market provides an extremely efficient way of allocating scarce $5,000 $71 $125 resources among potential producers 1.42% of goods and services. Only those 2.5% that that can firms earn a consistent profit $290 be able to2.90% in the long run. Profitable firms produce goods will survive $10,000 $250 2.5% and services that consumers want, at a price they are willing to pay. For this to happen, the $15,000 $604 $377 2.51% producer must be able to produce the 4.03% for a cost of production below the selling price. product $20,000 $954 $527 4.77% 2.63% The more competitors on the supply side of the market, of course, the lower the market price. This competitive pressure provides 5.51% incentives for $834 producers to come2.78% up with ways to $30,000 $1,654 economize to keep quality high but cost of production. Some producers will not survive. $50,000 $3,054 $1,695 6.10% 3.39% Indeed, most small businesses do not survive their first year. But the willingness of $75,000 $4,804 6.41% 4.17% entrepreneurs to take risks is critical for the economy $3,127 to work. Markets best when the signals of profit$4,877 are allowed to work. That is, and loss $100,000 work $6,554 6.56% 4.88% profit is a signal that the firm is doing something right. (Firms can make changes to increase $8,377 $150,000 $10,054 6.70% 5.58% their rate of profit, but if they are making a profit, it means that their production is socially $200,000 6.77% valuable.) Similarly, $13,554 a firm that consistently has a $11,877 profit or 5.94% is wasting negative losses scarce resources. A firm that has continual losses signals that the willingness of consumers to buy theFigure products shows what the average production. It is invarious incomes and taxes firms 5.5 also is lower than the cost of tax rates are for societys interest that such firms the current tax system in South Carolina. In input resources it also shows the the under go out of business. This frees up the scarcethe right columnsbeing used by whatfirm (labor, capital, natural resources, and if the 1959 tax for use by indexed for inflation. The taxes and average tax rates would be entrepreneurship)tables were other firms and industries. As unfortunate as it that the 1959 indexed tax rate structure is more uniformly progressive, figure clearly showsmay be for the affected individuals, some firms going out of business is a necessary at higher levels of incomes. It keeps tax especially part of a functioning market economy. rates extremely low for the lowest income This point raises individuals in the state. an issue related to South Carolina regulation. In particular, state regulations shouldalso shows that the current particular firms or all income groups more in Figure 5.5 do nothing to ensure a tax system charges industrys survival. State government should never use taxpayers only exception is the $5,000 income earner in the taxes than an indexed rate schedule. The money to support failing industries. Subsidies to table. As South Carolina income taxes continue to climb while the tax brackets remain 9 stagnant, the state becomes a relatively high-tax state. that conductsaproduct safetyimpact on negative certification Underwriters Laboratories is a private and independent organization This has
tests and has been writing standards for safety for over a century. http://www.ul.com/global/eng/pages/corporate/aboutul/
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manufacturing property tax in the country. In Figureand consumers, the effective property tax such industries, as an example, cost both taxpayers 5.8 we present only to benefit industries ratesare already using scarce resourcescomparison. The ranks given for the states are out of all that data for Southeastern states, for wastefully. 50 states. The on these principles, the tax rate are calculated based on property valued at $25 Based net tax and effective recent federal government bailouts of the auto industry million ($12.5 million in machinery anduse taxpayer $12.5 million in inventories, and $2.5 are misguided. Similarly, policies that equipment, money to encourage the purchase of million in fixtures). NoticeSouthSouth Carolinas effective tax rate on industrial property is products produced only in that Carolina are wasteful. We will examine an example of this over of policy in more than the most industry-friendly state, Delaware. (Delaware is listed in type 7.8 times higher detail below. the figure because itpoint of this analysis is that government should not side with consumers The overall is the lowest-tax state.) or producers in their market transactions. Consumers should be responsible for their own behavior, and producers should be required to survive the market profit test. Government involvement5.8: Industrial Property Taxes transactions wastes taxpayer money and Figure through regulation that intervenes in in Southeastern states*, 2007 impedes the important functions of markets. Such interventions should be avoided in South Net Tax Effective for Rate Carolina. State state Rank (of 50) a reputation in the United States Tax being a marketIf our could develop South Carolina 1 $1,864,900 3.73% friendly state, it would attract more industry, which would enhance economic growth, as discussed earlier in this book. Mississippi 4 $1,291,050 2.58% 2.53% Texas 6 $1,264,358 SUNSET PROVISIONS Tennessee 10 $1,033,544 2.07% Along with West Virginia the other general principles for regulatory reform discussed thus far, all 14 $833,234 1.67% new legislation should include sunset provisions, or dates upon which the legislation Louisiana 17 $783,407 1.57% automatically becomes void. Such a provision serves several valuable purposes. Georgia an automatic 20 $760,381 1.52% First, sunset provision inserted into every regulation would ensure that the state government would have to review $677,683 regulations periodically. For example, if the Florida 24 1.36% standard sunset provision was five years, then a regulation would automatically become void 1.11% Alabama 35 $533,776 five years after its passage, unless legislators specifically renew the regulation. This provision 37 $491,071 0.98% may North Carolina encourage politicians to review legislation prior to renewing it. For those regulations that are not addressed, they would be automatically eliminated which will keep the regulatory 0.65% Kentucky 47 $327,100 code shorter than it might otherwise be. Virginia 49 $241,498 0.48% A second benefit of sunset provisions is that they would create the potential for new Delaware 50 debate prior to regulations being renewed.$238,840 this helps to0.48% that whatever Again ensure Source: National Association of current and relevant. Information over the past consequences regulations exist continue to be Manufacturers (2009) * of theTaxes measured in theenter into the debate and, in the long term, this strategy may lead legislation could states largest city only. policy makers in South Carolina to more thoroughly evaluate regulations before enacting them. Importantly, South Carolinas effective tax rate is almost 2.5 times greater than Georgias tax, and almost 4 times greater than North Carolinas.is no exception. For example Each state has meaningless laws, and South Carolina This puts South Carolina at a serious disadvantage, in terms of its abilityrumored laws keep for example, it South Carolina many South Carolinians are familiar with to attract and that, industry. Since is legal to beat has the highest tax in the country on Sundays, and adult males are by law surprise that it has your wife on the courthouse steps on industrial property, it should be no required to bring a one of the lowest per capita incomes and economic growth rates10 the country. rifle to church on Sundays in order to ward off an Indian attack. in Although it is probably not critical are some other lawsset itshaverate torecently been These laws sound silly, but there that South Carolina that tax very the lowest in the country, itare the subjects of make it legal battles. For example, recently in Mount enforced and should definitely current at least competitive for the Southeast. Since Georgias South Carolina, authorities decidedNorth Carolinasstates gambling laws. Police Pleasant, rate is effectively 1.52 percent and to enforce the is just under 1 percent, a rate at around 1 percent might participants into home poker game in April 2006. There is now a raided and arrested about 20 be sufficient a attract more industry. Working to reduce the various taxes applied to industry would seriously improve thewhich can be interpreted to ban legal battle in the state over the antiquated gambling laws, states competitiveness. Such significant reduction in taxes on for a couple of years, with a statewide to a board games.aThe legal battle has been ongoingindustrial property would obviously leadlegal reduction in tax revenues on industrial property, at least initially. However, the overall revenue may in fact increase once the growth rate in the state begins to pick up and more 10 For a list of these types of laws South Carolina, see www.dumblaws.com. are lowered, not the state industry moves into the state.inFurthermore, if the official tax rates The listing doesthenprovide the
actual statutes, in many cases.
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Presumably the original intent of imposing a (South schedule with graduated battle over gambling looming. The law in question readstax rate Carolina Regulatory Code marginal tax rates was to games the income tax progressive. However, what progressivity section 16-19-40, unlawful make and betting): exists in the states income tax structure is due to the zero tax on the first $2,630 of income, and because of the graduated at any tavern, inn, store for the retailing ofmarginal tax rate If any person shall play marginal tax rates. However, since the spirituous liquors increases over such small steps in income, as shown barn, kitchen, stableof the progressivity or in any house used as a place of gaming, in Figure 5.5, most or other outhouse, occurs street, highway, open wood, higher levels open place at (a) any game with cardsthe at lower income levels, not race field or of income. At higher income levels, or averagedice,rate hardly increases at all. This nature of A, B, C, ortax is directly contradictory tax (b) any gaming table, commonly called the current E, O, or any gaming table to the goal of or distinguished by any other letters or by any figures, (c) the tax satisfies the known progressivity. So although on the surface it appears that any roly-poly table, vertical(d) rouge et noir, (e) any faro bank (f) only other table or bank of the same or the like equity condition, it really does this any at the lower income levels reducing the wealth of these lowest income taxpayers, not the intended consequence. or device licensed kind under any denomination whatsoever or (g) any machine pursuant to Section 12-21-2720 and used for gambling purposes, except the games of billiards, bowls, Carolina income tax: Current when there is no betting on Figure 5.5: South backgammon, chess, draughts, or whisttax rates compared to any such game of billiards, bowls, backgammon, chess, draughts, or whist or shall bet inflation-indexed rates, 2009 on the sides or hands of such as do game, upon being convicted thereof, before any magistrate, shall be imprisoned for a period of not over thirty days or fined not over one hundred dollars, and every person so keeping such tavern, inn, retail store, Tax Income Tax Rates/Brackets if 1959 public CurrentaIncome for gaming or such other house shall, upon being Tax place, or house used as place Schedule was Inflation Adjusted to Rates/Brackets convicted thereof, upon indictment, be imprisoned for a period not exceeding twelve 2009 months and forfeit a sum not exceeding two thousand dollars, for each and every Tax Tax Average Tax Rate offense.11 Average Tax Rate Taxable Income Amount Amount $5,000 $71 $125 1.42% 2.5% Note first that the regulation is written in a way that is very difficult for an average person $10,000 Also note that it specifies the outhouse as a place gambling should not occur. to read. $290 $250 2.90% 2.5% The law is outdated, and should be revisited. More importantly, the law violates the principle $15,000 $604 $377 4.03% 2.51% of mutually beneficial exchange. Why should government ban such games? If the government $20,000 $954 $527 4.77% 2.63% of South Carolina wishes to ban gambling, then the state lottery should be illegal. The most serious$30,000 with this type of law, however, is that it is selectively enforced, as it was in problem $1,654 $834 5.51% 2.78% Mount Pleasant. Charities often hold casino nights or bingo games, and the police do not $50,000 $3,054 $1,695 6.10% 3.39% enforce the gambling law. There are countless private poker games that occur in South $75,000 $4,804 6.41% Carolina without police enforcement. Why enforce $3,127 the gambling law 4.17% in Mount Pleasant, when there are much more pressing issues the police $4,877 could address? The regulation should be $100,000 $6,554 6.56% 4.88% updated to at least the 20th century. $8,377 $150,000 $10,054 6.70% 5.58% $200,000 principles have been outlined in this chapter, which 5.94% help inform $13,554 $11,877 6.77% Several could regulatory reviews in South Carolina. These principles also apply when politicians are draftingFigure 5.5 also shows what the average tax rates are for various incomes and taxes new regulations. First, legislators should South Carolina. costs and columns also shows what the under the current tax system inconsider all of theIn the rightbenefits ofittheir regulations, both in the long and short rates would impacts on all groups, were indexed for inflation. The taxes and average tax term, and thebe if the 1959 tax tablesnot just beneficiaries. All policy proposals should consider any unintended consequences that may be predictable. progressive, figure clearly shows that the 1959 indexed tax rate structure is more uniformly All levels of government higher levels of incomes. It keeps tax rates extremely low for the lowest income especially at can provide examples of laws which have unintended negative consequences. Second, it is not individuals in the state. necessary for government to choose sides between consumers and producers. In mostalso shows that the current tax system charges resources, and government Figure 5.5 cases, free markets efficiently allocate scarce all income groups more in intervention isindexed rate schedule. The only decreases in overall wealth. However, in the taxes than an unnecessary and even causes exception is the $5,000 income earner if government is going to pass regulations continue regulations are the tax side with either table. As South Carolina income taxes and such to climb while going to brackets remain consumers or state becomes a relatively be supported as their has a negative impact on stagnant, the producers, consumers should high-tax state. This interests are consistent with
11
Source: www.scstatehouse.gov/code/t16c019.htm.
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manufacturing property tax in theabundance, while suppliers present the effective propertythey those of society. Consumers like country. In Figure 5.8 we like scarcity of the products tax rates data TheSoutheastern states, for comparison.not need government support,are out of all produce. for supply side of the market does The ranks given for the states since what 50 states. The netand fail are already regulatedare calculated based on property valued at $25 industries survive tax and effective tax rate by markets. million This is not to say that we do and need government. million in inventories, and have ($12.5 million in machinery not equipment, $12.5 Indeed, as recent scandals $2.5 million in fixtures). Noticeoversight ofCarolinas effective tax rate on industrial property to shown, some government that South the market is necessary. It is governments job is over 7.8contracts, to punish fraudulent behavior, and state, Delaware. (Delaware is listed in enforce times higher than the most industry-friendly to penalize those who violate others the figurerights. When the lowest-taxfails in these basic functions it is partially because the property because it is government state.) focus of government is spread across too many different functions. Many regulations represent distractions from the core role of government.
Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007

EXAMPLES OF WASTEFUL AND INEFFICIENT REGULATIONS IN South Carolina 1 $1,864,900 3.73% SOUTH CAROLINA
Mississippi 4 $1,291,050 2.58% Texas $1,264,358 South Carolina has 6several regulations that would, under 2.53% the principles outlined above, either be eliminated 10 largely revised. What follows are but a few examples of these or Tennessee $1,033,544 2.07% wasteful regulations. The underlying goal in recommending that legislators evaluate policies West Virginia 14 $833,234 1.67% on their potential to create a net benefit, is so they allow individuals to keep their freedoms 17 $783,407 1.57% and Louisiana consequences of their decisions, and that what regulations are kept are accept the periodically reviewed, is that regulations should become less burdensome to individuals who Georgia 20 $760,381 1.52% are participating in markets in South Carolina. Florida 24 $677,683 1.36% Adam Smith explained, when individuals are free to act in their self-interest, their 1.11% Alabama 35 $533,776 pursuits are usually consistent with the best interests of society. There are, of course, some exceptions Carolina free best policy is to design North to this view, but37 market competition requires that the0.98% $491,071 government institutions and regulations that allow the incentives of decentralized decision 0.65% Kentucky 47 $327,100 makers dictate what is produced and consumed in society. When one reads some of the South Virginia 49 $241,498 0.48% Carolina regulations it becomes clear that the state government has gone astray from the basic principles of government. These examples are only representative of0.48% much larger and some Delaware 50 $238,840 moreSource: National Association of Manufacturersneeded in the state. pervasive regulatory reforms that are (2009)
State
Rank (of 50)
Net Tax
Effective Tax Rate
PROFESSIONAL LICENSING REQUIREMENTS Importantly, South Carolinas effective tax rate is almost 2.5 times greater than Georgias tax, and almost 4 times greater than North Carolinas. This puts a law to repeal at a In May 2008, the governors office reported that it had signed South Carolina the serioushour training requirement its ability to attract and is the industry. action South Carolina 1,500 disadvantage, in terms of for hair washers. This keep type of Since that should be has the highest taxarray ofcountry on industrial property, it should be producers and impose taken on a whole in the regulations in South Carolina that protect no surprise that it has one of the lowest per consumers. unnecessary costs on capita incomes and economic growth rates in the country. Althoughno economic or legal justification for Carolina set its tax Carolina tolowest in There is it is probably not critical that South the State of South rate to the regulate thelicense, in anyshouldthe training required of cosmetologists, hair stylists, or hair washers. If or country, it way, definitely make it at least competitive for the Southeast. Since Georgias rate is effectively 1.52 percent and North Carolinas is just under stop using atheir a business owner is incompetent in his/her practice, the consumers will 1 percent, rate at around 1 percent might go out of business. The more market through profits reduce the services and the firm will be sufficient to attract free industry. Working to and losses various taxes appliedthe hair care would seriously improvesuchstates competitiveness. not only constantly regulates to industry services industry. What the regulations tend to do, Such a significant reduction in also on any variety of professions, is to artificially in cosmetology/beauty industries, but taxes for industrial property would obviously lead to a reduction innumber of practitioners. This unambiguously results inHowever, quantity of restrict the tax revenues on industrial property, at least initially. a lower the overall revenue offered and higher prices. The supposed benefits to consumers to pick up from more services may in fact increase once the growth rate in the state begins that result and such industry moves into higher quality, are questionable. regulations, such as the state. Furthermore, if the official tax rates are lowered, then the state
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Presumably the original intentwhere the legislature and governor of with graduated This provides just one example of imposing a tax rate schedule South Carolina marginal tax rates type of regulatory income that progressive. However, what progressivity moved toward the was to make the reform tax can improve economic well-being. Policy exists incould go further, however, and is due to the zero tax hour training requirement for makers the states income tax structure eliminate the 1,500 on the first $2,630 of income, and because ofManygraduated marginal tax rates. However, lawyers and medical tax rate cosmetologists. the industries license practitioners, including since the marginal doctors. increases if these industriessteps in like to have shown in Figure 5.5, most of the progressivity It is fine over such small would income, as their own professional organizations to specify occurs at lower income levels, notnot necessary that the state governmentincome levels, the requirements for membership. It is higher levels of income. At higher require that every average taxpracticing inincreases at all. member of such organization. is directly contradictory individual rate hardly the state be a This nature of the current tax Consumers can choose to the goal of progressivity. So although on the surface it appears that the tax satisfies the for themselves. verticalLike many other areas of governmentonly at the lower income levels reducing the equity condition, it really does this regulation, economists have even studied wealth of these lowest income regulations not the intended consequence. Adams, Jackson, and cosmetology profession and taxpayers, governing it. For example, Ekelund (2002, 273) study the cosmetology industry, and find that regulatory requirements for practicing have resulted in an increase in overall prices, and tax rates in the quantity of Figure 5.5: South Carolina income tax: Current a reduction compared to such services produced and consumed in the United States. In particularly, every state (as of their study) required a stateinflation-indexed rates, 2009 examination, including written and practical sections (Adams et al., 262). The average number of hours of school training was 1,607. Oregon actually required 2,300 hours of training! In each state there was an application fee. All of 1959 Tax Income Tax Rates/Brackets if these things Current Income Tax raise the prices because supply is artificially restrict the quantity of cosmetology services and Schedule was Inflation Adjusted to Rates/Brackets limited. Perhaps more importantly, Adams et al. (2002) conclude that the regulations cause 2009 enormous deadweight losses and rent transfers due to the regulations in the United States Tax Tax around $1.8 billion total, per year. That is an astonishing cost forAverage Tax Rate to be what might seem Average Tax Rate Taxable Income Amount Amount relatively minor regulations on a relatively minor industry. $5,000 $71 $125 2.5% The State of South Carolina 1.42% also regulates who can practice massage in the state. Individuals who wish to practice massage therapy upon completion of formal training must $10,000 $290 $250 2.90% 2.5% pay fees to the state to obtain a license. One of the licensing requirements is that the $15,000 $604 $377 4.03% 2.51% individual: $20,000 $954 $527 4.77% 2.63% completes $30,000 a massage therapy program of five hundred hours of supervised study at an $1,654 $834 5.51% 2.78% approved massage/bodywork school. Approved schools are those found by the $50,000 $3,054 $1,695 6.10% 3.39% Department to have met the minimum qualifications as set forth by the Commission $75,000 Education for such programs (South Carolina Code Ch. 77-100(b)) $4,804 $3,127 6.41% 4.17% on Higher $100,000 $6,554 $4,877 6.56% 4.88% This case is the same as the previous one. Consumers can evaluate the qualifications of $8,377 $150,000 $10,054 6.70% 5.58% massage therapists on their own. State government officials have no specialized knowledge in $200,000 $13,554 $11,877 6.77% 5.94% this area, and the licensing requirement is an obvious attempt by individuals in the massage industry to restrict the supply of massage therapists. If consumers want massage therapists with lots of training, they can simply ask the provider whatfor various incomes and taxes Figure 5.5 also shows what the average tax rates are training they have had. It is beyond the necessary system in South Carolina. In the right columns the above case, simply under the current tax role of government to license this industry. As in it also shows what the because there is government licensing if the 1959 to tables were indexed receive a highertaxes and average tax rates would be does nothingtax ensure that consumersfor inflation. The quality service. 12 figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. As discussedCarolina on regulations on continue advertising. while the the South Carolina Code South research income taxes optometry to climb Title 40 of tax brackets remain 12 Earlier I stagnant,optometry. The law only requires truth in advertising; there is no ban hasadvertising prices or services. the state becomes a relatively high-tax state. This on a negative impact on addresses
But like other professions, the state controls the regulatory framework for the profession. See http://www.scstatehouse.gov/ code/t40c037.htm for more information.
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manufacturing property tax inOARD MANUFACTURED HOUSING B the country. In Figure 5.8 we present the effective property tax rates data for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The net tax and effective tax rate Code of Regulations outlines the Uniform Chapter 79 of The South Carolina are calculated based on property valued at $25 million ($12.5 million in machinery and equipment, regulation runsin full 20 pagesand $2.5 Standards Code for Manufactured Housing Act. The $12.5 million a inventories, (printed million in fixtures). Notice the first two pages being dedicated to on industrial property as in very small font), with that South Carolinas effective tax rate defining words such is over 7.8 times higher than therepair, and structure. state, Delaware. (Delaware is listed in approved, habitable room, most industry-friendly Section 2 lists the eight different types thelicensesbecause it is the lowest-tax state.) Carolina Manufactured Housing Board. Anyone of figure that must be issued by the South who engages in any business regulated by the Act must have one of these licenses that include:
Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007

Manufactured Home Manufacturer State Rank (of 50) Net Tax Manufactured Home Retail Dealer South Carolina 1 $1,864,900 Manufactured Home Retail Salesperson Mississippi 4 $1,291,050 Manufactured Home Retail Multi-Lot Salesperson Texas Manufactured Home Show Permit/Temporary 6 $1,264,358 Manufactured Home Installer Tennessee 10 $1,033,544 Manufactured Home Repairer West Virginia 14 $833,234 Manufactured Home Contractor Louisiana 17 $783,407 Effective Tax Rate 3.73% 2.58% 2.53% 2.07% 1.67% 1.57%
Georgia 20 $760,381 Of course, the applicant must pay a fee to the state and provide a 1.52% information and list of qualifications to the board. 24 Manufacturing Housing Board notes 1.36% it receives a bad The that if Florida $677,683 check from any licensee, and it is not made good within ten days, this is considered prima 1.11% Alabama 35 $533,776 facie evidence of untrustworthiness or incompetency in such a manner as to endanger the North Carolina 37 $491,071 0.98% interest of the public (79-5). Why is bouncing a check in this context a danger to the public interest any more than if 47 bounce a check$327,100 I to Wal-Mart? Laws already exist to protect 0.65% Kentucky individuals for cases of failure to pay in fulfillment of a contract. This additional regulation is Virginia 49 $241,498 0.48% unnecessary and inefficient. The regulations go on to explain what each license allows its Delaware 50 $238,840 0.48% holder to do, with respect to the trailer business. These regulations were written to benefit the Source: National Association of As noted elsewhere in this book, policy makers rarely have manufactured housing industry.Manufacturers (2009) * Taxes measured in the states largest the specialized knowledge in this orcity only. aspects of resource allocation to know whether other regulating this industry will provide a net benefit to South Carolinians. Importantly, South Carolinassuch a small industryis almost 2.5 timesthe state finds The point here is that even for effective tax rate like mobile homes, greater than Georgias tax, and almost 4 times greater than North Carolinas. This puts South Carolina at a it necessary to involve itself in every aspect of this industry. There is no reason a private trade serious disadvantage, in terms of its the same purpose that the industry. Since South Carolina association could not serve exactly ability to attract and keep government regulations serve. has the highest tax in the country on industrial property, it should be no surprise that it has Indeed, there is no compelling reason to have government involved in any way in this one of the lowest per capita incomes and economic growth rates in the country. industry. Although it is probably not critical that South Carolina set its tax rate to the lowest in As with hair washers and massage therapists, the license for working with any aspect thethe trailer business requires proof of training least written examinations on various aspects country, it should definitely make it at and competitive for the Southeast. Since of Georgias rate is effectively 1.52 percent and North Carolinas is just under 1 percent, a rate of the duties. As in the case of most professions and businesses, the state has no special at aroundin1the industry. Yet,be licenses those attract more industry, charging eachreduce the percent might it sufficient to people in the industry. Working to individual expertise various taxes applied to industry would seriously improve the states competitiveness. substantial fees (at least $100 for a two-year license). While advocates of these regulations Such that it helps ensure that only trained professionals would obviously lead the might argue a significant reduction in taxes on industrial property work in the industry, to a reduction in tax revenues on industrial property, at least initially. However, the overall market is arguably much more effective at regulating the industry. Consumers can ask for revenue may in fact increase once the growth example. They can demand legally binding recommendations from prior customers, for rate in the state begins to pick up and more industry moves into the state. Furthermore, if the official tax rates are lowered, then the state
165 13 17
Presumably manufacturers, repairmen, etc., a to rate schedule with graduated warranties from the the original intent of imposingpriortax entering into transactions with 13 marginal tax rates was to make the income tax progressive. However, what progressivity them. exists in themobile home industry itself can due to the zero tax organization. The organization The states income tax structure is have its own trade on the first $2,630 of income, and because the the graduated marginalthe state currently requires. the marginal tax rate could adopt of same regulations that tax rates. However, since The point is that the increases over suchnot make compliance to these regulations5.5,legal requirement. If the government need small steps in income, as shown in Figure a most of the progressivity occurs at lower consumers are deemed important by the consumer, they will patronize only protections for income levels, not higher levels of income. At higher income levels, the average tax rate hardly increases particular training/license. those trailer sellers who have the at all. This nature of the current tax is directly contradictory to the goal of progressivity. So although on the surface it appears that the tax satisfies the The fact that the state licenses people in this industry is another example where an vertical equity condition, it really does this only at the lower income levels reducing the industry is engaging in unproductive entrepreneurship to benefit through regulation at wealth of these lowest income regulationsnot the intended consequence. of mobile homes and expense of consumers. These taxpayers, effectively restrict the supply thereby increase the prices consumers will have to pay. Although supporters of the regulations could argue Carolina income tax: Current tax rates regulations fail a Figure 5.5: South that they are designed to protect consumers, the compared to cost-benefit test. There is no evidence that regulations help consumers, yet they are very inflation-indexed rates, 2009 costly. These regulations, and others like them, should be reviewed and perhaps repealed. As with the above example, the Manufactured HousingIncome regulations fail when compared to Board Tax Rates/Brackets if 1959 Tax Current earlier in the chapter. The only likely benefits of these Income Tax the general principles outlined Schedule was Inflation Adjusted to Rates/Brackets regulations is that it helps restrict the supply side of the market and2009 prices higher for keeps those who might wish to enter the industry. Tax Tax Average Tax Rate Average Tax Rate Taxable Income Amount SUSTAINABLE AGRICULTURE IN SOUTH CAROLINAAmount $5,000 $71 $125 1.42% 2.5% The South Carolina Department of Agriculture has its Palmettovore and Certified $10,000 $290 $250 2.90% 2.5% SC Grown programs, which were recently the focus of a South Carolina Policy Council $15,000 $604 $377 4.03% 2.51% article (2009).14 The program is geared toward encouraging individuals to purchase and $20,000 $954 $527 4.77% 2.63% consume only agricultural products grown and processed in South Carolina. This program $1,654 taxpayers money to promote the consumption of products uses $30,000 $834 5.51% 2.78% produced within South Carolina. The goal of the program, of course, is to encourage people to $50,000 $3,054 $1,695 6.10% 3.39% live locally. By supporting producers who live around you, they can support other local $75,000 $4,804 $3,127 6.41% 4.17% businesses, and this should help the local economy. At the same time, if agricultural products, seafood, etc., are purchased from local or in-state vendors, the environmental impact will be $100,000 $6,554 $4,877 6.56% 4.88% smaller since transportation costs would arguably be lower over shorter distances. Proponents $8,377 $150,000 $10,054 6.70% 5.58% also argue that the produce or seafood will be fresher since it has to travel a shorter distance. $200,000of course, be true that6.77% that are$11,877 locally or 5.94% $13,554 It may, foods produced are shipped shorter distances will taste better or will have less of a negative environmental impact than products broughtFigure 5.5 also shows what the average restaurants in for various incomes and taxes in from further distances. Indeed, many tax rates are Charleston, South Carolina for example, current promote the South Carolina. local seafood and other ingredients. Many under the actively tax system infact that they useIn the right columns it also shows what the consumers value tax for would be if reasons tax tables were indexed for inflation. The taxes and averagethis, ratesmany of the the 1959that the Palmettovore promotion explains. Simply because the that the 1959 have some rate merits proponents claim does not mean figure clearly showsprogram might indexed taxof thestructure is more uniformly progressive, that the program is levels of incomes. It keeps tax rates extremely low for the lowest income especially at higher an appropriate function of government and a worthwhile use of taxpayer money. individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. AsList is oneCarolinaofincome taxes private market solution to provide customers with information South example an independent continue to climb while the tax brackets remain 13 Angies stagnant, the state becomes a relatively provide reviews online of serviceaproviders for 250 different negative impact on about quality and reliability of services. Customers high-tax state. This has
services. 14 See http://palmettovore.org and http://www.certifiedscgrown.com.
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manufacturing propertyPalmettovore andInCertified SC present the effective require that In effect, the tax in the country. Figure 5.8 we Grown programs property tax rates data for Southeastern states, for to produce promotional given for for these programs that taxpayers money be taken and used comparison. The ranks material the states are out of all 50 states. The Carolina producers. If the SC Grown proponents are on property locally grown benefit South net tax and effective tax rate are calculated based correct if valued at $25 million ($12.5 million in machinery and aequipment,environmental impact, or are otherwise products are better tasting, have less of negative $12.5 million in inventories, and $2.5 millionthanfixtures). Notice that South Carolinas effectivenecessary on industrial property to better in non-local products, then it would not be tax rate for the government is over 7.8 them. Here again, free most industry-friendly state, function. The program is listed in promote times higher than the markets serve precisely this Delaware. (Delaware is a veiled the figure because it is the lowest-tax state.) attempt at producing benefits for the agriculture industry in South Carolina at the expense of taxpayers. If local producers wish to advertise their quality and encourage people to buy their products, this should be done at their own expense, not at the expense of taxpayers. One argument proponents may give in response to this is that sometimes foreign Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007 producers receive government subsidies to export their products. The 19th century French Rank (of 50) economistState statesman Frederic BastiatNet Tax and addressed this issue Effective Tax Rate in his famous sophism, The South Carolina 1 $1,864,900 3.73% Petition of the Candle-makers. Bastiat shows how producers often lobby government to protect producers in an industry, at the expense of taxpayers and consumers. Bastiat uses a Mississippi 4 $1,291,050 2.58% similar argument as the Grown in SC proponents to show how fallacious these arguments Texas 6 can be. In his story, the candle-makers are $1,264,358 lobbying government to2.53% the free use of outlaw Tennessee sunlight is10 $1,033,544 competition to the candle-making 2.07% sunlight. Since free, it represents vigorous industry. Since there is such a low-cost option$833,234 the candle-making industry argues to candles, West Virginia 14 1.67% that it is unfair and asks that all windows be covered. In addition, support of the candleLouisiana 17 $783,407 1.57% makers business will mean they will have more money to spend on other local businesses. 20 $760,381 This Georgia protectionist argument to buy SC grown whether used1.52% type of to restrict foreign trade or trade from other states limits growth and trade to South Carolina. 1.36% Florida 24 $677,683 Consumers already have the incentives to buy the best quality, lowest price products. 1.11% Alabama 35 $533,776 If South Carolina products are really better tasting, and they are more environmentally North Carolina 37 $491,071 0.98% friendly, then consumers should already be willing to buy them. If foreign producers, or producers from other states,47 able to supply $327,100of similar quality at lower prices, then are products 0.65% Kentucky consumers will favor the foreign products. South Carolina farmers and fishermen are free Virginia 49 $241,498 0.48% to promote locally grown products at their own expense and not have government tax Delaware 50 0.48% consumers to advertise buying local products.$238,840farmers or fishermen cannot compete, If local then Source: National Association of Manufacturers other industries. productive resources are better used in (2009) * Taxes measured in the states largest city only. This argument comes down to comparative advantage, specialization, and the benefits from trade. Almost all parties benefit when we specialize in areas for which we have a Importantly, South Carolinas Yes, specialization based on comparative advantage comparative advantage in production. effective tax rate is almost 2.5 times greater than Georgias tax, and almost 4 times greater than North Carolinas. This puts then freed-up toatbe does mean that jobs will be lost in certain industries, but such labor is South Carolina a serious disadvantage, in termsSouth Carolina regulations should encourage specialization and employed in other industries. of its ability to attract and keep industry. Since South Carolina has the highest tax in the country on industrial property, it should be no surprise that it has trade, not restrict it. one of the lowestmay capita incomes andCarolina agricultural productscountry. While it per be true that South economic growth rates in the and seafood are better quality Although it is probably not critical that to the Carolina set its tax rate to the lowest to and taste better, it should be left up South producers to market their products in the country,It itis should definitely make it programscompetitive for the Southeast. Since consumers. fine if they wish to fund at least like Palmettovore or Certified SC Georgias rate is effectively 1.52 programs, but these programs should be 1 percent,by rate Grown these may be effective percent and North Carolinas is just under paid for a the at around 1 fishermen who expect to benefit attractthem. These buyWorking to reduce the farmers and percent might be sufficient to from more industry. local programs are an various taxes applied to industry would seriously improve the states competitiveness. inappropriate and wasteful use of taxpayers money. Such a significant reduction in taxes on industrial property would obviously lead to a reduction in tax revenues on industrial property, at least initially. However, the overall revenue may in fact increase once the growth rate in the state begins to pick up and more industry moves into the state. Furthermore, if the official tax rates are lowered, then the state
CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM Presumably the original intent of imposing tax rate schedule REGULATORY REFORM AND ECONOMICaGROWTH
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with graduated marginal tax rates was to make the income tax progressive. However, what progressivity exists in the of the problems that plagues the regulatory environmentfirstSouth Carolina (as One states income tax structure is due to the zero tax on the in $2,630 of income, and because of the graduated federal level), rates. However, since the marginal tax want well as other states, and the marginal tax is that voters and politicians naturally rate increases over such small steps in income, as shown in Figure 5.5, most of the a situation or government to act when it appears government could do something to improve progressivity occurs at group of people. For example, government often intervenes in mutually levels, the help one lower income levels, not higher levels of income. At higher income beneficial, average tax rate hardly increases atUnited States was the currenton principles of individual voluntary transactions. Yet, the all. This nature of founded tax is directly contradictory to the goal of progressivity. So although on the surfaceuse appears that the tax satisfies the economic freedom, where individuals have the right to it their property as they please, so vertical they are condition, it other people.this only at the lower income levels reducing the long as equity not harming really does wealth of these it comes to economic activity, to which many regulations apply, the When lowest income taxpayers, not the intended consequence. government is interfering with voluntary transactions. So we need not necessarily defer to a Figure 5.5: South particular regulation. tax: first consider the principle of individual cost-benefit analysis of aCarolina income Let us Current tax rates compared to liberty. In free markets, individuals can produce and consume whatever goods they wish to, inflation-indexed rates, 2009 so long as they are not intentionally harming others. In cases where some harm occurs due to negligence or fraud the legal system exists to deal with these situations. In minor cases when Income Tax Rates/Brackets to vote with consumers are not happy Current Income Tax with the products they have purchased, they are freeif 1959 Tax Schedule was Inflation Adjusted to their dollars. This market test regulates who stays in business and who does not. Rates/Brackets 2009 A larger point to be made here is that these types of regulations will severely restrict entrepreneurial activities in the state. If individuals who recognize Average Tax Rate must profit opportunities Tax Tax Average Tax Rate Taxable Income work through tomes of regulations before acting, many people with good ideas simply will Amount Amount not bother. $5,000 $71 $125 1.42% 2.5% There are numerous international examples that can illustrate this point. For example, $250 2.90% 2.5% Doing $10,000 ranks$290 Business countries based on their regulatory environment and reforms to 15 encourage economic development. 4.03% of changes include the protection of property Types $15,000 $604 $377 2.51% rights and streamlining of bureaucratic hurdles to opening businesses. Just as countries $20,000 $954 $527 4.77% 2.63% around the globe that make it easier for individuals to trade and engage in businesses will see $30,000 $1,654 5.51% 2.78% increased economic development, the same is true $834 individual states in our country. for Although South Carolina is relatively6.10% the United States, it could 3.39% poor for potentially improve $50,000 $3,054 $1,695 its rankings if it would do more to promote economic activity. In general, this means reducing $75,000 $4,804 $3,127 6.41% 4.17% the cost of doing business in the state minimizing the cost of complying with regulations. $100,000 $4,877 6.56% 4.88% Since special $6,554 in a particular industry have lobbied government to create interests numerous regulations, it significantly raises the costs to newcomers to 5.58% the industry. South $8,377 $150,000 $10,054 6.70% Carolina must reverse this trend. Removing state regulations would encourage new people to $200,000 $13,554 $11,877 6.77% 5.94% enter business. This creates more competition for other sellers, resulting in higher quality products, more products, and lower prices for consumers. Figureaboutalso shows the consumers? Producers who for various incomes andwhose What 5.5 protecting what the average tax rates are sell shoddy products or taxes under the current tax system in Southheld responsible in the columns it alsoProductswhat the negligence harms consumers will be Carolina. In the right court system. shows that are taxes and average tax rates wouldby consumers will not survive the consumers voting with low quality or otherwise disliked be if the 1959 tax tables were indexed for inflation. The figuredollars. Regulations the 1959 indexed tax rate structure or incompetent services. These their clearly shows that do little to preclude poor quality is more uniformly progressive, especially arehigheraddressed incomes. It keeps tax ratesthe part of low for the lowest income problems at best levels of through legal action on extremely victims. However, South individuals inmost other states have, over a long period of time, crowded the law books with Carolina and the state. Figure 5.5 also shows that the current tax consumers, but with the groups more in regulations with the stated purpose of protectingsystem charges all income actual effect of taxes than suppliers already schedule. The only exception is the $5,000 income earner in the protecting an indexed rate in the industry from new potential competition. table. As South Carolina income taxes continue to climb while the tax brackets remain stagnant, the state becomes a relatively high-tax state. This has a negative impact on
15
See www.doingbusiness.org for information.
168 18 20
manufacturing property tax in the country. In Figure 5.8 we present the effective property tax CONCLUSION rates data for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The Carolina and effective market-friendly regulatory system, compared to at $25 South net tax does have a tax rate are calculated based on property valued many millionstates. Still there machineryfor improvement. Legislators in inventories, and $2.5 other ($12.5 million in is room and equipment, $12.5 million should revisit existing million in fixtures). Notice that South Carolinas actually serving the general public or some regulations and check whether the regulations are effective tax rate on industrial property is over 7.8 times higher Those that do not serve the public interest should (Delaware is listed in special interest group. than the most industry-friendly state, Delaware. be eliminated. the figure because it is the lowest-tax state.) Private organizations can and do exist to provide useful information to concerned citizens and to policy makers in helping to guide South Carolina in the direction of a more market-friendly business environment.16 Figure 5.8: Industrial Propertyreview regulations periodicallystates*, 2007 Lawmakers, for their part, should Taxes in Southeastern and evaluate them for costs State benefits. Eliminate those Net Tax and regulations whose costs outweigh their benefits; Rank (of 50) Effective Tax Rate eliminate those regulations that merely serve a particular interest group. For all new South Carolina 1 $1,864,900 3.73% regulations, put sunset provisions so that the regulations in the state do not continue to grow Mississippi 4 $1,291,050 as new regulations are stacked atop old ones. Minimize the states 2.58% regulatory code so that citizens can understand it. 6 South Carolina citizens can convince 2.53% policy makers to If their Texas $1,264,358 engage in regulatory reform in a significant way, South Carolina can gain a reputation in the Tennessee 10 $1,033,544 2.07% nation for being a low-regulation, business friendly state. This will encourage the creation of market 14 $833,234 1.67% new West Virginia businesses and the growth of new ones. This will help stem our relatively high unemployment rate, and will help increase our rate of economic growth. With significant Louisiana 17 $783,407 1.57% changes, South Carolina could finally move from the bottom of the state economic rankings. Georgia 20 $760,381 1.52% Florida Alabama North Carolina Kentucky Virginia Delaware 24 35 37 47 49 50 $677,683 $533,776 $491,071 $327,100 $241,498 $238,840 1.36% 1.11% 0.98% 0.65% 0.48% 0.48%
Source: National Association of Manufacturers (2009) * Taxes measured in the states largest city only.
Importantly, South Carolinas effective tax rate is almost 2.5 times greater than Georgias tax, and almost 4 times greater than North Carolinas. This puts South Carolina at a serious disadvantage, in terms of its ability to attract and keep industry. Since South Carolina has the highest tax in the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates in the country. Although it is probably not critical that South Carolina set its tax rate to the lowest in the country, it should definitely make it at least competitive for the Southeast. Since Georgias rate is effectively 1.52 percent and North Carolinas is just under 1 percent, a rate at around 1 percent might be sufficient to attract more industry. Working to reduce the various taxes applied to industry would seriously improve the states competitiveness. Such a significant reduction in taxes on industrial property would obviously lead to a reduction in tax revenues on industrial property, at least initially. However, the overall revenue may in fact increase once the growth rate in the state begins to pick up and more industry moves into the state. Furthermore, if the official tax rates are lowered, then the state 16
The South Carolina Policy Council has done an admirable job of watching state legislation and publicizing unnecessary or anti-market regulations.
CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM Presumably REFERENCES
169 13 21
the original intent of imposing a tax rate schedule with graduated marginal tax rates was to make the income tax progressive. However, what progressivity exists inA. Frank, John D. Jackson, and Robert B. Ekelund. tax on Occupational licensing in a Adams, the states income tax structure is due to the zero 2002. the first $2,630 of income, and because of the graduated marginal case rates. However, since theof Labor Research competitive labor market: The tax of cosmetology. Journal marginal tax rate increases over261-278. steps in income, as shown in Figure 5.5, most of the progressivity 23(2): such small occurs Matthew D., and Eric A. not higher levels of income. At higher income levels, and Adler, at lower income levels, Posner. 2001. Cost-Benefit Analysis: Legal, Economic, the averagePhilosophical Perspectives. Chicago, nature of the current tax is Press. contradictory tax rate hardly increases at all. This IL: University of Chicago directly to the goal of Kurt. 2008. The Best States for Business. Forbes (forbes.com), tax July. Badenhausen, progressivity. So although on the surface it appears that the 31 satisfies the vertical Frederic. 1845. A it really from the manufacturers of candles levels reducing the Bastiat, equity condition, petition does this only at the lower income Available online at wealth of these lowest income taxpayers, not the intended consequence. http://bastiat.org/en/petition.html. Benham, Lee. 1972. The effect of advertising on the price of eyeglasses. Journal of Law and Figure 5.5: South Carolina income tax: Current tax rates compared to Economics 15(2), 337-352.
Corey, Jacob N. and Nicholas A. Curott. 2007.rates, 2009 inflation-indexed Lower Business Regulation: Costs and Unintended Consequences, Chapter 9 in Russell S. Sobel (ed.), Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It. Morgantown, WV: Center for Economic Growth, The Public Policy Foundation of West Virginia, pp. 131Income Tax Rates/Brackets if 1959 Tax Current Income Tax 143. Schedule was Inflation Adjusted to
Rates/Brackets Governors Office. May 14, 2008. Governor Signs Bill for Better Hair [electronic file]. 2009 Online: www.governor.sc.gov (sited September 16, 2009). Tax Tax Average Tax Rate Average Tax commercial practice restrictions: The case of Taxable Income Haas-Wilson, Deborah. 1986. The effect ofRate Amount Amount optometry. Journal of Law and Economics 29(1): 165-186. $71 $125 1.42% 2.5% Hazlitt,$5,000 2008 [1946]. Economics in One Lesson. Auburn, AL: Ludwig von Mises Henry. Institute. $10,000 $290 $250 2.90% 2.5% Richardson, Henry S. 2001. The Stupidity of the Cost-Benefit Standard. In Adler and Posner, $15,000 $604 $377 4.03% 2.51% eds., Cost-Benefit Analysis: Legal, Economic, and Philosophical Perspectives. $20,000 IL: University of Chicago Press. $954 $527 4.77% 2.63% Chicago, South Carolina Policy $1,654 2009.5.51% SC Grown a Waste of Tax Dollars. By Kevin Council. Certified $30,000 $834 2.78% Dietrich. 2 June 2009. $50,000 $3,054 $1,695 6.10% 3.39% Small Business and Entrepreneurship Council December 9, 2008. Small Business Survival $75,0002008 Ranks State Policy Climates $3,127 $4,804 6.41% 4.17% Index for Entrepreneurship [electronic file]. Oakton, Small Business and $4,877 Entrepreneurship 4.88% Council. Online $100,000 VA$6,554 6.56% http://www.sbecouncil.org/content/display.cfm?ID=2957 (cited September 18, 2009). $8,377 $150,000 $10,054 6.70% 5.58% Walker, Douglas M. 2007. Problems in Quantifying the Social Costs and Benefits of $200,000 American Journal of Economics and Sociology 66(3): 609-645. $11,877 6.77% 5.94% Gambling. $13,554 Figure 5.5 also shows what the average tax rates are for various incomes and taxes under the current tax system in South Carolina. In the right columns it also shows what the taxes and average tax rates would be if the 1959 tax tables were indexed for inflation. The figure clearly shows that the 1959 indexed tax rate structure is more uniformly progressive, especially at higher levels of incomes. It keeps tax rates extremely low for the lowest income individuals in the state. Figure 5.5 also shows that the current tax system charges all income groups more in taxes than an indexed rate schedule. The only exception is the $5,000 income earner in the table. As South Carolina income taxes continue to climb while the tax brackets remain stagnant, the state becomes a relatively high-tax state. This has a negative impact on
170 18 18
UUNLEASHING CAPITALISM NLEASHING CAPITALISM
manufacturing property tax inin the country. In Figure 5.8 we present the effective property tax manufacturing property tax the country. In Figure 5.8 we present the effective property tax rates data for Southeastern states, for comparison. The ranks given for the states are out of all rates data for Southeastern states, for comparison. The ranks given for the states are out of all 50 states. The net tax and effective tax rate are calculated based on property valued atat $25 50 states. The net tax and effective tax rate are calculated based on property valued $25 million ($12.5 million ininmachinery and equipment, $12.5 million inininventories, and $2.5 million ($12.5 million machinery and equipment, $12.5 million inventories, and $2.5 million inin fixtures). Notice that South Carolinas effective tax rate on industrial property is million fixtures). Notice that South Carolinas effective tax rate on industrial property is over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware isis listed in over 7.8 times higher than the most industry-friendly state, Delaware. (Delaware listed in the figure because it it is the lowest-tax state.) the figure because is the lowest-tax state.)
Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007 Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007
State Rank (of 50) State Rank (of 50) South Carolina 11 South Carolina Mississippi Mississippi Texas Texas Tennessee Tennessee West Virginia West Virginia Louisiana Louisiana Georgia Georgia Florida Florida Alabama Alabama North Carolina North Carolina Kentucky Kentucky Virginia Virginia Delaware Delaware 44 66 10 10 14 14 17 17 20 20 24 24 35 35 37 37 47 47 49 49 50 50 Net Tax Net Tax $1,864,900 $1,864,900 $1,291,050 $1,291,050 $1,264,358 $1,264,358 $1,033,544 $1,033,544 $833,234 $833,234 $783,407 $783,407 $760,381 $760,381 $677,683 $677,683 $533,776 $533,776 $491,071 $491,071 $327,100 $327,100 $241,498 $241,498 $238,840 $238,840 Effective Tax Rate Effective Tax Rate 3.73% 3.73% 2.58% 2.58% 2.53% 2.53% 2.07% 2.07% 1.67% 1.67% 1.57% 1.57% 1.52% 1.52% 1.36% 1.36% 1.11% 1.11% 0.98% 0.98% 0.65% 0.65% 0.48% 0.48% 0.48% 0.48%
Source: National Association ofof Manufacturers (2009) Source: National Association Manufacturers (2009) * Taxes measured inin the states largest city only. * Taxes measured the states largest city only.
Importantly, South Carolinas effective tax rate isisalmost 2.5 times greater than Importantly, South Carolinas effective tax rate almost 2.5 times greater than Georgias tax, and almost 4 4 times greater than North Carolinas. This puts South Carolina at a Georgias tax, and almost times greater than North Carolinas. This puts South Carolina at a serious disadvantage, inin terms of its ability to attract and keep industry. Since South Carolina serious disadvantage, terms of its ability to attract and keep industry. Since South Carolina has the highest tax inin the country on industrial property, it should be no surprise that it has has the highest tax the country on industrial property, it should be no surprise that it has one of the lowest per capita incomes and economic growth rates inin the country. one of the lowest per capita incomes and economic growth rates the country. Although it it is probably not critical that South Carolina set its tax rate to the lowest in Although is probably not critical that South Carolina set its tax rate to the lowest in the country, it itshould definitely make it itatatleast competitive for the Southeast. Since the country, should definitely make least competitive for the Southeast. Since Georgias rate isis effectively 1.52 percent and North Carolinas is just under 1 percent, a rate effectively 1.52 percent and North Carolinas is just under 1 percent, a rate Georgias rate atataround 1 1percent might be sufficient totoattract more industry. Working to reduce the around percent might be sufficient attract more industry. Working to reduce the various taxes applied toto industry would seriously improve the states competitiveness. various taxes applied industry would seriously improve the states competitiveness. Such a a significant reduction in taxes on industrial property would obviously lead to a Such significant reduction in taxes on industrial property would obviously lead to a reduction inintax revenues on industrial property, atatleast initially. However, the overall reduction tax revenues on industrial property, least initially. However, the overall revenue may ininfact increase once the growth rate inin the state begins to pick up andmore revenue may fact increase once the growth rate the state begins to pick up and more industry moves into the state. Furthermore, ifif the official tax rates are lowered, then the state industry moves into the state. Furthermore, the official tax rates are lowered, then the state

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CHAPTER 5: SPECIFIC TAX REFORMS

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

CHAPTER 5: SPECIFIC TAX REFORMS

REGULATORY REFORM PRINCIPLES FOR SOUTH CAROLINA

Rankings (out of 50 states) Rankings (out of 50 states)

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM

For a more general study on optometry regulation see Haas-Wilson (1986).

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM

inflation-indexed BAILOUTS FOR FAILING INDUSTRIES?

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM

Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007

Rank (of 50)

Effective Tax Rate

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM

Figure 5.8: Industrial Property Taxes in Southeastern states*, 2007

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM

See www.doingbusiness.org for information.

CHAPTER 5: SREGULATORY REFORMS CHAPTER 8: PECIFIC TAX REFORM Presumably REFERENCES

UUNLEASHING CAPITALISM NLEASHING CAPITALISM

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