KATRINA’S TAX REFORM PLAN

Recently lifelong friends questioned my tax reform policy, specifically the idea of eliminating property taxes. My tax reform policy eliminates all State taxes and fees, and replaces them with one simple revenue source: a sales tax.

Most people agree that it is an absurd concept for a consumer to have to pay the government an annual fee in order to keep their property. This is why I have always been a proponent of removing property taxes on owner-occupied homes. However, I recently looked deeper into South Carolina’s government revenue sources and I began to understand the economic benefits of eliminating not just property taxes, but all South Carolina taxes and fees, and replacing them with a simple consumption tax.

Tax reform should be rooted in the goal of creating a pro-growth economy for South Carolina that will lead to more jobs and higher paying jobs. A group of renowned economists studied South Carolina’s economy and compared it to other states in a book titled, Unleashing Capitalism. They determined that reforming certain South Carolina government policies can result in growing our economy and gaining prosperity for South Carolina citizens.

Economists define economic growth as an increase in per capita income. South Carolina ranks near the bottom for per capita income when compared to other states. Neighboring states: Georgia and North Carolina are not included in the list of lowest per capita income states, and economists suggest South Carolina’s poor ranking is partially due to a low level of economic freedom in our state.

The key ingredient to the reforms recommended by these economists is simplifying the system of raising state revenues. The current system is convoluted and difficult for legislators to understand, even more so for the citizens and businesses that provide the revenue through taxation and fees. The current complicated system forces many businesses and individuals to hire accountants in order to pay their taxes and legislative exemptions, and force many businesses to employ lobbyists in order to compete successfully.

When a sales tax is the only source for government revenue, taxpayers will save a substantial amount of money by eliminating the need for the bureaucracy required to enforce compliance and the administrative costs to collect and redistribute the revenue.

When businesses no longer have to pay high taxes and employ lobbyists and accountants, they will have more money to hire more workers and pay them good wages.

The simplest tax structure is one that has a single revenue source and is based on consumption - not taxing productive behavior, the fruit of a man’s labor, and job-producing businesses. An added benefit is that the system becomes more transparent, making it more difficult for politicians and special interests to hide favors to friends.

The state of Michigan is currently considering eliminating property taxes and local business owners say repealing this tax would help them grow their enterprise and allow them to invest more in their community. Other business owners say that property taxes are a disincentive for businesses to invest. For example, you can buy a piece of equipment - costing anywhere from $50,000 to $1 million - and the moment you buy that equipment and have it on your property you are paying taxes on it immediately. You may not make any money, but you have to pay the taxes. These business owners recognize that the personal property tax creates an environment for Michigan businesses that makes them less competitive.

My tax reform plan is simple and that is one key reason it will work. We should repeal all taxes and fees and replace them with a sales tax. However, it will only work if all taxes and fees are removed at the same time that the sales tax is increased, in order to provide the current level of revenue. Eventually, the savings incurred by eliminating bureaucracy will allow for a reduction in the sales tax rate.