Opinion

Use the real numbers on state tax rates

Like the speaker of the House and numerous other Republican lawmakers, I've quit trying to correct every misleading number Gov. Mark Sanford spouts about state taxes and spending. Tracking down the facts is a time-consuming task that I don't have the resources of the governor's office to devote to, and after repeatedly documenting problems with his statistics, I figure anyone who isn't convinced isn't going to be.

Fortunately, the man who convinced Mr. Sanford to run for governor in the first place -- the man who was named by Mr. Sanford to serve as "the official voice of the State in economic matters" -- is a good deal more persistent. As chairman of the state Board of Economic Advisors, John Rainey sees it as his job to set the facts straight on the state's finances, even when that means having his staff produce a comprehensive analysis that blows the socks off the governor's favorite argument for his signature tax proposal.

Mr. Rainey's target is technically Thomas Ravenel, who during his brief stint as treasurer was far more reckless than the governor in the way he tossed about bogus numbers. But the approach and most of the numbers Mr. Ravenel misused came straight out of the governor's playbook.

Mr. Rainey doesn't dispute the implications of his latest effort; he merely says he can't worry about politics. "When numbers dealing with the state finances come from the treasurer of the state, they carry the presumption of correctness, as they should," he told me last week. "Here these numbers were patently false. It is my duty and responsibility as the chairman of the BEA, when I come upon numbers like these that are false, to deconstruct them in the interest of the contemporary and historic record of the state."

What got Mr. Rainey's attention was the astounding claim by Mr. Ravenel, in an op-ed column that ran in The Greenville News a few weeks before his indictment, that "a recent small-business income tax cut resulted in a 21 percent increase in small-business tax receipts." (The column was first submitted to The State, but when I questioned that claim, an aide first said Mr. Ravenel would call me to explain it, and then asked to withdraw the column instead.)

At the next BEA meeting, Mr. Rainey asked about that figure; if it was accurate, the board would need to change the official revenue projections on which the state budget is based. Everyone was mystified: The small-business tax cut had only taken effect in the 2006 tax year, and the 2006 tax returns were still being processed. In other words, the data to support or refute the claim did not even exist yet. It was simply not possible that the claim could be anything other than a fabrication.

Given what we now know about Mr. Ravenel, this story would not be terribly remarkable if it ended there. It does not.

As long as he was debunking, Mr. Rainey decided to take on Mr. Ravenel's assertion in the same column that South Carolina's income tax is "effectively the second-highest in the nation." Or, as we say in South Carolina, he went to meddling: That claim is a mangled version of one of the main arguments Mr. Sanford has been using for six years to call for slashing or eliminating South Carolina's income tax -- that it is "effectively the second-highest in the Southeast."

The claim (in either version) was already demonstrably untrue, but Mr. Rainey wanted to demonstrate precisely how untrue it was. So he asked the state's chief economist, Bill Gillespie, to calculate how much of their income people in various states pay in state income taxes -- that is, the effective tax rate in each state.

It's not a simple matter of looking at a tax table, which does indeed show that our top rate is tied for second-highest in the region. Each state uses a different starting point to calculate income, then applies its own set of exemptions and credits to get from gross income down to taxable income. Only then do states apply their tax rates. (Mr. Sanford has always shrugged off the significance of his own incorrect characterization of the data when I have asked him about it.)

When he gathered the latest tax returns from the 41 states that collect income taxes, and did all the calculations, Mr. Gillespie found that the state where people pay the second-highest portion of their total income in state income taxes is (drumroll, please) Oregon. (New York is highest.)

Maryland is third.

Ohio is fourth.

Kentucky is fifth.

Massachusetts is sixth.

... I can see you're getting bored, since we've established that South Carolina is not second highest in the nation. (Nor in the region; North Carolina is ninth.)

Our effective income tax rate is actually ... 31st.

Or it was in 2005, the tax year Mr. Gillespie used for his analysis, before the Legislature lowered rates a smidgen this year.

That's an average, of course. At higher income levels, our effective tax rate is higher than most states, although still nowhere near second. (To see the analysis, go to thestate.com/168/ and select Brad Warthen's Blog on the right.)

A final note: The day before Mr. Ravenel resigned -- and 10 weeks after his made-up numbers appeared in print -- his staff produced its own analysis, using a less-comprehensive model than Dr. Gillespie's. It said our effective tax rate ranged from 12th highest to 17th highest, depending on income level.

I think Dr. Gillespie's analysis is more reliable, but a person could at least make a respectable argument for the July numbers from the treasurer's office. A person could even make a respectable argument that 12th-highest is too high, especially since nine states don't tax income.

But that wouldn't be as sensational as second-highest. And apparently, in some quarters, a sensational argument is more important than an honest one.

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