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For years, this website has railed against politicians who propose “revenue neutral” tax swaps. What our country and our job-starved state desperately need are tax cuts, not tax swaps – as well as hard caps on the growth of our unwieldy, unsustainable federal and state governments.

But what’s worse than a “tax swap?”

A reform that results in a massive unforeseen revenue grab by greedy government bureaucrats.

Take Act 388, which was passed in 2006 by our “Republican-controlled” S.C. General Assembly. Pushed by fiscally liberal House Speaker Bobby Harrell, Act 388 was designed to relieve the local burden of funding school operations (i.e. local property taxes) by raising the state’s sales tax.

The final version of the legislation – crafted by two of the state’s most liberal Republicans on the inside of a chicken box – promised to provide districts with “in-lieu” payments from the new sales tax revenue to replace the revenue they were “losing” from local property taxes.

Is that what happened, though? Of course not. Sure, districts sucked up the new state sales tax revenues – but they also jacked property taxes prior to the new law taking effect (thus creating an artificially-high “base line” for the property tax relief). Not only that, they immediately began raising taxes on businesses and second homes in an effort to “make up” the tax revenue that state “in lieu” payments

The result of  all this shady accounting? According to an explosive new report published by our friends at  The Voice, Act 388 has been a multi-billion dollar cash windfall for our state’s public education monopoly – which despite receiving record amounts of new funding continues to fall further behind the rest of the nation.

“All told, school districts have enjoyed over $2.7 billion in increased local revenues (both truly “local” and the state transfers) since the passage of Act 388 in 2006,” the Voice report notes.

Here’s a chart from the report which shows how the numbers break down …

(Click to enlarge)

Graph: The Voice

As you can see, after a modest one-year reduction (that was more than offset by $511 million worth of “in lieu” payments from the state), local tax revenues for school operations exceeded pre-Act 388 levels withing two years. In other words, even though public schools were being compensated for the money they were “losing” as a result of property tax relief – they decided to make up the revenue a second time by raising taxes on businesses.

“That’s what happens when you craft legislation on the back of a chicken box,” one State House insider recalls. “People don’t realize the unforeseen consequences.”

Who negotiated that “chicken box” deal? Former S.C. Rep. Bill Cotty (RINO-Richland) and S.C. Senate Finance Chairman Hugh Leatherman (RINO-Florence) – the state’s “Godfather of Pork.”

Incidentally, S.C. Gov. Nikki Haley was one of the primary sponsors of Act 388.  Her office refused to respond to our request for comment regarding The Voice report.

WHAT WAS THE IMPACT OF ACT 388?

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