The recent claim that Aiken County has “unsustainably low” property taxes deserves a closer look. What is the relationship between property taxes and economic health across the state?
Based on data from the South Carolina Association of Counties “2012 County Profiles,” I noted in a previous column that the statistical correlation between property tax rates and per capita income across the state’s 46 counties is -0.57.
Remember, statistical correlations range from +1.00 (a perfect positive correlation) to 0 (no correlation) to -1.00 (a perfect negative or inverse correlation). Therefore, across South Carolina there’s a moderately strong relationship between high per capita income and low millage rates.
With the recent publication of the “2014 County Profiles,” the updated correlation between taxes and income is marginally stronger: -0.59.
Likewise, the correlation between millage rates and per capita assessed property values is -0.54. The higher the property values, the lower the millage rates.
The correlation between millage rates and average wages is a much weaker -0.26, but the relationship between high wages the low millage rates remains.
Lastly, the correlation between millage rates and unemployment is a moderately strong +0.59. High unemployment correlates positively with high millage rates.
While correlation isn’t the same as causation, economic health and low property taxes appear to go hand in hand.
Aiken County fits this pattern. Its millage rate of 69.9 is the ninth lowest across the state, but its wages are the second highest, per capita incomes are thirteenth highest, employment rate is fifteenth lowest, and per capita assessed property values are solidly in the middle. (The coastal counties heavily skew this last measurement.)
Aiken County has similarly middling – and not “unsustainably low” – sales taxes.
Nineteen counties have 8 percent sales taxes or above. 19 counties, including Aiken County, are at 7 percent. 8 counties are at 6 percent with have no county-imposed sales taxes.
Aiken County’s credit ratings betray no revenue deficiencies.
With AA ratings from both Moody’s (“excellent financial security”) and Standard & Poor’s (“very strong capacity”), it’s objectively healthy financially. Only three counties (Charleston, Greenville and Richland) enjoy AAA ratings.
Granted, property taxes are low for 4 percent homeowners.
Hence, the large number of retirees who call South Carolina home.
Yet, for 6 percent property owners, small businesses and manufacturers, the rates can be onerous, particularly when school operating millage is factored in.
Therefore, local property taxes should be evaluated within the context of the state’s tax structure. Here the picture isn’t so rosy.
South Carolina’s income taxes are high by national standards. Of the 50 states, only 12 exceed South Carolina’s seven percent top marginal rate.
Additionally, this seven percent top marginal rate starts at a mere $14,250 in taxable income.
South Carolina’s sales taxes are also high. Only 16 states have a base rate higher than South Carolina’s 6 percent. The theoretical maximum of 9 percent with county surtaxes is only exceeded by 12 states. And accommodations taxes and rates on certain items go higher still.
Exemptions for groceries and prescriptions drugs and the $300 cap on vehicles partially alleviate these rates. But when the sales tax base is narrowed, higher rates are needed to obtain the desired revenue.
Not surprisingly, South Carolina’s tax rates point to a poor business and investment climate.
According to the Tax Foundation, the state ranks a lowly 36 out of 50 states.
This ranking is driven by a good score on corporate taxation (10th), middling scores for sales taxes and property taxes (both 21st), a poor score for unemployment insurance taxes (33rd), and a miserable score for individual income taxes (39th).
This tax structure encourages retirees to settle here, who benefit from low property taxes. Their limited retirement income isn’t greatly penalized by the high income tax.
Conversely, this tax structure is hard on businesses and manufacturing. It encourages fee-in-lieu of tax agreements and special source revenue credits to get around high property tax rates on large industrial developments.
In essence, the left hand must undo the damage caused by the right.
Yet little is done to encourage smaller manufacturing and industrial enterprises that don’t meet the fee-in-lieu thresholds. There’s no level playing field.
So are Aiken County’s property taxes unsustainably low? They’re only unsustainably low for those desiring more government, a larger public sphere, a smaller private sphere and less individual autonomy.
There’s plenty of evidence, however, that the state’s tax structure is dysfunctional and hurts economic development.
Instead of raising taxes, a zero-sum restructuring of South Carolina’s tax code would a critical step towards restoring economic health.
Gary Bunker is a former Aiken County Councilman.