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The Robbing Peter Principle

In response to the House passing a $500 million bonding package for road improvements without a discussion of a comprehensive road funding plan, I offer this piece for review again (note to reader – the House chose the Robbing Peter’s Grandkids Principle):

We have all heard the phrase “robbing Peter to pay Paul” to describe taking resources from one need to pay another. For individuals, this normally happens during a financial crisis such as the recent Great Recession.

In government, this principle occurs more from expediency than crisis. It defines the spending policy of the modern welfare state where politicians regularly tax one group of citizens to support another group determined to be in need.

When the taxed group complains, politicians use this principle to pick winners and losers in the tax code by establishing exemptions, credits and bracketed tax rates. If they are cowardly, politicians will issue debt to fund wealth transfers and punish future taxpayers in the process. The end result of this policy can be found in our $17 trillion national debt.

Tax reform – the process of eliminating exemptions, broadening the tax base and lowering tax rates – attempts to dilute the Robbing Peter Principle.

Having spent the last two years introducing tax reform legislation, I can attest that changing the tax code through political consensus rarely happens. Most legislators say they support a simple and fair revenue structure, but are reluctant to remove exemptions or change tax rates.

This reluctance was evident last year when I introduced several tax reform bills. One bill removed two-thirds of the existing sales tax exemptions and reduced the overall sales tax rate for everybody. As the bill moved through the committee process, most exemptions were added back in by legislators from both parties. By the time the bill passed the House, it was a ghost of its former self.

The gas tax has become the most recent flashpoint in the ongoing discussion about tax reform and road repair. The SC Department of Transportation enjoys a dedicated revenue source from the gas tax. As a broad consumption-based fee, the gas tax links the responsibility for road repair to those who actually use the roads.

Some legislators want to subsidize the SCDOT from the General Fund – the Robbing Peter Principle. They ignore that shifting money from the General Fund to the SCDOT punishes a narrow group of taxpayers who already pay a disproportionate share of taxes. If they believe in tax reform, then they should insist that excess General Fund revenue be used to reduce tax rates, not be shifted to the SCDOT

Other legislators support issuing bonds to pay for road repair – the Robbing Peter’s Grandkids Principle. This option may have limited appeal for certain new construction projects because of cheap interest rates. However, using debt to cover repair costs is irresponsible and debt financing shifts the burden to future generations.

This leaves us with raising the gas tax to fund our roads – the Requiring Peter to Pay His Own Expenses Principle.

As part of my tax reform initiative this year, I designed a conservative and stable indexing formula to raise the gas tax. The formula would initially increase the current gas tax rate by 5 cents. A driver who averages 16,000 miles per year at 20 mpg would pay an additional $40 per year.

The new rate would be indexed to the 10 year average inflation rate and would grow by around .5 cents (one half cent) per gallon per year. To prevent runaway inflation, the formula has an annual cap of 1.5 cents per gallon to avoid a massive increase in any one year. To avoid funds being diverted, the bill directs all new revenue to the State Highway Fund exclusively. It also links the growing number of hybrid/electric vehicles to the rate.

As a conservative Republican who has never voted for a tax increase, including the cigarette tax increase, I was reluctant to introduce this bill. As a steward of state resources, I cannot watch our $320 billion infrastructure investment continue to decline. After determining that the other funding options are even more harmful to the taxpayer, raising the gas tax became the obvious choice.

(Note to reader: debate was adjourned on this bill in subcommittee)

To those who disagree with my assessment but say that they support tax reform, I challenge them to present a viable long-term funding solution for the SCDOT that does not employ the Robbing Peter Principle.  I suspect that after the political posturing about cutting money from other agencies to fund the SCDOT or forcing drivers to pay tolls fades away, we will be left adjusting what the General Assembly originally established as the logical way to fund our roads – the gas tax.