COMMENTARY: South Carolina is a low tax state, right? Wrong.

About once a year, legislative leaders in the Statehouse will boast that South Carolina is a “low tax state” and that it has the “lowest taxes in the nation.” The claim is false. It confuses tax collections with tax rates – that is, total amounts sent to Columbia versus the proportion of South Carolinians’ income paid in taxes.

The truth is that South Carolina is a low-income state but a high-tax state. Consider a few data points.

At 7.22 percent combined state and local sales tax, South Carolina has the 18th highest sales tax rate in the nation. That’s higher than the rates of neighboring North Carolina (6.9 percent, 24th in the nation) and Georgia (7 percent, 23rd in the nation).

Five states in the U.S. don’t collect sales taxes at all. And all five of those states’ individual income tax rates is lower than South Carolina’s.

The state allows localities to levy an additional 1 percent tax (the so-called Local Option Sales Tax) in addition to the state’s cut. The additional tax has to be approved by voters. In addition to this local sales tax, some localities also levy a hospitality tax. In some localities in South Carolina citizens pay as much as 10 percent in sales tax.

South Carolina exempts more in sales tax than it collects. In 2013, the most recent year for which data is available, South Carolina exempted $3.05 billion in sales tax revenue, and collected only $2.42 billion. That’s a difference of $628.5 million. (The data for subsequent years will be slightly, but only slightly, different.)

The reason for all those exemptions isn’t hard to find. A culture of cronyism and back-scratching means that lawmakers prefer to keep our sales tax high and divvy out exemptions to favored companies – with the result that average people pay high rates yet the state takes in relatively little in sales tax.

Accordingly, South Carolina’s tax code is riddled with sales tax exemptions. There are special exemptions on hearing aids, coal, motor fuel, railcars, farm machinery, durable medical equipment, livestock, solid waste disposal bags, amusement park rides, prosthetic devices, hydrogen-powered vehicles, newspapers, insecticides, sweetgrass baskets, anything purchased by a major motion picture company, and many, many other items. These exemptions – carved into the tax code by special interests – ensure that the rate on non-exempted items stays high.

All this means that, political rhetoric to the contrary, South Carolina is anything but a low tax state. What’s important isn’t merely tax rates. The crucial factor is our relatively high rates combined with our low income.

South Carolina is the 43rd poorest state in the country by per capita income (seventh from poorest), with an average income of $24,596 in 2014. So every tax that lawmakers levy has a greater impact on the average South Carolinian than it would if incomes were higher. While another state may have a slightly higher sales or income tax rates than South Carolina’s, our slightly lower rate hits us harder because in most cases we have much less income to pay it with.

Think of it this way. A tax of 9 percent on an income of $36,000 is greater in absolute terms than a tax of 7 percent of $25,000 – true enough – but proportionally the person being taxed at 7 percent on a $25,000 income is being hit much harder by the tax.

The problem is this: While South Carolina is in some respects a pro-business state, it’s not a pro-market state. In a pro-market state, government officials – politicians, regulators – let firms compete against each other without favors or barriers to any.

To move South Carolina back to a “pro-market” state would start with eliminating all exemptions from tax code, as well as eliminating the tax carve-outs for favored entities. On the sales tax, for example, that would allow lawmakers to lower the overall rate of 7.22 percent (that’s the combined local and state sales tax rate, ranked 32nd highest in the country by the Tax Foundation) to a much lower rate – say, 6 percent.

Every tax increase and every handout in the tax code serves only to impoverish citizens further. Lower and less burdensome tax rates would simplify the complexities businesses and individuals face in paying taxes, and – more importantly – eliminate a major contributor to Columbia’s culture of favor-seeking. That would in turn lead to a wealthier, more prosperous South Carolina.

Duncan Taylor is a policy analyst at the South Carolina Policy Council.