Senate mulls ending property tax for 2-cent sales tax hike

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Nothing is set in stone, Senate leaders said.

But in a GOP caucus meeting Thursday afternoon, they sought an alternative to a failed Senate Finance Committee plan. The senators tentatively settled on a broad outline promoted among senators for the past week by Sen. David Thomas, R-Fountain Inn.

In a letter to Thomas, state economist William C. Gillespie estimated a 2-cent increase in sales taxes would raise $1.05 billion in a year. To eliminate the tax on personal vehicles and owner-occupied homes would require $1.02 billion, Gillespie estimated.

"This may be our only chance in our lifetime to totally eliminate property taxes on our homes and cars," said Sen. Verne Smith, R-Greer.

There is substantial resistance in the Legislature against giving the schools any more money. But there is also much eagerness to eliminate property taxes on homes and personal vehicles, and that may be the carrot necessary to win support of the tax-swap plan.

Opinion polls have shown again and again that voters like the idea of swapping higher sales taxes for elimination of the property tax. But there is also a downside to such a swap. For example, a home-owner would lose the deduction of his or her property taxes on the federal income tax return, whereas there is no federal deduction for sales taxes paid.

A straight swap would not produce the increased revenue that Senate Finance Committee Chairman Hugh Leatherman, R-Florence, has vowed to produce.

But Thomas said one strategy being discussed would have the sales tax increase on July 1, and distributions to begin Jan. 1, 2004. That would produce an estimated $500 million in one-time revenue that would shore up education spending for at least the next two years.

The Senate Finance Committee's goal had been to set per-pupil spending at $1,904, or $261 higher than the House-passed budget's figure of $1,643 per student. The House spending plan reduces the base student cost to levels not seen since 1994, and could result in the firing of 6,000 teachers according to State Department of Education estimates.

Senate leaders said Thursday they now hope to increase per-student spending to $1,943, or $300 above the House figure.

Leatherman acknowledged in an afternoon press conference with about a dozen senators that the Finance Committee plan to remove sales tax exemptions on car sales and manufacturing equipment will not pass the Senate.

Those measures had been strongly opposed by car dealers and manufacturers. Leatherman said, "if allowed to stand (those taxes) could have an adverse affect on our state's already struggling economy as well as economic development."

Technically, the Legislature cannot eliminate all property taxes. Thomas said the cities, counties and school districts are allowed by the state Constitution to levy property taxes to repay debt, such as bonds that pay for school construction. Only a referendum by the voters could change the Constitution.

But the legislators can eliminate by statute the taxes currently levied for operations of schools and local government.