Senate, House far apart on tax plans

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None of those new taxes are included in the House-passed $5 billion budget, which ultimately must be reconciled with the Senate version.

Ed Foulke, Greenville County Republican Party chairman, said he doubted the proposal would be embraced by the man on the street and Republican House members, many of whom have signed pledges to vote against tax increases.

"Raising taxes is no way to make the economy more vibrant. Taking money from people's pocketbooks doesn't help," Foulke said.

But that's not a universal opinion.

Fairness and growing concerns about education funding make the car-tax proposal more viable, said Rick Beltram, Spartanburg County GOP chairman.

"The man on the street would probably think there's some fairness there because people buying expensive cars would be paying more of what would be perceived as their fair share of the sales tax," he said.

Now, only people buying used cars are actually paying 5 percent tax, Beltram said.

"A guy buying a used pickup truck for $6,000 is going to figure the upper crust of society is going to pay for it," he said.

Under the current $300 cap on sales taxes on cars, everyone pays the state's 5 percent tax on the first $6,000 of the purchase price, but no tax on the remaining value of the vehicle.

Rural school districts would be particularly grateful for the increased funding.

Kenneth Gardner, superintendent of Williamsburg County schools, said poor, rural districts such as his rely more on state funds than affluent urban counties because they have so little property to tax.

One mill of taxes in Greenville County, for example, produces about $1 million for schools. But in Williamsburg County, one mill generates just $46,000, not even enough to pay the salary of a senior administrator in the district.

Meanwhile, the Senate version of the budget would give Williamsburg County $1.5 million more state funds than would the House budget.

Sen. Larry Martin, R-Pickens, said many people have complained that the $300 cap unnecessarily subsidizes people who buy high-priced luxury cars. The new $2,500 cap means the statewide 5 percent tax will apply to the first $50,000 of the car's sale price.

Beltram said a "growing concern" about education budget cuts would help sell the taxes outside the Legislature.

Martin agreed, saying there had been a growing consensus in the Senate that the House budget seriously under-funded education.

The Senate Finance Committee has voted for a 53-cent per pack increase in the tax on cigarettes to maintain spending levels on Medicaid; to raise the cap on sales taxes on cars to $2,500 from $300; to remove a tax exemption on manufacturing equipment; and to abolish the one percent sales tax exemption for consumers over age 85.

Those tax changes are expected to raise $171 million for Medicaid, and $151 million for schools.

House Speaker David Wilkins, R-Greenville, said Friday he would "wait and see" what the full Senate does when it debates the budget in about two weeks.

During the 2002 campaign, Republican Gov. Mark Sanford signed the Americans for Tax Reform's "Taxpayer Protection Pledge" in which he promised "all the people of this state that I will oppose and veto any and all efforts to increase taxes."

How does that square with a big boost in the sales tax cap on cars?

Sanford spokesman Will Folks said some would see it as closing a loophole, others as violating the pledge. He said he wants to see the final proposal before answers that question.

"It's very early in the debate," he said. "There may be other versions (coming)."

At the time, Sanford's plan for an 18-year phase-out of the state income tax was coupled with the immediate imposition of a 5 percent sales tax on gasoline. He said the extension of the sales tax was necessary to cover shortfalls.

During this legislative session, Sanford followed up on his State of the State Address recommendation and agreed to a tax swap, a 53-cent per pack hike in the tax on cigarettes and the future reduction of the top income tax rate to 5 percent from 7.

Folks said the income tax cut would save taxpayers $7 billion over the legislation's 15-year life, according to fiscal projections.

Senate Republicans began to see political trouble in the House budget, which reduced per-pupil school spending by $359 below the historic high and back to 1994 levels, and $558 below the level stipulated by the Education Finance Act.

Sen. Martin said he expects strong support in the Senate to raise additional revenue for schools.

He expects the change in the sales tax on vehicles to have the most support, but he's concerned that applying sales taxes to manufacturing equipment could dampen economic expansion and cost the state jobs. Martin is a textile manufacturing executive.

At a Statehouse rally last Wednesday, state Superintendent of Education Inez Tenenbaum called for a tax increase to preserve education spending gains of previous years. State revenues have been eroded by economic recession and program growth funded with non-recurring revenues.

Senate Finance Committee Chairman Hugh Leatherman, R-Florence, said most senators already had resolved to increase education spending before the rally.

Add a rising tide of telephone calls, e-mails and personal visits, and senators began to sense voter unrest over the proposed education cuts.

Then there is the shortfall in health-care funding.

Medicaid, the federal-state partnership that provides health care to the poor and elderly, also was threatened by the same double economic whammy.

Programs that provided clinical services and medicine to tens of thousands of children and elderly people faced dramatically reducing the rolls of people they served if more money was not found.

The House addressed the Medicaid shortfall with a plan to refinance bonds the state sold in return for payments from the Master Tobacco Settlement with the states. The House plan would have produced more short-term return, but it would have shifted the risk of tobacco-company default from the bondholders back to the state.

That proposal began to run out of political steam when Philip Morris, one of the major tobacco companies, threatened to default on its payments to the states if it was forced to pay a $12 billion payment in an Illinois court case.

Philip Morris made its April 15 payments, but the doubt it raised chilled enthusiasm for putting the state at greater risk. Leatherman declared the House plan unacceptable.

The Senate Finance Committee agreed to increase cigarette taxes by 53 cents a pack, producing $171 million for Medicaid.

Other tax proposals were raised during the Senate Finance Committee debates.

Sen. David Thomas, R-Fountain Inn, distributed a proposal to add two cents to the state sales tax in exchange for total elimination of property taxes on cars and primary residences.

Thomas did not ask for a vote on that measure in committee, but said he may offer it during debate on the floor of the Senate.

And Sen. Greg Ryberg, R-Aiken, proposed eliminating the sales tax exemption on newspapers and newsprint, which he said would raise $9.6 million. That proposal was defeated.

And Sen. Larry Grooms, R-Bonneau, proposed adding the state sales tax on the sale of lottery tickets, which was estimated to produce $29 million in new revenue. That measure also was defeated.

Sen. Martin said he would support a sales tax on lottery tickets before he would back taxing the sale of manufacturing equipment.