S.C. may delay income tax cut

COLUMBIA - Although the two Republican members of York County's legislative delegation say they see merit in Gov. Mark Sanford's plan to reduce South Carolina's income tax rate during the next decade, they are doubtful about its becoming law this year.

"Right now, we've got to deal with a huge deficit, so I just don't know if this is the year to do it," said Sen. Wes Hayes, R-Rock Hill.

In the House, some 90 of the 124 members, including Republican Rep. Gary Simrill of Rock Hill, have signed on to Sanford's proposal to cut the top income tax rate from the current 7 percent to 4.75 percent over 10 years.

"I know the speaker of the House is working hard on this bill," Simrill said, "but whether it can get through both the House and the Senate remains to be seen."

Sanford's plan is one of a number of sweeping tax law changes that have been floated by government leaders in the past year. Other proposals call for increasing the state's sales tax to pay for eliminating local taxes on cars, and for raising the tax on cigarettes by 53 cents a pack to pay for Medicaid, the government-paid medical insurance system for low-income people.

"I just think a lot of people are going to be reluctant to make a major change this year," Hayes said. "Although I support the cigarette tax, I don't think it's going to pass this year, either."

House Speaker David Wilkins, R-Greenville, and other members of the House GOP leadership stood behind Sanford at a news conference on Tuesday where the Republican governor unveiled his proposal.

Sanford said a lower income tax rate is crucial to encouraging growth by small business as the state recovers from its worst years of job loss since the Great Depression.

"Our rate of job loss has been the highest in the country. We have an astounding jobs and economy problem," Sanford said.

Lowering the income tax will help move the state from economic dependence on big manufacturing plants that are now more frequently going abroad, Sanford said.

"It is vital that we become more competitive as a state in growing small businesses, attracting investments, attracting capital to our state," Sanford said. "That's what this bill is all about."

Under the governor's plan, the income tax rate would be reduced gradually, and only in years when state revenues are forecast to grow by 2 percent or more, meaning that the state would be collecting at least $100 million more than the previous year. That would more than make up for the $62 million a year the state would lose in income taxes, Sanford said.

Simrill said he thinks the plan is a good one. "Anytime you can cut taxes, that's a positive," he said.

Someone with state taxable income of $30,000 would save about $67 in the first year. After 10 years, that savings would increase to $673.

The savings would be greater for higher-income taxpayers, which Sanford said is exactly the point. Making the state more attractive to people with higher incomes is a key element of spurring economic growth, he said, because those higher-income people make decisions on where to expand businesses, set up their own companies or invest in startups, Sanford says.

But some economists warn that slashing income taxes would make it more difficult for the state to pay for schools and public services. As S.C. lawmakers begin work on the state's budget for the fiscal year that starts July 1, the state faces a $350 million gap between what forecasters say it will take in and what it needs to keep services at their current levels.

Economists also say there is little evidence that cutting income taxes will do all that Sanford expects in the way of boosting economic development. College of Charleston economist Frank Hefner said that some of the nation's fastest-growing states during the 1980s and '90s also had some of the highest taxes.

Democrats were also dubious.

House Minority Leader James Smith, D-Richland, said curbing property tax reassessments should be a higher priority. "I have not had a single constituent complain to me about the income tax rate, but I've heard a lot about property taxes," Smith said.

Rep. Bessie Moody-Lawrence, D-Rock Hill, one of the two Democrats in the York County delegation, said she wants to do more research on Sanford's plan before commenting.

But she said, "I can tell you that my gut-level feeling is that we ought to restore the cuts" that public services have taken during the past three years of budget deficits, before reducing taxes.

Rep. Herb Kirsh, D-Clover, couldn't be reached for comment Tuesday.

Regardless of whatever opposition the Democrats mount, Wilkins' support makes it likely that the plan will sail through the House.

The Senate is another matter, however, Hayes said.

"Even the Republican caucus in the Senate is divided on what we should do," he said, "much less the Democrats." -- THE ASSOCIATED PRESS CONTRIBUTED TO THIS ARTICLE.

-- HENRY EICHEL: (803) 779-5037; HEICHEL@CHARLOTTEOBSERVER.COM