Legislature tinkers with governor's proposal

March 23, 2005

The House may be on Easter break but the Senate was hard at work as the week began. Specifically they are looking at Gov. Mark Sanford’s proposal to lower the state’s income tax rates.

And at last count, 37 of them aren’t happy with the view.

Support is growing, however, for a tax-reduction bill from Sen. Hugh Leatherman, R-Florence, that lowers the income tax rate of small businesses without changing that of the individual.

The Sanford plan, enacted over 10 years, reduces the rate for small businesses, but also for those in the top income brackets and well-off retirees, which he says will spur the economy by bringing them to our state. But his proposal translates into $1 billion less for state coffers. Although it passed in the House in February, it remains under discussion in the Senate Finance Committee, chaired by Mr. Leatherman.

Small businesses make up a vast majority of our economy. Considering their impact, we’ve often thought it somewhat unfair that in addition to all the other struggles a small, independent business owner must face, he or she has a higher tax rate to boot than that of corporations. There are, of course, those individuals that might technically classify as a small business in order to get the benefits of small business ownership, as there are tax advantages. But for the most part, a small business is simply doing what it can to stay vital, to provide jobs, to provide a service or a product to the community in which it is located.

We support a decrease for small businesses. Another suggestion might be tax credits for small businesses that create new jobs and for those that provide health insurance for their employees, often a perk that the small business cannot afford to provide.

But regarding a similar decrease in individual income taxes in the highest bracket, we don’t believe at this time that the governor’s version is worth the trade-off in lost revenues. Apparently we’re not alone.

An Associated Press report in late February noted that Standard and Poor, one of the nation’s top credit rating agencies, had reaffirmed our state’s triple-A credit rating but with a caveat, that the state would be affected negatively if the governor’s proposal to lower the income tax rate passed muster in the legislature.

Will Folks, the governor’s spokesman, responded with statistics from 14 of 15 other states that had cut income taxes and yet saw income tax revenue climb by 10 percent. The statistics, however, were 10 years old, covering the mid-1990s when the market was soaring and the economy had a much rosier outlook than today in 2005.

What the states were was not mentioned in the report we read, and one can’t help but wonder if the comparison was valid, if any were heavily manufacturing-dependent states like our own, sites where the economy hasn’t rebounded as quickly as in other regions. He also didn’t mention how those states are faring today. Perhaps they are prospering; but since the spin had no specifics, there’s no way to know.

Another issue raised by Sen. John Land, D-Manning, is with regard to the governor’s proposal being tied to economic growth. While it makes sense to exercise caution and not reduce the tax rate without a corresponding growth, it seems iffy to base budgeting on projected revenues derived from growth expected from a plan that may not be enacted for years.

And would the state simply be making a promise of decreased taxes that would not come to pass?

Whatever the outcome, we agree with Sen. Wes Hayes, R-Rock Hill, the finance committee co-chairman, who said the legislature needs as much solid information as possible on how either proposal would affect state revenues. Once any plan is enacted, he said, it would be difficult to undo what’s already been done.

The bottom line for any proposal that affects state revenue and thus state budgeting is, after all, the bottom line.

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