Economists question Sanford income tax claim

COLUMBIA -- Gov. Mark Sanford's claims that the state's income tax rates are the highest in the Southeast and impeding economic growth are raising questions with economists.

During his State of the State speech Wednesday, the Republican governor said his top priority in the Legislature this year is lowering the state's top income tax rate from 7 percent to 5.9 percent.

"Our income tax is effectively the highest income tax rate in the entire Southeast, and that's rough on families, it's rough on retirees and it's rough on working folks," he said during his speech.

But University of South Carolina economist Doug Woodward said South Carolinians pay close to the U.S. average among states with income taxes.

North Carolina has a top rate of 8.25 percent until 2006. Other states in the

region have no income tax or rates below South Carolina's rate.

But Sanford said North Carolina's top rate affects people who make $120,000 a year or more -- less than 2 percent of South Carolina's taxpayers, Sanford said. "There are only 34,000 people in the entire state that make more than $120,000," Sanford said.

Sanford also doesn't like that South Carolina charges its highest tax rate to anyone making $12,000 or more. He said that makes it hard for the state to attract companies and nurture small businesses.

"I'd like to receive evidence that (lowering income taxes) would spur economic growth," Woodward said. "I've never seen that income taxes are significant deterrent to investment."

Sanford said the people who make decisions to move operations to South Carolina know the impact on their wallets and their corporate budgets of putting an extra 1.1 percent of their income into taxes.

Adjusting for lower incomes, South Carolinians pay less in state income taxes, according to Census Bureau data examined by The (Columbia) State. The state collected an average $475 for every man, woman and child in 2002, or 1.9 percent of per capita income. With a U.S. average of 2.1 percent, South Carolina ranked 35th among 43 states with income taxes.

But Sanford said that was an aberration that showed up as the economy struggled through recession.

"They picked out a single year after 9/11 and they left off ... the other nine years," Sanford said. Those other nine years show the state's average income taxes are higher than the national average, Sanford said.

A report by the University of South Carolina says the overall tax burden here is lower than in most states. It found while citizens paid a slightly higher portion of their income in state taxes, they pay significantly less in local taxes.

But Sanford said taxes aren't the only burden the state levies. Fees the state's impose are the third highest in the nation per $1,000 in personal income, according to Sanford's office, which cited 1999 Census Bureau and Bureau of Economic Analysis data.

"We've shifted a lot of things over to fees that other states pay for by taxes," he said.

For taxpayers, there's little distinction between taxes and fees, Sanford said.

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