Senators dealt a crushing blow Wednesday to Gov. Mark Sanford’s plan to slash income taxes, approving an alternative plan targeted to small businesses.

While the unanimous Senate Finance subcommittee vote was a sign that Sanford’s top legislative priority likely won’t pass this year, he called the other bill a step in the right direction.

“Nobody was talking about cutting income taxes until a couple of years ago,” he said. “We’re a long way from that.”

In a rare move, Sanford attended the Senate meeting— armed with charts to make an unsuccessful last-ditch plea for his proposal.

The plan adopted Wednesday would cut taxes on small business owners who file as individuals. Some business groups said they would have been happy with either bill.

“Whatever they choose is their decision, but both address our concerns,” said Michael Fields, director of S.C.’s National Federation of Independent Business.

The winning bill, sponsored by Senate Finance Committee chairman Hugh Leatherman, R-Florence, would gradually cut taxes for about 300,000 small businesses — “S” corporations and some limited liability partnerships — over four years.

The rate would drop to 5 percent from the current 7 percent.

Sanford’s plan would cut taxes on everyone, including businesses, who falls into the state’s top, 7 percent bracket. That would give a tax cut to anyone with a taxable income of more than $12,650. The House approved the measure in February.

Senators, though, said they doubted the state could recoup the nearly $1 billion loss of tax revenue Sanford’s plan was expected to incur over 10 years.

Leatherman’s plan is projected to cost the state about $128 million in revenue over five years.

“A billion dollars is like, ‘Oh, my Lord, ‘“ said Sen. Scott Richardson, R-Beaufort. “What we passed is not such a scary number.”

Lawmakers also heard from the state’s chief economist, Bill Gillespie, about the possibility of future revenue shortfalls if Sanford’s plan was adopted.

“The risk is very substantial here,” Gillespie said.

Sanford argued his plan would actually boost tax revenues because lower income taxes would attract wealthy retirees to the state and return money to more people’s wallets.

“Do the 170 people in the legislative process decide how this money gets spent, or do the 4 million people in South Carolina?” Sanford asked.

But Sen. John Matthews, D-Orangeburg, told Sanford an economy built on wealthy retirees is not a desirable goal.

“I don’t want to create a Hilton Head economy in South Carolina,” Matthews said. “Hilton Head has hurt the indigenous people. You either wait tables, cut grass or make up beds.”

Sanford attended the Senate meeting after canceling a scheduled event with U.S. Sens. Lindsey Graham and Jim DeMint in Mount Pleasant earlier in the day.

Some lawmakers had accused him of “grandstanding” on the tax issue.

“It was an excellent move for him to come here,” said Richardson, one of those who had criticized Sanford. “We need to talk to each other more often.”

Leatherman said his bill likely will be considered by the full Senate Finance Committee next week. Next month, it is likely to clear the full Senate — where 37 of the 46 senators have signed on as co-sponsors.

“If we give small businesses a tax break, they’ll put it back into the businesses and create jobs,” he said.

Once it passes the Senate, the House would have to go along, or negotiators would work out differences between Leatherman’s bill and what the House already has approved.

Don Weaver, president of the S.C. Association of Taxpayers, said both Sanford’s and Leatherman’s plans would improve the state’s business climate.

“Leatherman’s is a little half-baked, though,” Weaver said. “As long as were changing the tax code, why not go with the more aggressive plan?”

Reach Stensland at (803) 771-8358 or jstensland@thestate.com.