Posted on Wed, Feb. 02, 2005


Momentum slowing for Sanford's plan to cut income taxes


Associated Press

Gov. Mark Sanford's proposal to reduce the state's income tax rolled through the House - again - but it still faces a major hurdle in the Senate.

Sanford wants to attract wealthy retirees to South Carolina and help business owners by lowering the state's top income tax rate to 4.75 percent from 7 percent over several years. The Republican governor says the move will boost the state's economy and create jobs.

"Nobody's clamoring for this cut. Why does he think he's right?" said Sen. John Land, D-Manning. "In my 31 years of service, nobody has ever asked me to cut their income tax. Now, they ask me daily to do something about property taxes on their cars and their house."

On Wednesday, House Democrats unsuccessfully attempted to squeeze property tax relief and more education funding into the bill.

"We've got to live up to and honor the commitments we've already made," said House Minority Leader Harry Ott, D-St. Matthews.

House Speaker David Wilkins made a rare move to the floor to challenge the Democrats' strategy.

"Many of us have been fighting for property tax relief," said Wilkins, R-Greenville. "If you truly are for property tax relief, put the bills in."

The income tax bill passed the House 73-39. It's the third year the House has passed the bill, but it has never been approved by the Senate.

Critics argued the state cannot afford the cut. The state would spend $6 million on the plan the first year. When fully implemented in a decade, it would cost the state nearly $1 billion.

"You are creating debt for your children and your grandchildren," said Rep. Gilda Cobb-Hunter, D-Orangeburg. "When the bill comes due, y'all won't be here to pay for it."

Proponents say there is a safeguard in the bill that would protect education funding and prevent income taxes from being reduced in years when revenues increase by less than 2 percent.

"This is a tax cut that is paid for out of growth," Sanford's spokesman Will Folks said.

Rep. James Smith, D-Columbia, who called the bill a "leave no millionaire behind" plan, said he was glad he convinced the House to amend the bill to protect funding for law enforcement.

South Carolina taxpayers whose state taxable income, which is determined after federal deductions are taken, is $100,000 or more pay a straight 7 percent tax rate. Those taxpayers would see the biggest gain from the change.

A couple with two children and earning $100,000 would save $1,507 under the plan, according to the advocacy group South Carolina Fair Share. That same couple earning $35,000 would save $52 in taxes, while a couple that has two children and that earns just $25,000 would get nothing from the plan, he said.

Small-business owners pay their taxes on personal income tax forms at the top marginal rate of 7 percent, while big businesses pay a 5 percent tax rate.

"This bill would level that playing field," Folks said.

Senate Finance Chairman Hugh Leatherman, R-Florence, said he was not thrilled about the idea and wanted to investigate how it would affect the entire tax code.

For example, Leatherman said, the state expected to pay $195 million for the homestead exemption created in 1995, but the state had to cap spending at $247 million three years later to deal with the mounting costs.

"I want to make sure we know what we're doing when we do it," he said.

Folks said the majority of senators last year supported the measure, which passed the House but got hung up during a Senate filibuster. "We were incredibly close last year," he said.

Land said the General Assembly should discuss legislation that would address only the tax code for small businesses instead of income taxes for individuals.





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