Gov. Mark Sanford hopes to improve South Carolina's underlying business climate with his tax cut proposal. But if recent history is any indicator, the cuts he has in mind could damage the state's long-term fiscal well-being, a range of economists and policy experts say.

What's more, according to a independent analysis, the tax cuts would benefit the wealthiest South Carolinians more than the middle class.

About 15 states lowered income taxes between 1990 and 2001, while 10 states raised them. The states that made sizable income tax cuts -- as Sanford is proposing -- now face revenue shortfalls and budget crises.

"The historical context here is that states that cut income and other taxes paid for it dearly later on," said David Brunori, a visiting professor of public policy at George Washington University and author of the book, "State Tax Policy."

The conservative economists who Sanford relies on to make his arguments wouldn't agree. But according to the liberal-leaning Center on Budget and Policy Priorities, state income and other tax cuts between 1994 and 2001 resulted in an annual tax-revenue loss of $40 billion, a blow that hampered many states' ability to meet rising costs in the past three years.

Moreover, the top 10 tax-cutting states in the 1990s eventually faced a median budget gap equal to 9 percent of their spending in 2002, and 13 percent of their spending in 2003.

Brunori said states were able to justify the tax cuts they made because their revenues were inflated to unprecedented levels by the booming Internet economy.

"It's unusual, however, that (Sanford) is proposing an income tax cut now, when the state government is hundreds of millions of dollars in the hole" and the economy is still in recovery, he said.

The Palmetto State, which has been besieged by budget deficits for three years running, is projecting a $350 million shortfall for the 2004-05 fiscal year.

The governor says his tax plan will not only increase disposable incomes and spending, but eventually help shore up the budget deficit by spurring economic growth and higher tax returns.

The governor proposes to cut South Carolina's top income tax rate by nearly a third, from 7 percent to 4.75 percent, over the next decade. Reductions would be gradual and would come only in years the state's revenue grows by 2 percent or more.

Will Folks, a spokesman for Sanford, said Tuesday the governor's office had not yet charted the annual dollar savings for individual taxpayers.

Citadel accounting professor Wes Jones, however, said the annual tax savings 10 years from now for a family of four earning $40,000 would be about $500, or an extra $9.60 a week. A family of four with annual income of $100,000 would get a bigger break, about $2,000 annually, or $38 a week.

Added up, the cuts would be a significant blow to the state's tax base, Brunori said.

"You'd better be darn sure it's going to work the way you want it to, or you may end up $500 million in the hole," he said, adding: "You're not seeing a lot of governors going for these kinds of cuts anymore because they're not buying into the supply-side principles behind them."

In unveiling his plan Tuesday, Sanford asserted that South Carolina's income tax rate of 7 percent is the highest in the Southeast for the average taxpayer.

However, the actual effective rate paid by taxpayers in South Carolina is much lower than 7 percent, according to data compiled by the Washington-based Institute on Taxation & Economic Policy.

That rate is applied only to a portion of a taxpayer's earnings. As a result, depending on income levels, South Carolinians pay personal income tax rates from 0.2 percent to 5.1 percent of their family income, according to the institute.

Those rates place South Carolina well below most other Southeastern states, and below the national averages in some income brackets.

Another argument Sanford advanced asserted states that lowered income tax rates during the 1990s experienced three times as much job growth as states that raised income taxes.

That claim is based on research by the American Legislative Exchange Council, a coalition of businesses, lobbyists, conservative legislators and libertarian activists.

Nick Johnson, a fiscal policy expert with the Center on Budget and Policy Priorities, said the ALEC study's analysis of cause and effect is backward.

Johnson said states that led economic growth during the 1990s were the most likely to offer income tax breaks, while states with slower gains and fewer resources increased taxes to pay for services. In other words, he said, high growth led to tax cuts, not the other way around.

He said that while income tax cuts can in certain cases stimulate economies, they can also squeeze basic public services like education, health care and law enforcement, especially during times of fiscal constraint.

"It's one thing to cut taxes and pay for it with a budget surplus but it's quite another to cut taxes and pay for it by cutting services, which can hurt the state's economy," he said.

Sanford, however, maintains that he does not need to cut state services but will pay for the proposed income cuts with growth in overall tax revenue.

Sanford also cited research by the Beacon Hill Institute -- another longstanding anti-tax, libertarian-leaning organization -- that purportedly shows state income tax cuts lead to the creation of jobs while state income tax increases lead to the loss of jobs. Those claims are based on Beacon Hill's State Tax Analysis Modeling Program, or STAMP.

However, in a paper published last October, economists at the University of Arizona questioned both the methodology and the output of the STAMP model, calling it "not useful for forecasting" and suggesting that it may be subject to manipulation, or "data fitting," in order to produce desired results.

In any case, mainstream economists question the likelihood of a state being able to afford to lower income taxes without cutting services or running bigger deficits.

Steve Silver, a professor of economics at The Citadel, said that in the past, states that have managed to cut income taxes or not charge them at all have tended to have other significant sources of income.

"Texas had tax revenues from oil, Florida had tourism ... we don't have a big revenue source like that. I would be worried that we'd wind up with shortfalls," he said.