Of the two primary proposals to cut state
income tax rates, the one most likely to prevail is the lesser of two
evils. Unfortunately, lawmakers failed to consider a third option: Not
reducing income taxes at all.
Gov. Mark Sanford was the loser again on the issue of lowering the
income tax. Although Sanford's plan was central to his campaign for
governor and was a key feature in his State of the State address, the
Republican-controlled state Senate has gone its own way.
Sanford's plan calls for the state to reduce its top income tax rate
to 4.75 percent from 7 percent over 10 years. While the reductions would
be keyed to economic growth, the state ultimately would collect an
estimated $1 billion less in taxes than it would if there were no break.
Sanford argues that the plan, targeting small businesses and wealthy
executives and retirees, would spur the economy and erase any loss in
revenues. And his plan was passed in the House last month.
But it has run into a wall in the Senate, where a subcommittee
Wednesday voted 6-0 to gut the House bill containing the governor's plan
and replace it with a tax cut for small business owners. Under that
proposal, which has 37 of the state's 46 senators as co-sponsors, income
tax rates for small businesses would fall from 7 percent to 5 percent,
the same rate large corporations pay.
The proposal will be debated by the Finance Committee next week and
then move to the floor of the Senate for a final vote.
This, then, was another example of Sanford's inability to move items
on his agenda through the General Assembly. Supporters of the
alternative plan argue that it will cost less -- about $100 million when
fully implemented in four years vs. $1 billion.
They also worried that, because Sanford's plan was tied to economic
growth, its implementation might be erratic. Sen. Minority Leader John
Land, D-Manning, called it "an accounting nightmare."
Some critics, however, objected to Sanford's plan on a more
fundamental level. Why, they ask, should the state encourage a bigger
influx of wealthy retirees? It's not as if South Carolina has any
trouble now attracting retirees now.
Furthermore, although we think affluent retired citizens can bring a
lot to the table, basing an economy on that population is risky. Sen.
John Matthews, D-Bowman, refers to it as the Hilton Head model. Retirees
tend to create low-wage, service industry jobs. He favors the Senate
plan to target benefits to small businesses that will create new and
better jobs.
We hope a tax cut will be the incentive for business expansion that
supporters of this bill say it will be. The hurdle, however, will be
overcoming the eventual $100 million loss in state revenues.
With so many pressing needs, it is questionable whether the state can
continue to eliminate sources of revenue. Small businesses already have
legal means by which to avoid corporate income taxes altogether.
If small businesses were foundering, new incentives might be
justifiable. But every resident in the state has a stake in whether the
Legislature can continue to cut taxes and still find the means to pay
for the services constituents demand.
