Property tax reform, reduction in tax on groceries help push total of cuts to $1.7 billion

South Carolina residents and businesses will receive more than $1.7 billion in tax breaks, thanks in part to a spate of cuts approved in the past year.

The breaks range from the well-known — statewide property tax reform and reducing the sales tax on groceries to 3 percent — to the obscure — a discount on the sales tax for an artificial joint lubricant.

Lawmakers said the total — more than the state spends annually on law enforcement, higher education or health care — shows a commitment to lowering taxes.

“We are serious about tax relief in this General Assembly,” said House Speaker Bobby Harrell, R-Charleston, “contrary to comments from others on a regular basis.”

In the past year alone, $171 million in cuts were approved, including the grocery tax, another for companies increasing their use of Charleston’s port, and a credit for vehicles and other devices that use alternative fuels.

A decrease in the small-business tax rate, phased in over four years, will save companies $54.5 million this year.

Critics, including business leaders, say many of the tax breaks are for special interests. A comprehensive review could mean more broad-based relief, such as income tax cuts, that would benefit more residents and spur new jobs, they add.

In addition, the more cuts taken off the top of state revenues — nearly one-sixth of the state’s budget — the less flexibility lawmakers have in drafting a spending plan to meet state needs.

The Palmetto Institute, a think tank dedicated to improving South Carolina’s business climate and quality of life, has advocated a complete review of South Carolina’s tax code to update it, make it fairer and more efficient, and encourage business investment. However, lawmakers have done little with institute recommendations issued a year ago.

“It’s clear when you look at that hodgepodge,” said John Rainey, chairman of the state Board of Economic Advisors. “We’re nickel and diming ourselves to death when we don’t have an overall plan.

“Why would there be tax relief on an arthritis drug and not on a cholesterol drug? Why would there be tax relief on either one of them?”

Rainey estimates at least $300 million in tax breaks could be converted to reduce the income tax rate.

House Ways and Means chairman Dan Cooper, R-Anderson, said the tax code “always makes it a challenge” to write the state’s budget. But, he added, “everybody has a different viewpoint” on the exemptions.

Don Weaver with the S.C. Association of Taxpayers agreed the system needs work. “It’s basically a lobbyist’s full-time employment act.”

Weaver would like to see a panel look at the tax system — and make recommendations that lawmakers would have to accept or reject in total. Otherwise, Weaver said, lawmakers would try to pick and choose reforms.

Lawmakers have taken small steps, passing a law that requires a review of the state’s more than 60 sales tax exemptions. So far, neither the House nor the Senate has appointed members to the committee that will study the exemptions.

Gov. Mark Sanford also has backed off calls for a tax overhaul, opting instead for “rifle shots” that target what he sees as the state’s most important needs.

Earlier this month, for example, Sanford proposed raising the cigarette tax partially to pay for an income tax reduction.

“I think the idea of a comprehensive tax review makes sense,” Sanford said, referring to the Palmetto Institute report.

But, he added, “Let’s not let that get in the way” of other reforms.

Reach O’Connor at (803) 771-8358.