Property tax reform
on verge of collapseLack of consensus
and motivation might doom year’s top issueBy JOHN O’CONNORjohnoconnor@thestate.com
The fiery push to cut property taxes that engulfed the State
House earlier this year has flamed out in the Senate, extinguished
by the legislative grind of trying to strike a compromise on the
high-profile issue.
While debate on the Senate plan is likely to begin this week, the
bill — a top agenda item for many lawmakers, particularly House
Republicans — is in the unusual position of having no strong
supporters to champion it.
Instead, the Senate will pick and choose from a swirling mix of
priorities, aiming to produce a compromise that a committee of seven
senators could not reach in six weeks.
“Where did this one come from if nobody likes it?” Senate
president pro tempore Glenn McConnell, R-Charleston, asked members
of the Senate Finance Committee during his weekly ETV press
conference.
The answer, senators told their leader, was compromise that
including giving up parts of what many tax-cut advocates wanted.
As a result of those compromises, however, some who support
changing South Carolina’s property tax system could find themselves
rooting for this year’s effort to die for fear of settling for less
than wide-ranging changes.
“It is definitely on life support,” said Don Weaver, president of
the S.C. Association of Taxpayers, who has lobbied this session to
remove taxes from owner-occupied homes. “The (House and Senate)
plans are so divergent. They’re world’s apart.
“We don’t want half a loaf this time.”
The Senate is set to debate a plan that relies on:
• A penny increase in the state
sales tax — roughly half the size of what the House has
approved.
• Half of the $671 million raised
would cut vehicle taxes. The House plan would spend all the added
sales tax revenues to eliminate taxes on owner-occupied homes.
• The rest of the $671 million
would be split between reducing school taxes on owner-occupied
homes, and a “circuit breaker” provision that would be applied
according to a homeowner’s ability to pay his tax bill.
The tax swap is part of a three-pronged Senate plan that would
partner with:
• A constitutional amendment,
already approved by lawmakers, that would cap home value
increases
• A constitutional amendment, not
yet approved by lawmakers, that would limit the amount that local
governments can raise their tax rates each year.
Voters would need to approve the constitutional changes.
WINDING ROAD
The House and Senate have been working on plans to change the tax
system since the summer.
The House plan swept through that body on a populist,
homeowner-focused wave of support. That plan would raise the state
sales tax by 2 cents on the dollar, with the money used to eliminate
about 85 percent of taxes on an owner-occupied home. In addition,
the plan would exempt groceries from the sales tax.
But that plan ran into resistance from business leaders and
manufacturers worried about paying an additional half-billion
dollars in taxes each year. In addition, the state’s sales tax rate
— if raised to 7 percent — would be higher than neighboring states,
putting S.C. businesses at a competitive disadvantage.
The Senate’s tax swap plan offers a compromise for lawmakers
worried the House’s 2-cents-on-the-dollar sales tax hike would hit
businesses too hard.
The Senate plan also would apply some money toward reducing taxes
on vehicles — a compromise to give tax relief to residents in rural
and slower-growing counties that have not been pinched by rapidly
increasing real estate taxes.
But those compromises might end up strangling the bill.
“What’s on the table clearly does not represent what the people I
represent want,” said Sen. Nikki Setzler, D-Lexington.
The tax relief would not be permanent or guaranteed, Setzler
said. He favors using money raised by increasing the sales tax to
cover the cost of increasing the amount of a home’s value that is
exempted from school taxes.
Despite the complaints, many who have long pushed for changes in
the tax system, such as Sen. David Thomas, R-Greenville, are willing
to accept half a loaf to keep the bill alive.
“You’d be surprised how many issues get solved,” Thomas said,
when members from the House and Senate work out the differences in
bills passed by each chamber.
INSIDE THE DEBATE
The dispute breaks down mainly over two issues, with Republicans
and Democrats on both sides of the debate:
• Eliminating as much of the
property tax on owner-occupied homes as possible, which business
leaders say would shift too much of the tax burden onto their
companies.
• Balancing the impact of any
changes between counties with high tax rates and counties with high
real estate prices. Under most plans, one side or the other would
receive more property tax benefit.
Some in the Senate — including Finance Committee chairman Hugh
Leatherman, R-Florence; Minority Leader Sen. John Land, D-Clarendon,
and Sen. Wes Hayes, R-York, who chaired the subcommittee that
studied the issue — are worried about raising the sales tax.
Leatherman and Hayes have advocated a smaller sales tax increase,
such as a half-cent or quarter-cent on the dollar.
Opposing them are those who favor eliminating as much home tax as
possible, including Thomas and most Lowcountry lawmakers. That could
cost between $1.2 billion and $2.4 billion, depending on the
plan.
The plan now on the Senate floor leaves them uninspired.
“I’ll vote for the House plan before I vote for this one,” said
Senate leader McConnell of Charleston, where rapidly rising home
values and taxes have fueled the tax cut movement.
Democrats also have floated completely taking over school funding
and could filibuster any bill.
For others, such as Sen. Linda Short, D-Chester, the car tax
component is the key issue — the way her constituents could get
something back for the added sales tax they would pay.
“It’s going to be very hard for me to support it if it’s not in
there,” said Short, noting the housing values in her district are
not as high as those in coastal counties.
FINDING A WAY
Though it will be difficult to reach an agreement on the floor,
the number of plans gives the Senate plenty of options.
There is a fall-back plan, proposed by Sen. Chip Campsen,
R-Charleston, that would let individual counties enact a local sales
tax increase to pay for property tax cuts, rather than tackle the
problem statewide.
A handful of senators, including Leatherman, also might be
willing to let the Senate’s reassessment changes take effect to see
if that solves the property tax crunch without raising the sales
tax.
Meanwhile, Setzler and others said they have a problem approving
any tax swap without first passing the constitutional change
limiting local government tax increases.
Despite the disagreements over the details, many senators believe
some plan will pass the Senate.
Anti-tax advocate Weaver will be watching.
In an e-mail newsletter to members of his group last week, Weaver
said the Senate plan could be worse than no tax relief at all but
still allow the Legislature to claim a victory.
“They won’t want to revisit this issue for the next decade,”
Weaver said. “It took them 10 years to get around to correcting what
we started, much less finished, in 1995.”
Reach O’Connor at (803)
771-8358 |