Posted on Sun, Apr. 09, 2006


Property tax reform on verge of collapse
Lack of consensus and motivation might doom year’s top issue

johnoconnor@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





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