South Carolina has lost more than 80,000 jobs in the last four years. The governor and a number of legislators want to not only curb that loss, but reverse it. The governor has proposed and the leadership of the S.C. House of Representatives has signed on to a lowering of the state's income tax from 7 percent to 4.75 percent over a decade.
Among many people this is known as supply-side economics. A central concept of the supply-side economic theory is that tax cuts cause economic growth. Tax cuts allow entrepreneurs to spend or invest tax savings, creating higher productivity, jobs and profits.
The supply-side theory is simple, and offers a popular political message -- more money in pockets and bank accounts. More industry or business which builds productivity, thus more taxes because income or wealth has risen.
But if the theory didn't work at the federal level why should anyone think it will work at the state level?
About 97 percent of the state's businesses are small, the governor says. The governor and others believe that reducing the state's income tax would put more money into the pockets of small-business owners and individual income earners and attract more business and industry to South Carolina.
The state's income tax rate for individuals and small businesses may be higher than other states. For instance the top rate of 7 percent hits any income over $12,300 a year (individual and business).
The governor and other leaders are banking on the economy growing by at least 2 percent each year or the 0.225 reduction in a given year would not go into effect. The unfortunate problem is that even if the economy grew by 2 percent and the 0.225 percent reduction was implemented, the state still would face a severe revenue shortfall based on revenue and budget projections.
In order for the plan announced on Tuesday to work, Sanford's restructuring plan would have to become a reality, dramatically reducing the cost of government, plus growth would have to kick in.
During his campaign for election and last year, Gov. Sanford talked about an income tax reduction in conjunction with revenue increases elsewhere, an increase in the state's cigarette tax, the fourth lowest in the nation, for instance. Without public discussion, Gov. Sanford, House Speaker David Wilkins and 90 other House members have signed onto this plan.
Over the past three years, South Carolinians have discovered that when money is short, services, even essential services such as health care and education, are cut. Growth demands more services, not a cut. South Carolina is projected to gain 1 million people over the next two decades, which is an indicator of the demand for services.
The proposal is on the fast track to the S.C. Senate. Senators should ask some serious questions -- at least have a serious debate about the merits of this plan. Senators should seek a sound source of money to replace the reduction in income tax rates and examine this plan in light of the 2 percent sales tax increase they propose to eliminate property taxes. How will these two together affect growth and services in South Carolina?