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Article published Mar 9, 2005
Plans to reduce top income tax hits roadblock
Gov.
Mark Sanford's plan to reduce the state's top income tax rate has suffered
another setback, with a second credit rating agency saying that the proposal
could damage the state's credit rating.Moody's Investors Service maintained
South Carolina's AAA rating, but gave the state's borrowing power a negative
outlook. Although the state is recovering from its budget difficulties of the
past several years, the agency concluded that Sanford's plan could reduce
General Fund revenues and add to its financial strain."South Carolina has had
some difficulties during the recession," said Moody's analyst Nicole Johnson.
"It appears to be coming out of it, but this might not be the right point to
take that kind of action."Debating plan's benefitsThe Moody's report comes on
the heels of a Standard & Poor's report that raised the same
concerns.Sanford spokesman Will Folks said that the governor would continue to
aggressively push his plan despite the agencies' reports."Income tax relief has
proven to create jobs, lure capital investment and stimulate economic growth --
and as a result raise revenues -- in other states where it has been
implemented," Folks said."We welcome folks who want to take a closer look at the
proposal, but this is a conservative plan paid for through growth."Maintaining a
AAA credit rating is important because it reduces the amount the state has to
pay to borrow money. The House has passed Sanford's plan, which calls for
reducing the top income tax from 7 percent to 4.75 percent over 10 years. The
tax would be reduced .225 percent each year that the state's Board of Economic
Advisors predicted revenue growth of at least 2 percent. The plan would cost the
state about $900 million when fully implemented.Johnson questioned the
proposal's ability to fund the tax cut through growth alone."It's one thing to
state that, it's another to demonstrate it," Johnson said. "If that plan does go
forward, we'd certainly like to see what kind of forecast they're working on to
demonstrate that the state's financial operations remain strong."State Sen. John
Hawkins, R-Spartanburg, said he wants to support Sanford's plan. But he said
he's not going to do anything to put the state's credit rating at risk."I'm
worried that perhaps he hasn't thought through this particular plan well
enough," Hawkins said. "The fact that a second credible agency has raised
question's means the governor's job of selling this plan is going to be more
difficult.