COLUMBIA, S.C. - Small business owners would pay a lower income tax rate under a bill introduced in the Senate on Tuesday.

The legislation would let people reporting income from partnerships, limited liability corporations, sole proprietorship and S-corporations pay taxes at 5 percent on South Carolina taxable income.

Those small business operators now pay as much as 7 percent, well above the 5 percent rate large corporations face.

"It's a fairness issue," said Senate Finance Committee Chairman Hugh Leatherman, R-Florence. "I think this will create jobs."

Leatherman is sponsoring the measure with Sen. Harvey Peeler, R-Gaffney, who said the state needs to do anything it can to help small business. "That's the foundation of our economy," Peeler said.

But the legislation is expected to compete with an income tax bill that already has won approval for in the House. That bill is one of Gov. Mark Sanford's priorities this session.

Sanford wants to reduce the top income tax rate from 7 percent to 4.75 percent in an effort to help small businesses while attracting wealthy executives and retirees.

Leatherman's legislation is "hitting on one of the three economic engines that the governor's broader income tax relief plan hits on," Sanford's spokesman Will Folks said. "We'd like to hit on all three of those economic engines."

But Leatherman sees his measure as directly helping a segment of the economy that needs a hand "to be successful, grow and expand and create jobs for people."

Sanford's proposal has come under fire lately from an unusual source. On Monday, Moody's Investors Service joined Standard and Poor's in questioning its impact on state revenues. Both cited the proposal as they maintained a negative outlook on the state's top-tier debt rating.

Sanford's measure, when fully implemented in 10 years, would decrease state revenue by nearly $1 billion. Leatherman's proposal would cost a tenth of that when fully implemented in four years.

Michael Fields, state director for the National Federation of Independent Business, said his group supports both bills. He'd like to see either bill pass, but the price tag may ultimately decide what happens. Lots of legislators make decisions after reviewing cost estimates and choose what costs less, he said.

Leatherman's committee will decide the fate of both measures in the months ahead.

In the House, Lexington County legislators introduced a bill Tuesday that would raise the state's sales taxes by 2 cents on the dollar to eliminate local property taxes. Similar plans have been floated during the past two legislative sessions with little effect.