Tax cut plan gets a deep cut

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The Senate had a different idea. Small businesses will win, but not individual taxpayers, under a scaled-down income tax cut plan approved late this week by the state Senate. The amended bill now goes back to the House. The House's version of the income tax cut plan is greatly preferred for what it will do for all individual taxpayers.

In South Carolina, corporations pay the more reasonable tax rate of 5 percent. But individual filers — and most small businesses file as individuals — pay a much higher rate of 7 percent, and that top tax rate kicks in on taxable income of about $12,000.

This has been the right tax for state lawmakers to cut, as opposed to the property tax that is levied by local governments to fund local services. Sanford has argued for several years that an income tax cut should help small business, which after all are key to creating jobs in this state. And those new jobs, along with more money in the pockets of state residents, should spur on an economy that's been sluggish in recent years.

The House-passed bill would cut the income tax rate for all individual taxpayers by .225 per year beginning with tax year 2006. The rate eventually would drop from 7 percent to 4.75 percent, and the cut would not take place in years when the general fund revenue growth is less than 2 percent.

State senators got spooked by the price tag for the tax cut. They amended the bill so it would apply only to small businesses and not individuals. And they would accelerate the phase-in of the cut; it would be .5 percent per year until reaching the top marginal rate on small businesses became 5 percent.

Small businesses are the backbone of this state's economy. As Sanford has said on many occasions, our state needs to create a more favorable climate for small businesses if this state is to improve its economic base and increase the wealth of its citizens.

The governor's income tax cut plan has not generated enormous enthusiasm among most state residents, perhaps because they don't understand it or perhaps because many pay a relatively small amount in state income taxes.

A case still can be made for an across-the-board cut for all who pay at the top marginal rate of 7 percent. But it would be better to get the tax relief for small businesses now than risk this entire plan dying yet again.