Proposal to cut taxes earns wide support

COLUMBIA -- Duane Reichel said it's difficult to make ends meet on the $7.50 an hour he earns as a cashier at a Spartanburg BP station.

Paying rent, a car payment and child support each month doesn't leave a lot of money for extras. That's why the 19-year-old said he was pleased to hear about a proposed reduction in the state's income tax rate.

"That will make everything just a little easier," Reichel said.

Gov. Mark Sanford and members of the state House and Senate rolled out the plan Tuesday, which would cut the state's top income tax rate from 7 percent to 4.75 percent over 10 years. The tax would be reduced by .225 percent each year that the Board of Economic Advisors projects growth of at least 2 percent in tax collections.

South Carolina's top income tax is the second highest in the Southeast and kicks in at $12,000. By comparison, North Carolina's top rate of 8.25 percent doesn't apply until someone earns $120,000.

The plan would take effect on July 1, 2005, and the reduction would be guaranteed the first year.

Sanford said reducing the income tax is crucial to create jobs and to make the state more competitive in a global economy.

"What you're seeing with this plan is a united front for income tax cuts that will create jobs, stimulate capital investment and raise income levels throughout South Carolina," Sanford said.

"Together, we're taking the first and most important steps toward tax relief that's targeted specifically at improving our underlying business climate and making us more competitive as a state."

The cut will cost the state about $62 million a year. But Sanford said the 2-percent growth threshold would mean the state would be taking in an extra $100 million.

A worker making $25,000 a year currently pays $1,750 in state income taxes. That worker would save about $56 the first year and $562 in 10 years.

The average taxable annual income in South Carolina is $25,395, according to figures from the Governor's Office.

House Speaker David Wilkins predicted the House would approve the proposal by the end of March and send it on to the Senate. About 90 House members have signed on as sponsors.

"Rather than talking about raising taxes, we're here talking about raising the standard of living for all South Carolinians by creating jobs and opportunity and growing the economy," Wilkins said.

"We stand with Gov. Sanford in working to create a world-class economy in South Carolina. And reducing the income tax is an important first step."

House Speaker Pro Tem Doug Smith, R-Spartanburg, said bringing the tax down is just good government.

"It allows the taxpayers to share in our good fortune," Smith said.

Rep. Lanny Littlejohn, R-Spartanburg, said phasing in the cut would make it easier for the state to absorb.

"It won't be felt, and it will put us in a competitive position with other Southeastern states," Littlejohn said.

The proposal could face a stiff test in the Senate, however.

"I'm supportive of anything that will lower the tax burden on our citizens," said Sen. John Hawkins, R-Spartanburg. "But whether this plan is accepted by both houses remains to be seen."

Hawkins said he's more interested in a proposal introduced by Sen. David Thomas, R-Greenville, last year that would raise the state sales tax by 2 percent and slash property taxes.

"That's a bold plan that would greatly reduce or abolish property taxes," Hawkins said.

Thomas said it's not out of the question that the General Assembly could deal with two tax proposals at once. But he said he questions the math in the income tax plan.

"Every year we have commitments from the previous year that we have to fund," Thomas said. "We don't start with a clean slate. Two-percent growth gives us an extra $100 million, and that may not be enough to cover those commitments."

Sen. Glenn Reese, D-Boiling Springs, said 10 years was too long to implement the plan.

"If it needs to be done, let's do it sooner than that," Reese said. "In 10 years, he's (Sanford's) long gone as governor, but if it's a bad idea it's something we'll have to live with."

John McArthur, a Wofford College economics professor, said the proposal sounds like a good one.

"It sounds like it's a pretty conservative plan in that the tax cut doesn't kick in unless there's growth," McArthur said. "There's certainly a correlation between tax cuts and jobs if the tax change is big enough. It certainly improves a state's competitiveness and increases its attractiveness to industries looking to locate there."

Robert W. Dalton can be reached at 562-7223 or bob.dalton@shj.com.

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