Tax drop would rely on risky estimates

Sanford rejects doubts about income tax plan

A proposal by Gov. Mark Sanford and House Republicans to lower the state income tax by a third would hinge on a revenue projection that is almost always wrong.

Sanford dismissed such concerns as he, House Speaker David Wilkins and GOP supporters announced their tax proposal Tuesday in a jam-packed State House lobby.

Under their proposal, the state would lower the income tax rate from 7 percent to 4.75 percent over 10 years.

After the first reduction in 2005, cuts would come only in years when the state Board of Economic Advisors predicts state revenue will grow 2 percent or more.

But a look at the board’s economic estimates from the past 12 years shows the predictions were never right — and often fell well short:

• In the past three years, the BEA has projected the state would bring in more money in tax dollars than it actually did.

• In three of the last four years, the BEA predicted revenues would grow by at least 2 percent; growth turned out to be far less.

The Sanford-Wilkins proposal is a “risky” plan, said one former state economic adviser.

The state would be forced to cut services or raise taxes if the projection was off and the state didn’t have enough money to meet expenses, said Harry Miley. Miley led the Board of Economic Advisors under former Gov. Carroll Campbell, a Republican.

To project the future economy, Miley said, the board has to predict how national and international businesses would do, as well as how much South Carolinians would pay in taxes and even whether people would bypass S.C. sales tax and buy more over the Internet.

He wondered why the governor would peg a tax cut to such an inexact measurement.

“If they are going to do it on an estimate, and the estimate turns out wrong, and we’ve already cut the tax rate, I don’t know how we’re going to overcome that,” Miley said.

State Sen. David Thomas, R-Greenville, who has advocated eliminating some property taxes, said the Sanford-Wilkins plan also has another problem — “that 2 percent.”

That rate of revenue growth is not enough to pay for recurring expenses and absorb the income tax cut, he said, “So you’ve been cutting and hoping that your growth is going to catch up at some point.”

But Sanford shrugged off such questions during the news conference. The state’s needs are met in the budget, he said, and the board’s projections won’t be a problem.

Lately, Sanford said, the BEA has been “very conservative” in its projections.

He said a 2 percent growth in revenues would net about $100 million, while the tax cut would cost only about $62 million a year.

Asked later for more details about the BEA’s inaccuracies and how the state would make up potential shortfalls, Sanford spokesman Will Folks would not elaborate.

Supporters lauded the tax cut, saying it would help bring more jobs to the state.

State Rep. John Graham Altman, R-Charleston, who supports Sanford’s plan, acknowledged the board’s forecast could be inaccurate. But he hopes the tax cut will spur the economy to improve. “A stimulus like this has got to help.”

Democrats questioned whether the plan would help the economy as much as Republicans promised — especially if the state doesn’t have money left for such basic services as public schools.

“I doubt if anybody’s going to move to South Carolina because of the income tax, particularly if they can’t educate their children, can’t get health care and the roads can’t get fixed,” said state Sen. Darrell Jackson, D-Richland.

Sanford said the tax cut was aimed specifically at helping small business owners, who provide a large percentage of the state’s jobs.

A lower income tax also would make the state more competitive with its neighbors when prospective companies are looking to move to the Southeast, supporters said.

“We stand with Governor Sanford in working to create a world-class economy in South Carolina,” Wilkins said. “And reducing the income tax is an important first step.”

Republicans took great pains during the news conference to show they can work together. Sanford has been criticized for not getting along with GOP lawmakers.

Joining him at the podium Tuesday were prominent legislators, including Ways and Means Committee Chairman Bobby Harrell, R-Charleston, and House Majority Leader Rick Quinn, R-Richland.

Wilkins said the plan had wide support, with 90 House sponsors — including a few Democrats. He predicted the bill would move quickly, passing the House by the end of March.

It’s unclear whether it can pass the Senate, which moves more slowly and where one senator can more easily hold up approval of legislation.

A few prominent senators have come out in favor, including state Sen. John Courson, R-Richland, and Senate President Pro Tem Glenn McConnell, R-Charleston.

But Senate Majority Leader Hugh Leatherman, R-Florence, who chairs the Finance Committee, said he wasn’t invited to the press conference. He had tepid words for the proposal, which he hasn’t seen.

“We’ve got lots of needs that have to be met in this state,” he said. “I have an open mind.”

Reach Talhelm at (803) 771-8339 or jtalhelm@thestate.com. Staff Writer Aaron Gould Sheinin contributed to this report.