Sanford proposes tax changes
Gov. Mark Sanford proposed a plan Tuesday that he thinks will make South Carolina more competitive by wiping out corporate income taxes and cutting taxes on individual earnings in exchange for raising the state's cigarette tax, trimming business incentive packages and eliminating sales tax holidays, including those for back-to-school supplies and guns.
The Republican governor wants the Legislature to cut income taxes for top earners and eliminate the 5 percent corporate income tax. Both changes would require legislative approval.
Sanford outlined his proposal at a stop in Greer, a day before the Board of Economic Advisors is expected to announce details of a worsening state economy that will force agencies to make another round of budget cuts.
"We believe staying competitive amid today's challenges means two things," Sanford said in a statement.
"One, a lowered and flattened income tax would represent a significant step towards making our state more attractive, and improving our competitive position when it comes to growing our economy. Two, we've got to get away from this piecemeal approach to jobs incentives."
Josh Barro, staff economist with the Tax Foundation, gave Sanford's proposal high marks.
Based on an analysis by the Washington, D.C-based nonpartisan research group, South Carolina would jump to No. 6, up from No. 25, in a ranking of state business climates if the governor's proposals become law.
That ranking would put South Carolina ahead of all the Southeastern states, he said.
"It sounds like a combination of really great reforms," Barro said.
For individuals, Sanford's plan would use a 30-cent cigarette-tax increase per pack and a new $3-per-ton tipping fee at landfills to offset a 50 percent cut in the state's top income tax bracket.
To balance the cut, the state also would have to repeal its sales tax holidays on back-to-school supplies in August, guns sold during the 48 hours after Thanksgiving and energy-efficient appliances, which is set to be offered for the first time in October.
Income taxes for workers who earn roughly $13,000 or more a year would be cut from 7 percent to a flat 3.65 percent.
Workers would be able to either pay the flat tax or pay 7 percent income taxes and claim deductions.
Rep. Jim Merrill, R-Daniel Island, likes Sanford's idea to cut the income tax rate, and sponsored legislation last session to do so, but he acknowledges that it will be a battle to put it into law.
Merrill said he doesn't necessarily agree with repealing the sales tax holidays, but the bigger issue is over how to use money generated by a cigarette tax increase.
South Carolina has the lowest cigarette tax in the country at 7 cents a pack, and a consensus has been building to use any new revenue to help more residents obtain health-care coverage, a cause the state Chamber of Commerce threw its support behind Tuesday.
"The South Carolina Chamber believes that any increase in the cigarette tax must be used for health-care-related purposes only," Otis B. Rawl Jr., president and CEO of the South Carolina Chamber of Commerce, said in a statement.
"The Chamber supports increasing the state's cigarette tax to the Southeastern average to provide premium assistance to individuals and small business tax credits."
As far as eliminating the corporate income tax, Sanford proposes to pay for the cut by phasing it in over 10 years as the state's current incentive packages dry up.
The governor believes having no corporate income tax would be a strong recruiting tool as well as a benefit to businesses already located here.
State Commerce Secretary Joe Taylor supports the proposal.
"I think this will be a tremendous job creator," he said. "It will be a boon for our state."
South Carolina would be one of only five states with no corporate income tax. The other states are Nevada, South Dakota, Washington and Wyoming.