COLUMBIA — Getting a haircut, oil change or eye exam in South Carolina could cost more, while a clothes shopping spree might take a little less out of your wallet under a proposal that lowers the state's overall sales tax.
Legislation to be introduced in the House seeks to eventually cut the state's 6 percent sales tax in half to 3 percent, partly by eliminating some sales tax exemptions, which could include prescriptions.
To broaden revenue streams, the state would also start taxing services. For example, landscapers would have to add a sales tax for cutting grass, accountants would tax on top of their fees for filing tax returns and dry cleaners would tax that starched shirt.
Separate legislation given a tentative nod Thursday by the House's tax study panel would flatten state income taxes. That proposal, to be introduced next week, would generate the same revenue overall for state coffers, creating winners and losers across every income level.
The goal is to create a fairer and simpler tax system in South Carolina, said House Speaker Pro Tem Tommy Pope, R-York, who's been leading the study panel for several years.
His panel did not vote on either idea, but rather approved the rough outlines of proposals that will go through the budget-writing committee.
This would mark the first step toward the tax overhaul that South Carolina's business leaders have called their top priority.
The sales tax changes would be phased in over several years, starting with a 1 percent tax on services. That would allow the state to drop sales taxes on items currently taxed to 5 percent.
The goal is to get it down to a 3 percent sales tax, though that will depend on what items are exempted as the proposal moves through the Legislature. The big-dollar sales tax exemptions, in addition to prescriptions, include gasoline, utilities and groceries.
How to tax certain services remains undecided. For example, attorneys could be required to tax their hourly fees, by court filings, or exempted altogether. The sales tax bill could be filed later this month.
The other proposal in the package would flatten South Carolina’s income tax rate to 4.85 percent for all taxpayers and eventually lower it to 4.5 percent over a five-year phase-in. Currently, there are five tax brackets, with a top rate of 7 percent.
Who pays more and who pays less under the proposal would depend on how many tax credits and deductions people currently take and how they make their money. The state's current tax policy gives preferences to older people and gives breaks on certain kinds of income, such as profits from stock trades.
Under the proposal, all income and ages are treated equally. Itemized deductions and income tax credits would go away, including tax credits still being phased in for military pensions.
The ideas advanced after the panel received a pep talk from Reagan administration economist Arthur Laffer, the father of the "Laffer curve" theory on taxes and revenue which says lowering rates will grow the economy, while increasing rates will actually reduce collections.
"It's not right wing or left wing. It’s economics," said Laffer, who lives in Nashville. "You can do this job and make a material difference in the people you serve. ... You are the chosen ones. It ain’t rocket surgery. It's common sense."
"You have an opportunity here. I look at this state and see a state just primed for really the big takeoff," he said. "I can’t think of anything better than providing your constituencies with prosperity. You shouldn't fight about prosperity."
Gov. Henry McMaster, who has been pushing legislators to cut income taxes, invited Laffer to address the panel. As he spoke, legislators of both parties snapped photos of the economist on their cellphones. Afterward, they gathered around him like a rock star.
Eliminating income taxes isn't necessary, Laffer told them, noting states with income taxes can still "way outperform other states." The key is to simplify the entire tax structure with broad-based low rates "so it doesn’t encourage evasion — people lying, cheating, and stealing," he said.
He urged legislators to do something about South Carolina's high property taxes that vary county by county, saying they are "absolutely arcane beyond belief."
Pope's panel, however, has avoided dealing with that main funding source for local governments.
Afterward, Pope said Laffer's presence provided an "energy boost" to the group.
"You’re preaching to the choir," he told Laffer. "We’re working on fairer and flatter."