Comprehensive Tax Reform can be Reality

“The South Carolina Republican Party, the state party of opportunity, supports a tax policy designed to help the economy grow, not stunt the taxpayer. We realize that free people maximizing the power of free markets will do more to enhance the wealth and economic security of South Carolinians than any government program ever could. We therefore support policies that allow hardworking South Carolinians to keep more of their own money rather than be given to the State.”   – S.C. Republican Platform

Conservatives in the State House want to change how you, your business, and everybody in South Carolina pays taxes.

Lower taxes and a more efficient government are THE core tenants of the fiscal Republican Party Platform. Years of tinkering around the edges have created a state tax code that is dense, unwieldy, and unfair to many taxpayers. The result of that tinkering is a state tax code that resembles the tangled mess of Christmas lights you get out of the box each December.

This week, my Republican colleagues and I unveiled a comprehensive tax reform strategy that is a significant first step in unraveling our tax mess while lowering taxes and making our tax code fairer for everybody.

How did we do it? Seven simple ideas:

• Eliminate two-thirds of the special interest sales tax exemptions while preserving the ones that benefit families. We eliminate ones for porta-potties and keep ones for food, medicine, electricity, water, and gasoline. We don’t believe the necessities of life should be taxed. The sales tax rate will be cut
• Flatten the income tax. Our tax brackets believe you are “wealthy” if you make $14,000 a year. We don’t believe that. We collapse our six tax brackets (0, 3, 4, 5, 6, and 7 percent) to three (0, 3, 7), which makes the tax code more coherent while giving 4 out of 5 South Carolinians a tax cut or no change in their liability. The revenue reduction is estimated to be $51 million.
• Slash small business “active income”. Our small businesses need help emerging from the recession. Many of our smallest businesses – those run by sole proprietors as “s-corps” and LLCs, are double-taxed on their income. Many of these small businesses report their income on their personal income tax returns. We will slash the rate they pay from 5 to 3 percent so they can invest in, and grow, their businesses. This should lower the tax paid on these returns by about $1,000. The net revenue reduction is approximately $60 million.
• Cut the business property tax rate from 10.5% to 6%. The top business property tax rate is a problem for businesses of all sizes. The 10.5% rate is an obstacle in recruiting major manufacturers. It’s a problem for medium-sized businesses trying to expand without the political power to get exemptions. It also hurts small businesses with expensive equipment – such as small manufacturers, construction companies, and companies with large technology investments. The net revenue reduction is approximately $56 million.
• Review all sales tax exemptions every 5 years. Nearly all of the sales tax exemptions given by the General Assembly had a viable and defendable purpose at one time. We call for this review by re-creating the Joint Tax Review Committee that operated in the House and Senate many years ago.
• Drop the property tax from 6% to 5% on commercial and rental property.
• Eliminate the corporate income tax. This is achieved by cutting the rate by 1.25% per year over four years.

This package is not “revenue neutral” and actually lowers the state tax burden by more than $220 million. This package is “revenue negative”, which appropriately reflects both our insistence that the tax code is unfair and our Republican principle that we are overtaxed in general.

This tax reform proposal came after six months of study by a Caucus committee that studied the issues, listened to our constituents, and didn’t take testimony from special interests and their lobbyists. We intend most of these proposals to be implemented beginning in year 1 so we don’t kick the tax relief can down the road where future General Assemblies can derail with it. (The one exception is the business property tax rate, which is lowered over 4 years because of the impact to local governments.)

This year’s package of bills includes other pieces of legislation that we don’t believe will be passed this year, most notably: reducing the commercial real estate property tax rate from 6 percent to 5 percent. That item has a major cost to state and local governments that must be planned. The package also includes these core ideas as one bill and as separate bills, so if one idea fails, we can still get others through the process.

This is not the end of the debate. This is the first step in a multi-year process. The Republican Caucus is calling on conservative activists, the Tea Party, and anybody who believes in the Republican Platform to help us on this journey. The legislative process is messy and sometimes maddening, but if we are to live up to the call of the Republican Platform to create “a Tax Policy which promotes prosperity”, it will take time and effort on all of our parts.

We look forward to taking this journey together. Please do not hesitate to contact me with your input, ideas or questions.