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By Lindsay Street, Statehouse correspondent | South Carolina lawmakers are mum about whether much-ballyhooed federal tax cuts will cause something they didn't expect: an unintended rise in state taxes. One way or another, experts predict they'll grapple with the issue soon because if nothing is done, taxes may go up - a scenario few politicians want in an election year.
The amount of any increases and how many could be affected are questions yet to be answered, but a state report expected next week will give clues. Experts say the changes could raise taxes on nearly every taxpayer in the state beginning in 2019 unless there is legislative action. With state income tax cuts being a major part of Gov. Henry McMaster's executive budget for the coming year, the issue will likely be tackled in a state shy of doing anything that looks a tax hike.
As in other states, South Carolina income taxpayers calculate the amount in taxes they pay on adjusted income derived from federal income tax computations. But because the federal and state systems are tied together, any changes to the federal tax code may have a big impact on the way state taxes are computed, according to Ken Newhouse, chair the governmental affairs committee for the South Carolina Association of Certified Public Accountants.
Every year, as federal tax rules change, the state passes conformity legislation to keep step. This means a simpler tax-filing process - once you're done with the federal form, it's easy to file the state form. Newhouse called it "piggybacking off the fed." But now with the new major federal tax overhaul that will begin affecting tax bills in 2019, state legislators need to decide soon on how to react to potential cuts in state revenue because of federal reform.
"Regardless of a major overhaul or if just one law changes, every year there's a push for conformity and that's based on how our state tax laws are structured," Newhouse told Statehouse Report. "We want it to be easier for people to compute their taxes It not only helps taxpayers but it also helps the (state) Department of Revenue."
With deductions and other tax breaks removed in the recent overhaul, that means federal taxable income will rise. To account for the rise in taxable income, Congress adjusted tax brackets to keep taxes from rising, too. That means if South Carolina conforms to the new federal taxable income, the legislature would have to adjust the state's tax brackets to avoid a tax increase on many of its citizens.
"Since the state taxable income number goes up, the starting point for the state has gone up and there's not the same tax bracket and income shift on the state level yet," Newhouse said. "The state is wrestling with the state taxpayers not having an additional burden That's what this major overhaul means to South Carolina right now."
The decision to conform is playing out across the country as legislatures get to work on budgets. In New York, individuals could see an $840 million overall tax increase, according to an article by The Wall Street Journal. In Maryland, the potential tax sticker shock is similar.
In South Carolina, the state's Revenue and Fiscal Affairs Office (RFA) is wrapping up a report on how the federal tax overhaul will affect the state and how conformity will affect its taxpayers. Agency Executive Director Frank Rainwater said his staff has worked over the last month to compute how the overhaul will playout.
"This is a big deal year," he said. "It's very complicated and they made substantial changes," Rainwater said. "The only thing we can do is to, is what our office is doing, is understand how those changes affect the current tax rates (The legislature) will have to determine what kind of rate adjustments there will be. As always the devil is in the details and that's what we're struggling with."
But the very people who will decide South Carolina's income tax future appear skittish to talk about conformity and the state's plan moving forward without the RFA's report. Requests for comment from the House Speaker Jay Lucas, House Ways and Means Chair Brian White, R-Florence, and several Senate Finance Committee members were either ignored or declined this week. A Department of Revenue spokesman referred all comments to RFA, and Rainwater said he hopes the information will be finalized and released next week.
Newhouse said there is a chance the legislature may only tackle some of the federal tax changes this year - especially those related to disaster relief -- and wait until next session to address the rest.
about not conforming this year and spending more time to figure it out,"
he said. "Then you have some extra time to deal with this major overhaul
to see how you want to conform."
By Lindsay Street, Statehouse correspondent | Taxes took center stage in Gov. Henry McMasters first State of the State speech, a Wednesday night talk in the House chamber that echoed similar sentiments from his predecessors, Govs. Nikki Haley and Mark Sanford. Meanwhile, McMasters political rivals took strides to counterpunch on television, through a Webcast and on Twitter.
McMaster pushed big tax cuts, workforce development, school choice (especially public charter schools) and education reform, including the consolidation of school districts to cut administrative costs and investments in teacher support programs. The governor, now in full campaign mode, called for placing trained officers in schools, implementing further ethics reform, cutting administrative costs and furthering state pension reform. And not to be left out, he noted he states prosperity is threatened by contraband cell phones in prisons, the opioid epidemic, abortion and offshore drilling.
McMaster also addressed a financial crisis grippin the Statehouse related to the $9 billion failure of the construction of nuclear plants in Fairfield County. He said the only feasible solution to protect Santee Cooper customers from paying for the unfinished reactors is privatization in a deal in which the buyer would assume the billions in bonded debt. He also asked the General Assembly to send him a bill that would reform the Base Load Review Act, which allows utilities to raise customers rates for projects under construction. He said the reform should cancel SCANAs ability to continue to collect from ratepayers for the V.C. Summer project something the company said would bankrupt it, a claim counted by a state audit.
Democratic gubernatorial candidate and S.C. Rep. James Smith of Columbia gave the partys response.
Smith opened his speech with a cannon shot, listing the states poor standings in education and health care.
I am tired of seeing South Carolina on the bottom of every list we want to be on the top of, he said.
His speech called for ethics reform, a response to the V.C. Summer canceled project including creation of a ratepayer advocacy agency, support for teachers, bringing high-speed internet access to all of South Carolina, an equal pay law for women and having the General Assembly speak as one voice to oppose offshore drilling.
On taxes, Smith took aim at the governor again.
If the governor was serious about tax relief, he would tackle real comprehensive tax reform and pursue changes in our system that over-burden our businesses and families. So why then did he veto the tax relief that allowed low-income families to keep more of their hard-earned dollars?
In a rebuttal to Smith and McMaster, Democratic gubernatorial candidate Phil Noble live-streamed his message complaining about ethics, Statehouse coziness and the need to overhaul public education.
Staff reports | State senators introduced more than 40 bills, including measures to raise judicial pay, make it tougher for people to get food stamps and reform beachfront management laws. House members introduced almost 100 bills from Tuesday through Thursday. Among them are calls to reform the S.C. Conservation Bank but not get rid of it, move away from Eastern Standard Time, continue the TERI retirement program and enact a teen dating violence law. Key new bills introduce were:
IN THE SENATE
IN THE HOUSE
By Lindsay Street, Statehouse correspondent | Our weekly Top Five feature offers big stories or views from the past week or so with policy and legislative implications that you need to read because of how they could impact South Carolina. If you have stories to suggest to our readers, send to: email@example.com.
1. South Carolinians likely to die sooner than many other states' residents, Greenville News, Jan. 22, 2018.
The South and South Carolina are fairly unhealthy places to be, leading to a lower life expectancy among residents, according to research by the Population Reference Bureau, a private nonprofit think tank in Washington, D.C. The reason for the disparity? The usual suspects: poverty, higher rates of cancer and other diseases, smoking rates, obesity, and lack of insurance. From one of the researchers:
2. South Carolina state government no longer among most dysfunctional, Governing, Jan. 18, 2018.
In 2009, South Carolina was listed among six states as the most dysfunctional in the United States. That was in large part for its then-Gov. Mark Sanford going missing briefly for his infamous "Appalachian Trail" tryst. But today, it's a different story. An excerpt:
3. South Carolina doesn't collect taxes on billions of dollars worth of commercial properties, The Post and Courier, Jan. 20, 2018.
Two South Carolina laws in the 11 years have taken billions of dollars worth of commercial property off the tax rolls. An excerpt:
4. South Carolina child vaccine rates outpace the nation, The Post and Courier, Jan. 18, 2018.
Nearly 78 percent of South Carolinians insured by BlueCross BlueShield received their recommended vaccines for measles, mumps, hepatitis B and other infectious diseases between 2010 and 2016. The national rate is at 73.5 percent. An excerpt:
5. IT worker shortage hitting businesses in South Carolina, GSA Business Report, Jan. 19, 2018.
South Carolina's economy has another worker shortage. This time, it's the skilled IT worker that is in short supply but high demand. The state's technology sector is growing 9 percent annually, but IT companies are struggling to hire workers with the needed experience or skills to fill open positions, according to a study. An excerpt:
"IT companies in South Carolina had more than 6,400 openings in the fourth quarter of 2016, the report said. Computer programmers, software developers and software quality assurance engineers topped the list for most openings in 2017, the report said."
By Andy Brack, editor and publisher | Until state legislators go through the five stages of grief over the $9 billion failure of building two nuclear reactors, they might just screw up things worse.
It's easy to see where they are, so far, six months after the announcement by Santee Cooper and SCANA that the project in Fairfield County wouldn't get off the ground, despite ratepayers paying more for power over the last 10 years.
First is the denial stage - that it couldn't happen here. Evidence of this is the prodigious finger-pointing as everybody and his brother look for scapegoats.
Next comes anger. There's still a lot of anger bubbling inside the capitol and among voters who are irritated by the waste of what's happened. Anger comes in many forms, but often is seen in unrealistic calls to make everything better and send lots of people to jail. And politicians, scared for their hides, are shamelessly exploiting anger on a daily basis.
The third stage is bargaining, in which some lawmakers are rushing pell-mell to pass bills that try to fix problems in an attempt to negotiate away the pain caused by the failure. Slow down.
Fourth is depression. Often when one reaches this part of the grieving process, it reflects how a problem seems overwhelming and hard to cope with. But it also may start the process of trying to deal with a loss realistically, instead of development of quick responses fueled by anger.
Finally, there's acceptance. It involves learning to live with what happened and being smart about dealing with it.
Folks, the state legislature isn't there yet. Why? Because it hasn't accepted responsibility that it is complicit in the chain of events that created a $9 billion eyesore that likely will become an enduring monument to failure and futility.
What the legislature needs to do now, more than rushing to pass legislation to fix what's happened, is to apologize and take responsibility for the whole mess. Had legislators not passed the Base Load Review Act a decade ago, utilities wouldn't have been able to charge ratepayers in advance to pay for the nuclear project.
This is not to let SCANA and Santee Cooper off the hook for cost overruns and apparent all-around mismanagement of the V.C. Summer construction project, but it's to emphasize that the General Assembly needs to clean up its own house on the nuclear mess before resorting to solutions that could actually make things even worse.
The nuclear debacle is yet another South Carolina example of how the legislature sometimes creates a mess thanks to the Law of Unintended Consequences. This holds that if elected officials don't do their homework and rush in with solutions, bad things may happen just as easily as the rosy scenarios they paint when patting themselves on the back.
For example, just look at the Teacher and Employee Retention Incentive passed about 20 years ago. It was a response to try to keep experienced teachers in the classroom to deal with a shortage. Unfortunately, the courts said it was not fair to offer the program to only teachers. Participation exploded, meaning state employees technically retired with retirement pay put into a special account. But they also draw regular pay. Unfortunately, the legislature didn't fully fund the program and that, along with the Great Recession and investment blunders, led to a $20 billion hole in the state pension system from which South Carolina is still recovering.
Second example: Act 388, the Great Property Tax Swindle. About a decade ago, the smart guys in Columbia wanted to reduce the cost of property taxes on homeowners. They decided to cut property taxes and replace the revenue with a sales tax increase. But that strategy cut flexibility for funding schools at the local level and it didn't cut taxes on commercial and rental properties. Inequities grew. The property tax, which was a stable funding source for government, grew more volatile.
Now we're at a policy
crossroads with the unintended fallout of a failed project thanks to something
lawmakers did 10 years ago. Before we move forward too quickly, lawmakers
need to accept responsibility, slow down, develop realistic ideas stemming
from expert analysis and figure out reasonable, informed solutions. To
keep politicking about it isn't in anyone's best long-term interest.
The public spiritedness
of our underwriters allows us to bring Statehouse Report to you at no
cost. This week's spotlighted underwriter is The Richard W. Riley Institute
of Government, Politics, and Public Leadership, a multifaceted, nonpartisan
institute affiliated with the Department of Political Science at Furman
University. Named for former Governor of South Carolina and United States
Secretary of Education, Richard Riley, the Institute is unique in the
United States in the emphasis it places on engaging students in the various
arenas of politics,
This object found in South Carolina has a particular importance. What is the object and why is it important in South Carolina? Send your best guess - plus your name and hometown - to firstname.lastname@example.org. In the subject line, write: "Mystery Photo guess."
Last week's mystery
Contributing photographer Michael Kaynard of Charleston sent along a snapshot of a big gun that confounded some. It looked familiar to us and we whacked our forehead when he told us it was a gun at an entrance to Fort Moultrie on Sullivan's Island.
Congratulations to these sleuths who got it right: George Graf of Palmyra, Va.; Philip Cromer of Beaufort; Harvey Shackelford of Newberry; and Gary Crossley of Charleston.
of Fort Moultrie have existed, but perhaps the most famous - the one that
has ties to the state's palmetto flag - is the original. According to
the S.C. Encyclopedia, it "was the site of the June 28, 1776, American
victory in the Revolutionary War. Fort Moultrie I, the Revolutionary War-era
fort, was replaced in 1798 by Fort Moultrie II, which was followed in
1809 by Fort Moultrie III, which served as a military post until 1947."
| Cape Romain National Wildlife Refuge was established in 1932 as a wintering
ground for migratory waterfowl. Located in Charleston County and stretching
for twenty-two miles along the coast between Charleston and the Santee
River delta, Cape Romain is a rich natural resource. In its shallow bays,
tides combine the life-giving nourishment of the ocean with the nutrient-laden
freshwaters of rivers to make one of the most productive environments
on earth. Plants and animals from the land, rivers, and ocean are all
present at Cape Romain, and all are dependent on the delicate balance
of the marshlands.
In support of wildlife's
battle for survival, refuge administrators have employed wildlife management
techniques that include relocation of threatened loggerhead sea turtle
eggs, a red wolf breeding program on Bulls Island, and management of artificial
ponds for waterfowl, wading birds, and alligators. Cape Romain Refuge
is host to 335 bird species, 12 types of amphibians, 24 reptile species,
and 36 varieties of mammals.
The refuge is open sunrise to sunset, seven days a week, year-round. The only facilities accessible by automobile are the refuge office, Sewee Visitor Center, and Garris Landing. Bulls Island lies nearly three miles off the mainland and is reached by boat or private ferry. Public use opportunities include an observation/fishing pier at Garris Landing and Sewee Visitor Center on the mainland. On Bulls Island there are eighteen miles of trails and roads to hike, a seven mile stretch of beach, picnic tables, a weather shelter, and an observation platform. Saltwater fishing is permitted, and limited hunting is offered. Interpretive exhibits and literature can be found at the Sewee Visitor Center.
Statehouse Report is continuing to experience database issues and our full offerings are not online now. This week's issue is brought to you in one long post -- like we used to!
ISSUE 17.04 | Jan. 26, 2018
NEWS: Legislators quiet about possible unintended state tax hike
NEWS BRIEF: Taxes, education, change are themes for states state
TALLY SHEET: More than 140 bills introduced in past week
TOP FIVE: Life expectancy, dysfunction, taxes, vaccines and workers
What really needs to happen with General Assembly's nuclear mess
SPOTLIGHT: Riley Institute at Furman University
PHOTO: What's the significance of this?
SC ENCYCLOPEDIA: Cape Romain National Wildlife Refuge
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