S.C. Statehouse Report
April 18, 2004
VIEW: http://www.statehousereport.com/columns/04.0418.income.htm


COMMENTARY
State can't afford income tax cut
By Andy Brack
SC Statehouse Report

APRIL 18, 2004 - - For a dozen years, South Carolina lawmakers have been playing a dangerous, intoxicating game of one-upsmanship that is hurting the long-term stability of the state.

Every year, the allure of another hit of political crack drives them into a frenzy to figure out new ways to cut taxes. It's almost as if they cut taxes just to say they've cut taxes - - without taking long-term implications into mind.

Individually, the cuts don't seem like much - - $6 million here, $40 million there. But added together, they are draining the state budget to dangerously low levels so that lawmakers struggle to have enough money every year to fund basic services.

SC TAX CUTS
FY91 - FY02
(cumulative impact in millions)

Income tax cuts
(If table is hard to read, switch your
browser to medium or normal view)

Indexation
Amended SC withholding tables
Retiree exemption
Capital gains phase-in
Exemption children under 6
Economic impact zones
AFDC credit
Extension of S Corps
Job development fees
Firefighters deduction
Credit IRA taxes paid other sts.
New F Class bingo license
Aiken/Barnwell Redev. Auth.
College tuition credit
Volunteer firemen's deduction
Habitat management credit
Capital gains one-year holding
Credits for high-tech industries
Conservation easement credits
Community dev. corps

$3,135
30
250.8
271.6
264
19
37
14
162
15.3
0.7
0.04
2.2
74.5
5.1
1.1
0.9
9
1.2
1.5

Corporate income tax cuts

Reduced tax rate, 6% to 5%
Enterprise Zone credits
Moratorium in some counties

$468.8
105
0.06

Sales tax cuts

Exemptions
Discount to out-of-st. retailers
Credit for uncollectible sales
Sales tax holiday
1-cent reduction on food

$7.0
0.014
16.1
9.1
24.6

Other tax cuts

Estate tax exemption phase-in
Gift tax repeal
Motor vehicle inspection repeal
Soft drinks tax phase out
Sunday sales alcohol licenses
Misc tax savings

$83.1
22.4
11.6
116.6
5.6
0.2

Total tax cuts

Total tax cuts

$5,165

Source: Office of Research and Statistics, State Budget and Control Board, 4/12/04

Since 1991, state lawmakers have approved income, sales, estate and other tax cuts with a cumulative impact of $5.1 billion - - yes, with a B - - in revenues, according to calculations by state economist Bill Gillespie. In other words, they approved lower taxes over 12 years that would fund virtually all of this year's budget - - and that's not even taking into account the $500 million they'll spend this year on property tax credits for schools.

The political rhetoric for tax cuts is familiar - - you return the money to people and they'll use it in the economy, which will spur more growth and jobs.

Using this logic, why then is South Carolina in an economic recession? Lawmakers have created billions in tax cuts, but the state still is high in unemployment and lost manufacturing jobs.

"If tax cuts will strengthen the economy, then we should have a red-hot economy in South Carolina," said Senate Minority Leader John Land, D-Manning. "We've cut corporate income taxes, $50,000 on homestead exemption, one cent off on food. The list goes on and on."

Now comes Gov. Mark Sanford's plan to cut income taxes by 0.225 percent increments from 7 percent to 4.75 percent in years when state growth is at least 2 percent. Although a Senate Finance subcommittee has boosted the growth leve l to 3 percent before a cut would kick in, the logic remains the same: it returns money to people to help them pump up the economy.

Sanford's proposal would cut state revenues by $62 million, although he says the simultaneous stimulus effect from growth would add $100 million more. On a practical level, here's how much the cut would mean to the average individual with $30,000 in taxable income: About $68 per year.

In my book, $68 per year isn't going to stimulate an economy out of recession. It might keep some folks in beer and junk food over a Super Bowl party, but it's not going to have a turnaround effect.

ALSO THIS WEEK

McLEMORE'S WORLD: In the nick of time

SCORECARD: Winners and losers of the past week

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What's more dangerous for this and other tax cuts is they add to the downward spiral in state revenues. Instead of allowing state revenues to keep up with the economy through growth, a future-oriented income tax cut would flatten state revenues over the long haul. In other words, as the state started to turn around - - and generate some revenues that might help mitigate three years of big spending cuts in basic services - - this year's legislature would tie the hands of future legislatures by taking away some of the growth effect to state coffers.

Over time, that would tend to make state budget growth flatter. And as health care costs, education costs and other services become more expensive due to inflation, the state budget wouldn't be able to keep up through growth. In turn, that would mean more cuts and fewer necessary services.

It's nice for lawmakers to give cuts to their rich friends, but more tax cuts will hurt working people disproportionately over time. Right now, South Carolina can't afford more tax cuts, particularly the governor's income tax cut that would stymie future budgets.


McLEMORE'S WORLD
4/18: Just in the nick of time

This week's cartoon by our Bill McLemore:


SOUTH CAROLINA SCORECARD

Here's a "thumbs up" and "thumbs down" related to various political events from the past week:

Thumbs up

Carroll Campbell. Hats off to the former governor for writing each of the state's senators to ask them to reduce cuts to the state Department of Natural Resources, which faces another year of crippling cuts.

Improved forecast. It's good news for state senators that tax collections are up because it gives a little more breathing room in continued tight times.

Thumbs down

Fetus rights. Thumbs down to Reps. Greg Delleney and Scott Talley for approving a bill at subcommittee level to give constitutional rights to fetuses. House Judiciary Chairman Jim Harrison voted against the proposal because he knows what anyone with common sense knows -- that the measure is unconstitutional on its face.

SC House. Last year's vote to get the Dixie Chicks to apologize for a statement criticizing President Bush backfired this year as the House won an award to highlight its curb of free speech.


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