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Stringer: Real tax reform
March 19, 2012

Stringer: Real tax reform
By TOMMY STRINGER - Guest Columnist
This was budget week in the S.C. House, so there was much talk about taxes and spending. It’s Columbia’s version of March Madness.

The madness took a new twist when our governor spent considerable time trying to convince whoever was listening that House Republicans were not serious about tax reform. I submit that the House Republican Caucus spent eight months examining the tax code, putting together a cohesive plan and testing many theories. We came up with a seven-bill package of comprehensive tax reform — constructed to ensure one bill didn’t collapse under its own weight as the TRAC proposal did last year.

The governor could find nobody in the House to introduce her legislation or even budget amendments, showing that her plan was about headlines and not action. Her plan was to put money into a one-time trust fund to pay for a recurring tax cut — exactly the kind of budgeting that gets Congress into so much trouble.

But this isn’t about “our plan” or “her plan” or anybody’s plan, although in fact nearly all of the governor’s ideas are in our plan. This is a conservative path forward to lower the tax burden on hard-working families and make our state more competitive and job-friendly for businesses. The Republican Caucus wants nothing less than to change how you, your business and everybody in South Carolina pays taxes, and to lower them in the process.

Lower taxes and a more efficient government are the core fiscal tenants of the Republican Party platform. Years of tinkering around the edges have created a state tax code that is dense, unwieldy and unfair to many taxpayers. Think of the tangled mess of Christmas lights you get out of the box each December.
House Republicans have seven simple ideas:

  • Eliminate two-thirds of the special-interest sales tax exemptions while preserving the ones that benefit families. We eliminate the one for Porta-Potties and keep the ones for food, medicine, electricity, water and gasoline. We don’t believe necessities should be taxed. The sales tax rate will be cut to make this revenue-neutral.
  • Flatten the income tax. 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 four out of five South Carolinians a tax cut or no change. The revenue reduction is projected to be $51 million.
  • Slash small businesses’ “active income” taxes. Many of our smallest businesses — those run by sole proprietors as “s-corps” and LLCs — need to keep more of their income to grow their businesses. We will slash their tax rate from 5 percent to 3 percent so they can invest in, and grow, their businesses. This should lower their taxes about $1,000, or a total of about $60 million.
  • Cut the property assessment ratio for manufacturers from 10.5 percent to 6 percent. The 10.5 percent ratio is an obstacle in recruiting major manufacturers, and it’s a problem for everyone from medium-sized manufacturers to the tree-trimming company that pays huge taxes on its mulcher. The net revenue reduction is approximately $56 million.
  • Review all sales tax exemptions every five years. Nearly all of the exemptions had a viable and defendable purpose at one time. We recreate the Joint Tax Review Committee that operated in the House and Senate many years ago.
  • Drop the assessment ratio from 6 percent to 5 percent on commercial and rental property.
  • Eliminate the corporate income tax, by cutting the rate by 1.25 percentage points per year over four years.

This package is not revenue-neutral. It’s revenue-negative. It lowers the state tax burden in the first year by more than $220 million, which reflects our belief that the tax code is unfair and that we are overtaxed in general.

We’re not kicking the can down the road. We intend most of these proposals to be implemented beginning in year one; the one exception is the business property tax rate, which is lowered over four years because of the impact to local governments.

The Republican Caucus plans to get these bills through the House quickly. But we realize this is the first step in a multi-year process. On behalf of the Republican Caucus, I am calling on conservative activists, tea partiers and anybody who believes in the Republican platform to help us on this journey. The legislative process can be messy and maddening, but if we are to live up to the call of our platform to create “a Tax Policy which promotes prosperity,” it will take time and effort on all of our parts. Changing government is not easy.

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