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Tax-cutting bills head to House floor
March 28, 2012
Tax-cutting bills head to House floor

By Seanna Adcox
Associated Press

COLUMBIA, S.C.—The House budget-writing committee advanced bills Tuesday that would cut personal income taxes and what small businesses pay on their profits in South Carolina.

The Ways and Means Committee tweaked the bill that collapses personal income tax brackets, so that poor residents wouldn't pay more. As it advanced last week, those with taxable income who now pay nothing would start paying, while those in the upper brackets would have gotten a break.

Democrats complained it shifted taxes to the state's poorest workers. Republicans came to the meeting prepared with an amendment that House Majority Leader Kenny Bingham said would fix the problem.

The House GOP did not intend to increase taxes on anyone, he said.

Under the change, all tax filers who pay taxes would get a modest break, expected to average less than $100 per filer, reducing state revenues by $78 million. The previous version had a price tag of $51 million.

"Under no circumstances will someone pay more," said Bingham, R-Cayce.

House Minority Leader Harry Ott called it a vast improvement and "true tax cut."

While noting he'd vote for it anyway, Rep. B.R. Skelton, R-Six Mile, questioned the need: "Are there no priorities in state government where $78 million could be better used?"

The other advanced bill would reduce the income taxes paid by small businesses from 5 percent to 3 percent over four years. Budget advisors estimate the cut would reduce state revenue by $60 million annually by 2015. The breaks go to businesses organized as limited liability companies, S corporations and sole proprietorships.

Ott and Bingham both said the hope is that small businesses will invest the additional money back into their companies to grow and create jobs, offsetting any tax loss.

But policy analyst John Ruoff of The Ruoff Group said a large percentage of the owners of such businesses are self-employed and unlikely to use the savings to hire people.

"It doesn't really do much to feed economic development," he said, suggested the money instead go to job training programs.

The committee passed over two bills that Democrats complained would blow holes in local governments' budgets, forcing them to raise taxes on other forms of property or drastically cut services.

One measure would cut the tax rate on manufacturing property from 10.5 percent to 6 percent, while the other would cut the rate on commercial and rental property from 6 percent to 5 percent. State budget advisers estimate those two bills would reduce revenue to cities, counties and school districts by more than $1 billion when both take full effect.

That's because property taxes pay for local services. As written, the measures would not send local governments any money to offset the loss.

Bingham said those need more work.

"Our intent has never been to saddle local government," he said.

Advocates of cutting the property taxes say it's about fairness to existing and smaller businesses, and simplifying the tax code. Large manufacturers who locate or expand in the state negotiate fee-in-lieu deals that cut their property taxes for years.

Ott said Democrats agree with the concept, but wants the state to step up and pay for it.

While Bingham said the committee will continue to work on the bills, postponing a vote Tuesday means they probably won't make it to the Senate before the crossover deadline.

The bills are among a seven-bill tax package that House Republicans say will simplify and flatten the tax code.

The bill streamlining personal tax income tax brackets mimics a proposal by Gov. Nikki Haley. She is also demanding that legislators begin eliminating the corporate income tax, saying that will help her lure jobs.

A measure to do so is among the House GOP Caucus' bills. But legislators appear to be putting a priority on cutting taxes for small businesses rather than corporations.

South Carolina's corporate income tax is among the nation's lowest, and under state law, multi-state and international companies pay corporate income taxes only on sales within the state.

© Copyright 2012 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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