South Carolina needs bold tax reform

South Carolina needs bold tax reform
October 04 18:31 2017 Print This Article

For the second year in a row, the South Carolina House of Representatives has established a bi-partisan special committee to investigate tax reform proposals. The 2016 meetings did not result in any proposed legislation.

The committee met last week and heard a proposal by former South Carolina Department of Commerce chief economist Rebecca Gunnlaugsson, working on behalf of Palmetto Promise Institute. Her plan called for removing the existing sales tax exemptions and lowering the current 6% sales tax rate to 3%. The Gunnlaugsson plan also called for reducing South Carolina’s 7% personal income tax rate, the highest in the Southeast, to 5%. She revealed that the lower income tax rate would only save a family with an income of $100,000 about $76 per year.

The annual State Business Tax Climate Index compiled by The Tax Foundation consistently ranks South Carolina in the bottom third.  The 2017 index shows the state 37th, with the 7% personal income tax ranked 41st.  There are nine states which have no personal income tax.

For tax reform to be effective, it has to result in a large increase in take-home pay in an economy which is roughly 70% consumer-driven.  When households realize a big increase in disposable income, they usually put it back into the local economy.  That means more people dining at restaurants, hiring contractors and buying big-ticket items like cars and appliances.  Looking back at the tax cuts signed into law by President George W. Bush in 2001, the initial tax rate reduction was only 0.5%.  It resulted in almost no economic growth during the first two years.  When it was fully implemented in 2003, individual taxpayers enjoyed a rate reduction of between 3% and 4%, and the economy flourished until the 2008 housing crisis kicked in.

The South Carolina House has a bold tax plan already filed – the South Carolina Fair Tax Act (H-3317).  It would immediately repeal the state income taxes and replace the revenue with a broader-based 6% sales tax.  A document prepared by the South Carolina Revenue and Fiscal Affairs Office revealed that only 35.5% of the nearly $155 Billion in personal consumption in 2014 was taxable.  The South Carolina Fair Tax Act only allows sales tax exemptions for business consumption and the purchase of used goods.

If we want to experience great economic growth, stronger business competitiveness and increased median household income (where South Carolina consistently ranks in the bottom 10), we need bold tax reform.  The South Carolina Fair Tax plan would make South Carolina’s economy the envy of America.