S.C. Rep. Nikki Haley has proposed eliminating the corporate income tax as a means of stimulating economic growth in South Carolina – one of the first major policy initiatives to be offered in a shockingly “substance-free” 2010 gubernatorial campaign.

Obviously, we’re all in favor of the proposal – provided that other taxes aren’t raised in an effort to make up the difference.

Unfortunately, a legislatively-created panel has recommended a series of new tax hikes aimed at generating more revenue for state government coffers, despite the fact that the FY 2010-11 budget is the largest in South Carolina history.  Also, it’s odd that Haley would target the corporate tax, which makes up only a sliver of state revenue and doesn’t directly impact small businesses, the state’s primary economic engine.

According to the S.C. Department of Revenue, corporate income tax collections accounted for $268.6 million of South Carolina’s $20.3 billion budget in FY 2007-08 (the last year for which complete revenue data is available).  That amounts to a grand total of 1.3 percent of the state budget. By comparison, individual income tax collections accounted for $2.86 billion in FY 2007-08, or 14.1 percent of the total budget.  Obviously, that latter figure doesn’t include federal income taxes that helped pay for the “federal funds” portion of the state budget.

In 2002, S.C. Gov. Mark Sanford proposed eliminating the individual income tax over an 18-year period.  Unfortunately, after eight long years Sanford hasn’t even made a dent in the state’s 7 percent top marginal rate, which is assessed on any taxpayer making more than $13,000.

Because South Carolina relies on small businesses for job creation, lowering or eliminating the individual income tax would have a much more dynamic effect on job creation, income levels and expanded consumer activity than lowering the corporate tax.

Of the 68,738 full-time employers currently doing business in South Carolina, 97.5 percent of them are small businesses.  There are also 101,000 full-time self-employed South Carolinians.  Obviously, most of these companies and individual income earners file individual returns, not corporate returns.  That means they would get no relief under Haley’s plan – which would benefit only the largest corporations.


More relief is needed, and it needs to be targeted where it will do the most good for South Carolina taxpayers.

Having said that, we support Haley in her effort to keep this particular pot of money out of government’s grubby paws … we just hope she expands her scope and eventually proposes lowering the one tax that would actually create jobs and raise income levels in South Carolina – the individual income tax.