Print this Page

State Senators who spoke with FITS on condition of anonymity say that a comprehensive tax reform plan being prepared by S.C. Senator Tom Davis includes the “complete elimination” of the state’s individual income tax over a period of several years.

If so, this would be the first tax plan we’ve heard of in years that would actually create jobs in this ass-backward state.

It would also be another coup for the Beaufort Republican, who is pushing the policy envelope on a host of issues that matter to S.C. taxpayers.

First elected in 2008, Davis has quickly emerged as the legislative leader of the state’s reform movement. In that capacity, he has been working with several fiscally conservative Senators in drafting alternative legislation to the status quo tax policy currently being pushed by a group of Columbia insiders.

It’s a familiar role for the Beaufort Republican, who last year proposed a fiscally-conservative “alternative budget” that would have saved taxpayers hundreds of millions of dollars while actually increasing funding for core functions. Speaking of savings, Davis has also been working on legislation to establish a “Taxpayer Rebate Fund” which would enable lawmakers to route government “savings” back to taxpayers instead of spending that money elsewhere.

The proposals are all part of a comprehensive reform agenda that Davis and other lawmakers will begin introducing in December, when new bills can be pre-filed for consideration during the 2011 session of the S.C. General Assembly.

“We’re talking about two dozen bills – maybe more,” said a GOP Senator who has been working with Davis on his various reform proposals.

Reached by telephone Thursday, Davis said he wasn’t finished with his tax plan – but didn’t deny that its primary focus was income tax relief.

“It will be substantial,” Davis said of the income tax relief component of his plan.

“The quickest way to create jobs, raise income levels and attract capital investment to our state is to lower the individual income tax – which is what most small business owners pay,” Davis said. “We are a small business state, and if we want to materially expand our prosperity then we need to target our tax relief where it is going to do the most good.”

South Carolina’s top marginal rate of 7 percent is one of the highest in the nation, and it currently kicks in at less than $14,000 – well-below the current federal poverty level.

According to the S.C. Department of Revenue, 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, the vast majority of these companies and individual income earners file individual returns, not corporate returns.

S.C. Rep. Nikki Haley – the SCGOP gubernatorial nominee – has repeatedly referred to her tax plan as a  “small business income tax cut” on the campaign trail, but the truth is that her proposals would limit tax relief to a handful of large corporations. The vast majority of small businesses would get no relief, while little – if anything – would be done to slow the rampant growth of government in South Carolina.

Also, Haley’s “tax relief” would be offset (and perhaps even eclipsed) by her proposed grocery tax hike.

In 2008-09, the corporate income tax – which Haley wants to eliminate – brought in just $207.2 million to the state. After $60 million in refunds were awarded, the total revenue impact of the tax was just $147.2 million (or seven-tenths of one percent of the state’s $20.8 billion budget). By contrast, individual income tax collections accounted for $2.86 billion in FY 2007-08 (the most recent year for which data is available), or 14.1 percent of the total budget.

In targeting his tax cuts on that larger revenue stream, Davis said that he hoped South Carolina lawmakers would “commit ourselves in the broadest sense possible to the belief that the free market can invest resources and create jobs and wealth better than government.”

Obviously, that comment riled some in the Haley camp, but given the opportunity to criticize the proposals put forward by the GOP nominee Davis didn’t rise to that bait.

“I support Nikki’s corporate tax cut,” he said.

Asked if he felt Haley should be doing more to target tax relief to small businesses, Davis pointed to what he called Haley’s “consistent support for individual income tax relief” as a member of the S.C. General Assembly.

Sources also tell FITS that Davis will host a fundraiser for Haley later this year, although he declined to discuss the details of that event.

Needless to say, we enthusiastically embrace the notion of individual income tax relief as the best way to jump-start our state’s economy and lower its 19 percent “underemployment” rate.

If South Carolina politicians are serious about helping families and small businesses, then Davis’ plan is where the “walk” must match the “talk.”