SC

SC Lawmakers Returning To Address Tax Conformity

General Assembly pressed to provide permanent, comprehensive reform of “broken” tax code …

South Carolina state lawmakers will convene in the capital city of Columbia next week to address the issue of tax conformity.  A special session of the S.C. General Assembly has been called to deal with this issue – as well as a debate over whether to sustain or override a handful of vetoes from GOP governor Henry McMaster.

Clearly, that latter chore will not take much time …

Both the governor’s office and the state legislature are ostensibly under Republican control, although GOP “leadership” has not accrued to the benefit of South Carolina citizens or taxpayers.  Spending on government has soared, but income levels are stagnant, the state’s workforce is hemorrhaging and government agencies in the Palmetto State remain as dysfunctional as ever.

Hopefully little damage will be done during this upcoming special session …

As for tax conformity, this issue refers to the alignment of state and federal tax codes in determining how much money individuals and entities owe to the government.  Ordinarily, aligning these codes is a clerical process – achieved with little controversy or fanfare – however reforms enacted in December 2017 at the federal level have made this year’s conformity process far from routine.

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(Via Travis Bell Photography)

If lawmakers do nothing, they risk dramatically complicating the filing process – forcing South Carolinians to incur the expense of submitting federal and state tax returns based on two totally different tax codes.  Basically, filers would have to prepare a federal return calculating their income and liabilities based on the new code – and then recalculate those liabilities at the state level based on the old federal code.

Confusing?  Absolutely …

Failure to conform would also result in an estimated $130 million tax increase.

Of course, if lawmakers simply conformed to the federal code as they have done in the past – without accounting for the elimination of certain exemptions as part of the 2017 tax reform bill – they could have exposed state taxpayers to an even larger $253 million tax hike.

Either way, taxpayers would wind up paying more.

So … what should be done? 

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State senator Sean Bennett – a Republican from the Palmetto Lowcountry – has been at the center of legislative negotiations over tax conformity.

“There’s really no perfect way to conform to the federal tax code,” Bennett said this week.  “The argument I always made was we need comprehensive tax reform because the tax code is broken.”

We concur … wholeheartedly.

According to Bennett, whatever changes lawmakers ultimately wind up enacting should be viewed as a “one-year solution.”

Several compromise plans have been introduced to mitigate the potentially adverse impact of federal tax reform on state taxpayers, most of them revenue neutral proposals.  The original House proposal skewed the benefit more toward businesses, while the original Senate proposal skewed it more toward individual taxpayers.

Neither plan was approved prior to lawmakers adjourning in the spring, however.

The latest compromise would add a $1,525 personal income tax exemption as well as a state tax deduction for dependents in the amount of $4,110 – with an additional $4,110 for each child under the age of six years old.  Obviously, that would represent a boon to families with small children.

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(Via Travis Bell Photography)

The top two Democrats running for statewide office in South Carolina have been beating the drum on tax conformity in anticipation of next week’s gathering of lawmakers.

“It doesn’t matter whether you think the changes the Republican Congress made to federal tax law were a good idea or a bad idea,” said James Smith, a twenty-year member of the S.C. House and the Democratic nominee for governor of South Carolina. “The fact is that they created a problem for South Carolina taxpayers, so we have to make some hard decisions.”

His running mate Mandy Powers Norrell , who is also a member of the House, agreed …

“As with so many things, this is not a matter of big government or small government,” Norrell said. “This is about smart government.”

The issue of tax conformity was raised months ago by former GOP gubernatorial candidate Catherine Templeton, who challenged lawmakers to fix the state’s tax code during the legislative session.

“If they do nothing, it will result in state government retaining one billion dollars over five years,” Templeton said at the time. “That means the legislature will get to spend over $200 million of our money every year instead of allowing us to keep it in our pockets and do with it as we see fit.”

We look forward to seeing lawmakers address this issue next week in a way that provides maximum relief where it is needed most –  middle income earners who drive the state’s consumer economy.

Given South Carolina’s stagnant incomes, shrinking workforce and heightened exposure to global macroeconomic headwinds, lawmakers cannot afford to make things any harder on those whose marketplace participation keep our economy going.  This is why we have also called on lawmakers to return every penny of an unexpected $177 million budget surplus from the previous fiscal year to taxpayers.

Let’s hope they heed our advice on both scores …

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