Tax Policy

Proposed in 2014 Legislative Session

Making it easier for Counties to impose additional taxes (Filed 1/14/14)

S.911 would make it easier for counties to impose an additional Education Capital Improvements Sales and Use Tax by removing the requirement that counties collect at least $7 million in state accommodations taxes before imposing the education sales and use tax. This bill represents yet another education improvement effort based on the logic that more funding will improve academic achievement. We have demonstrated before that this is not the case, more funding is not sufficient to improve academic outcomes.

Related:  H.4512 S.940

Raising the Gas Tax (Pre-filed 12/17/13)

S.891 would increase the current sixteen cents per gallon gas tax by two cents each year starting in July 2014 until the tax has doubled to thirty-two cents per gallon. Raising the gas tax will prove harmful to both producers and consumers. Producers will absorb most of the costs in the short run (if they could raise prices on consumers to pay for the tax, they would already have higher prices), and these new costs which lower profitability will reduce supply thereby driving up costs for consumers in the long run.

Further, the presumed purpose for the new funds generated by this tax increase is to repair the state’s crumbling infrastructure. New funds alone won’t solve this problem; however, if South Carolina wishes to improve the state of its infrastructure it first has to address the incentives to prioritize new construction over repairs that come with accepting federal funds.

Related: H.4563 would increase the current sixteen cent per gallon gas tax by five cents a year for the next three years, leaving South Carolinians with a gas tax of thirty-one cents per gallon when all is said and done. The bill would also require the Department of Revenue to adjust the gas tax twice a year based on the change in the price of gas, but restrict the gas tax from exceeding the average gas tax charged in North Carolina and Georgia. South Carolina has one of the lowest gas taxes in the nation. Having the lowest taxes in the nation should be our state’s goal, not provide an excuse to raise taxes.

Eliminating the Individual Income Tax (Pre-filed 12/17/13)

S.901 would gradually eliminate South Carolina’s individual income tax over a 5 year span by reducing each bracket’s rate by 1.4 percent each year starting in 2015 until all brackets reach 0 percent. Currently, there are 6 brackets of income that are taxed at higher rates as the level of income rises. At a top rate of 7 percent on income just over $14,000, South Carolina has the highest marginal tax rate on the lowest level of taxable income in the Southeast (third in the nation), and the 13^th highest income tax rate in the nation.

South Carolinians would see substantial tax relief right away starting in 2015 as roughly $570 million would be kept in the pockets of citizens rather than redistributed to the state coffers (the state is collecting roughly $2.8 billion in individual income tax for the 2013-14 fiscal year, and rates will be cut 20% each year starting in 2015). Thus, in the 2019 fiscal year once the tax is eliminated completely, South Carolinians would be able to keep nearly $3 billion that would have otherwise gone to lawmakers so they could decide how to spend it. This money left in the private market would give people the power to save, invest, or spend this money how they choose and give businesses the opportunity and incentive to hire more people and provide higher-paying jobs. Moreover, there are plenty of state agencies and programs that can be cut (i.e. Dept. of Commerce, Dept. of Agriculture, and many administrative functions of the Depts. of Education and Health and Human Services) in order to make up for the cut in income to the government – less income, less spending.

And since many businesses pay these individual income tax rates rather than the corporate tax rate, eliminating this tax is necessary to compete with other states that are lowering their taxes. South Carolina simply can’t compete with other states with its current “economic development” strategy of high taxes for most, and hand-outs and incentives to specific companies they choose to “recruit.” Currently, 7 states don’t have a personal income tax, and in the 2013 legislative year, 18 states—many in the South and Southeast, lowered taxes. That would include North Carolina, which just cut its personal income tax rates from 7.75-6 percent to a flat rate of 5.75 percent. Under S.901, South Carolina’s top tax rate in the first year of rate decreases would be 5.6 percent—slightly lower than our northern neighbor’s.

In a nutshell, eliminating the individual income tax means more money in citizens’ pockets, more opportunity for job creation, smaller government budgets, less government intrusion in the economy, less government power in general, and when all combined together, more freedom for South Carolinians.

A 3.5 Percent Income Tax (Filed 1/16/14)

H.4511 would replace the state’s current individual income tax, which has 6 brackets with a top rate of 7 percent for income over $14,000 with a flat tax rate of 3.5 percent. The bill would also allow tax forgiveness credits on lower incomes—gradually decreasing from a 87.5 percent credit for incomes below $5,000 to a 12.5 percent credit for incomes $30,000-$35,000. While it would almost literally give half of the tax relief that S.901 (total elimination of the income tax) would, halving the current tax rate would still provide substantial relief to many South Carolinians, and certainly would provide a much bigger tax break than the governor’s proposal to do away with only the 6 percent tax bracket.

Sales Tax for Internet Retailers (Pre-filed 12/17/13)

S.870 would make internet retailers who make at least $10,000 from South Carolina consumers in a given year responsible for collecting and remitting sales tax on these purchases. Retailers who meet these criteria would also have to obtain a retail license. However, this bill exempts retailers that own, lease or utilize a distribution facility in the state—In other words, Amazon – and any other future companies the state’s elected officials choose to exempt from the law in order to attract their business – would be exempt from collecting sales tax.

If the sponsors of this bill were serious about “broadening” the tax base, the bill wouldn’t carve out a special exemption for retailers like Amazon—which the state doled out tens of millions of dollars in incentives and gave a sales tax exemption to just to bring the company to our state. Instead, S.870 would keep Amazon’s special break and force other internet retailers—whether they’re stationed in Maine, Oregon, Hawaii, etc. – to collect and remit sales tax to South Carolina and obtain a state retail license. This doesn’t appear to be a real attempt at creating tax fairness—it appears to be an attempt at both safe guarding one company at the expense of others and creating another revenue stream for state lawmakers.

Allowing Localities to Increase Property Taxes

H.4361 would allow localities to impose property tax increases above the yearly statutory cap if the revenues are to be used to make improvements or repairs to existing school facilities. Relatively poor South Carolina citizens are already having their state taxes constantly increased, and the cap on local property taxes already has seven other exemptions. The legislature shouldn’t be seeking to erode what little legal protection South Carolina taxpayers still have.

Proposed in 2013 Legislative Session

Eliminating Taxes on Capital Gains

S. 57 would eventually eliminate capital gains taxes on trusts, estates, and individuals by gradually increasing the percentage of capital gains allowed to be deducted. Currently at 40 percent, the deduction allowance would rise to 100 percent in 2022 and thereafter. This bill recognizes the importance of capital mobility to a functioning market, and it would make South Carolina an attractive state in which to invest. However, the General Assembly should go further and eliminate all income taxes, not just the ones on gains derived from capital.

Transferring Motor Vehicle Sales Tax Revenues

H.3412 would require that 50% of sales, use, and casual excise taxes collected from the sale of motor vehicles be put into the Non-Federal Aid State Highway Fund (NFASHF) in 2013-2014 and 2014-2015, and 100% of the revenue from these taxes be put in the NFASHF for years thereafter. Currently the revenue from these taxes is divided between the General Fund (GF) and the Education Improvement Act Fund (EIAF). On top of the transfer of dedicated funds, the bill requires that the effect of the EIAF be kept neutral; meaning new monies from the GF will have to be found to keep the EIAF at the same level of funding.

The fiscal impact statement for the bill found that in in Fiscal Years 2013-2014 and 2014-2015 the GF would be deprived of $41.4 million in revenue, and the EIAF would be deprived of $10.35 million each year. For all years afterward the GF would lose $82.8 million and the EIAF would lose $20.7 million annually. Since the General Assembly uses almost every dollar of revenue they receive each year, expect to see increased taxes, fees, or borrowing by the state to cover the $100 million lost from the GF if this bill passes. If the legislature feels there is an increased need for road maintenance in the Palmetto State, it should first transfer funds being used for controversial infrastructure expansion before raiding the GF.

Imposing a 62.5% Gas Tax Increase

If H. 3498 were to pass, the gas tax would increase from 16 cents to 26 cents per gallon and would change based on increases and decreases in the price of gasoline. Revenue raised from this increase would be divided amongst the counties based on land, population and roads. As most South Carolina drivers have noticed, price of gasoline has risen for 32 days straight as of 2/19/13, and this increase would add to this burden for poor and rich drivers, alike.

To mitigate this tax increase, the bill also proposes a $26 tax credit for 2013 and $56 tax credit for the next two following years for each SC-registered vehicle a person owns. However, this credit would not be enough to balance out the tax increase for many drivers, and this bill would disproportionately hurt drivers who have to commute long distances to work and back. Furthermore, in a broader sense this tax credit prompts the same questions as all other tax credits: Why give a tax credit instead of just lowering the tax? Why add an unnecessary complication?

Allowing Reasonable Income Tax Brackets

would enact the “Taxpayer Inflation Protection Act”, deleting the provision limiting the inflation adjustment to one-half of the actual inflation rate and the overall four percent limit on total inflation adjustment. Giving our state more leeway to raise the tax brackets (not the rates) would be a good step in modernizing our tax code. South Carolina has one of the most outdated tax brackets in the country with a top income bracket of just over $14,000 at 7%. If our tax brackets had been properly adjusted for indexed for inflation since 1959, the highest bracket would be much higher and less of the tax burden would be put on our states poorest.

Simplifying Income Tax Brackets

H.3266 would eliminate the four, five, and six percent income tax brackets and implement just three brackets: Zero percent for those making $0-$2,850, three and three-quarters percent for those making $2,850-$14,250, and seven percent for those making over $14,250. Although this bill goes further than the governor’s proposal of just eliminating the six percent bracket, as we noted in the commentary above and in this article on last year’s governor tax proposal(s), legislation would have to go much further than this to truly relieve the tax burden on South Carolinians and cut off the flow of taxpayer money to politicians for them to spend at their will.

Eliminating Corporate Income Tax

H.3264 would eliminate South Carolina’s corporate income tax over a four year period, which would be a great step towards making South Carolina an economically competitive state. Legislation like this would best be coupled with the elimination of taxpayer-funded incentives to businesses which put small businesses at a disadvantage and haven’t proven to boost our state’s overall economy.

Fuel Tax Increase

H.3645 would immediately increase road taxes and the user fees on gasoline and diesel by 31 percent, and would thereafter require that those taxes and fees increase each year with inflation (based on increases in the Consumer Price Index—not increases/decreases in the price of fuel or costs of highway maintenance).  Increases would be limited to 1.5 cents per gallon in a single year, and all new revenue created by the increases would have to be credited to the State Highway Fund.  This bill would increase the already high price of fuel for South Carolina drivers.  Oil companies receive much of the blame for high gas prices, but while Exxon Mobil makes about 7 cents for each gallon of gas it sells, the state government would receive 21 cents for each gallon sold under the proposed increase.  Currently, South Carolina’s per gallon fees are among the lowest in the nation.  They should stay that way.

H. 3640 would increase the user fee on gasoline and diesel fuel to twenty-once cents per gallon while also stipulating that the road tax be increased in the same manner.